Low energy reserves have forced South Africa to ease up on air conditioning and find new ways to conserve electricity. But in the little town of Bethlehem, in the Free State, construction is under way to insulate the town’s inhabitants from South Africa’s electricity crunch.
Renewable energy in the form of hydroelectric power will reduce Bethlehem’s reliance on the national grid. When its hydro plant comes online early next year it should provide 7MW of electricity, equivalent to 20% of the town’s energy needs.
Dutch energy company Nuplanet first contemplated the project in 1999 and began construction in December last year on the Ash River. The plant will cost about R70-million to build.
Hydro stations are not always viable because South African rivers tend to run dry during winter, but an agreement between the South African and Lesotho governments guarantees the flow of the Ash. This is part of the Lesotho Highlands Water Project, which provides a constant flow of water from Lesotho to Gauteng.
The Bethlehem hydro project is one of several independent power producers that the government hopes will provide 30% of future electricity generation capacity.
While experts say there are opportunities in small hydroelectric power generation, most large-scale independent production is expected to come from non-renewable or “dirty” energy, such as gas turbine power.
One of the challenges facing independent renewable energy producers is the problem of long-term financing and finding a buyer, said Yaw Afrane-Okese, the manager of renewable energy at the National Energy Regulator of South Africa.
South Africa’s 10 hydrostations produced almost 0,4% of the country’s electricity in 2004, according to the regulator, and Eskom produced 97% of this hydro power.
“South Africa does not have many big hydro resources, so the focus is on small hydro,” said Afrane-Okese. Small hydro is defined as less than 10MW.
“The advantage of hydro power is that it has a relatively short lead time,” he said. “The electricity may not have to go on to the national grid because one can place the station close to the need,” he added.
The national regulator is developing a framework for renewable energy, which it hopes will be completed by the end of the year.
“The key challenge is to get a good price for the electricity that [hydroÂelectric stations] produce,” said Afrane-Okese.
The current electricity tariff reflects the sunk costs that Eskom has previously invested in electricity generation. It is also difficult for hydro power producers to compete with coal-fire energy producers because South Africa has relatively cheap coal. Yet the regulator expects the price of small hydro energy to decrease over time as the price of technology drops, according to Afrane-Okese.
The renewable energy framework will address this problem by providing a feed-in tariff or a subsidy to reduce the difference between the market price of electricity and the cost of production for renewable energy producers.
Another important factor is to ensure that the power goes on to the network, he said.
The 2,5MW Friedenheim Hydro plant was built in 1951 on the Crocodile River near Nelspruit and primarily supplies an irrigation project in the area. Because the capital costs were sunk a long time ago, the plant can afford to sell surplus electricity to the municipality at 15,2c per kWh. This is 12% less than Eskom’s cost to the municipality.
Plant manager Koos van Rensburg said that if Eskom could help the power station build a pumped storage facility or balancing dam, the hydro plant could supply the national grid during peak times.
Pumped storage involves pumping water to a higher location during times of low electricity demand so that it can be used to generate extra electricity during times of peak demand. A balancing dam would also enable the station to supply more electricity during peak times.
Nuplanet MD Anton-Louis Olivier said the Bethlehem project was financially viable because of the carbon emission credits that the company will be able to sell to a Scandinavian power company.
These credits are traded under the Kyoto Protocol, which came into force in South Africa in February 2005. The protocol commits developing countries to reducing greenhouse gas emissions. It allows companies that do not reduce emissions to buy emission credits from projects that reduce emissions in developing countries.
The credits will effectively raise the returns of Bethlehem’s electricity by about 6c. The company plans to sell electricity to the municipality for about 20c per kWh.
However, the electricity from the hydroelectric plant is still too expensive to sell on to Eskom’s national grid, which might net Nuplanet less than 10c per kWh.
But Olivier foresees that when Eskom begins to build new power plants and recommission mothballed stations, the cost of borrowing R90billion will probably increase its price. If the electricity tariff rises to about 30c per kWh, it will be viable for small producers to sell on to the grid.
“Here and there, smaller generators are starting up to exploit local opportunities, but that does not create a viable, independent power producer structure,” he said, predicting that more producers would enter the market when prices rose.