South Africa has plenty of energy available. The problem is, we don’t have enough power.
Some of the country’s biggest businesses have been queuing up to sell power to Eskom. The potential power on the table — all 5 000MW of it — is almost equivalent to two Koeberg-sized nuclear power stations.
To put this into context, the rolling load-shedding that has been causing so much distress to so many results from power shortages of about 3Â 000MW.
If you scratch the energy sector, speaking to players large and small, a picture emerges of any number of players who are keen to supply energy to Eskom from sources as diverse as hydro, diesel generators, biogas, biomass, wood and solar.
The problem, they say, is that monopolist Eskom is prepared to pay only half of what it charges for electricity.
Investors say they also need certainty. They could build capacity now at relatively high cost only to find Eskom refusing to purchase their power when the crisis eases.
These alternative sources are generally more costly than coal-fired power, but many are kinder to the environment. Another advantage is that it would be relatively quick to construct the necessary infrastructure, unlike the 10 years it takes to construct a large power station.
Much of this alternative electricity is being produced anyway, as part of industrial processes as diverse as sewage processing, sugar refining and paper-making.
It appears that much of this electricity could have been fed into the national grid by now, but this has been held up by red tape, price disputes and reluctance to sign on new providers.
Large projects involving hundreds of megawatts of electricity are under discussion. Paper giant Sappi, for instance, is keen to build 150 megawatts of capacity to supply its own needs and that of the grid. Sappi’s electricity is produced as part of the paper-making process.
There is also scope for relatively small-scale renewable energy projects to make a dramatic contribution to the grid. Government has been working on an approach intended to encourage small users of clean energy to supply the grid. As is the case in a host of countries internationally, suppliers of green energy are paid a special feed-in tariff (FIT) to encourage the development of new, cleaner forms of energy.
One source says about 5 000MW could be generated through the use of FITs.
There were hopes that a new dispensation to encourage FIT’s would be announced early this year and that it would contribute towards diversifying energy supply from Eskom’s clutches but, the source says, the process remains in a muddle somewhere between the regulator and Eskom head office, with signs that the provision of renewable energy may also be controlled and monopolised by Eskom.
Legally, electricity producers may only sell to Eskom or to municipalities distributing electricity.
The relatively large projects under discussion are known as co-Âgeneration. This power comes from a range of sources. Tongaat-Hulett and Illovo produce electricity from sugar bagasse, for example, while four of Sappi’s eight mills produce electricity. Methane can be collected from sewerage works, and small businesses can run diesel generators. Pooling all of these sources could potentially save the cost of a new power station.
Even Massmart produces electricity, with Makro stores in the Western Cape running generators for their stores even when Eskom power is available. This reduces demand on the national grid and helps avoid load-shedding, and Eskom subsidises the company for this. Massmart CEO Grant Pattison told I-Net Bridge that he would like all Makro stores to run generators in this way.
Sappi spokesperson Andre Oberholzer said the company will produce more than 50% of its own energy requirements at its mills, following an expansion project in the middle of the year. “The co-gen process has been frustrating and has taken a very long time. In fact, we would have been ready to implement some projects had the co-gen process already been finalised,” he said.
Co-generation has been discussed for the past few years, with little progress. The sticking point until now has been the price. Although much secrecy surrounds the proposed pricing for co-generated power, the price has been based on the avoided cost to Eskom of generating coal-fired electricity. Because Eskom produced the cheapest electricity in the world, and had not invested in new stations until now, there was not much scope for private sector production, said Frost analyst Cornelis van der Waal.
But steep increases have been granted for this year and Eskom is making new investments. “The 14,2% increase in electricity tariffs is moving in the right direction,” he said, explaining that the higher prices made co-generation more viable for companies. “We’ve seen that a lot of people are willing to pay extra for electricity, especially industry. There is a need for increased electricity prices,” said Van der Waal.
But electricity regulator Thembani Bukula of Nersa says that prices agreed on for co-generation would also take into account the cost of production. The tariff Eskom is allowed to charge its consumers also includes a “reasonable return”, which is currently 8%, but Bukula says co-generators would be granted a higher return. At present, he said, the price of co-generation “does not look prohibitive”. FITs, which are associated with renewable energy, are still under discussion.
Bianca Belinska, from Nersa, confirmed that the regulator is considering Eskom’s proposal whereby 50% of the renewable energy required by the country would be supplied by Eskom, and the remaining 50% would be bought from independent producers by Eskom. South Africa needs to source 10Â 000 gigawatt hours of electricity from renewable sources by 2013. Currently, this is being modelled on a mix of wind and concentrated solar power, she said. She said discussions were continuing between government, the regulator and Eskom on these issues and all proposals were being considered.
But Bukula said Eskom’s proposal had not yet been formally presented to the regulator. He expected Eskom to present its proposal as part of the public participation process for the regulator’s assessment of FITs.
Electricity from co-generation projects could be added to the national grid in 2009, said Bukula, and Eskom is expecting to tie up agreements by June. So far, just one agreement has been signed, with Sasol.
Co-generation agreements could be bad news for Amatola Green Power, which buys excess electricity from the sugar companies, adds this energy to the national pool, and then sells it to clients. Amatola supplies electricity from renewable energy and has a temporary licence which it hopes will be formalised soon. If a co-generation agreement is signed with Tongaat-Hulett and Illovo, Amatola may be competing with Eskom to buy up the electricity.
The example of Kerala, India, offers an even quicker solution, according to businesswoman Sally Hall. She said Kerala’s equivalent of the Industrial Development Corporation had offered financing to hundreds of households and small businesses to buy diesel generators, which steadily fed power back to the national grid with a maximum output of 10kW in peak time. No tenders had been put out, but the Kerala state electricity board had advertised the rate it was prepared to pay for power. The generators were paid back over five years, while the return offered was better than a bank deposit and included a 30% profit. The programme was rolled out in three months, Hall said.
An incentive programme for solar water heaters could significantly reduce demand, as the equivalent of a large power station (2 000MW) is used to provide hot water to the domestic sector alone. Once the effects of co-generation, renewable power and reduced demand through solar heaters are pooled, there should be no power crisis.