Eskom says power project costs to rise

Eskom said on Tuesday costs for its two new power plants had risen on the back of volatile commodity markets, but they would be completed on time.

Spokesperson Fani Zulu said costs for the Medupi power station had risen to R100-billion from previous estimates of R84-billion. Costs for Kusile were now estimated at R111-billion, up from previous forecasts of R80-billion.

“If there was a link to commodity prices, you see the move in the contract value ... equally, some of the figures have changed from previous estimates after we signed the contracts,” Zulu said.

He said that while Eskom was now locked in contracts, these would not protect it entirely from price volatility going ahead.

Only the Tubatse hydro power plant would be delayed because it was not required urgently as energy demand is expected to grow at a much slower pace owing to economic slowdown.

Medupi and Kusile are the first greenfields coal-fired stations South Africa is building in more than two decades.

They are meant to fill a chronic power shortage in the country, which led to a near-collapse of the national grid in January last year and cost the biggest economy in Africa billions of dollars.

Zulu said Medupi, with a total planned capacity of 4 800 megawatts (MW), was still on target to have its first unit commissioned in the first half of 2012, followed by other five units in eight-month intervals.

Kusile is expected to have the same capacity, with the first 800 MW unit seen completed in 2013.

But while there is no change to the two power stations, Zulu said the utility had decided to postpone the 1 520 MW Tubatse station because growth in energy demand was slowing due to the financial crisis which has forced some companies to cut output.

He said all the other projects would bring the reserve margin or spare capacity to an acceptable level in the meantime, and cater for demand growth in the next few years.

“If we continue with Tubatse, we get into a high excess capacity situation, so we decided to move it to a later date,” he said, but added that no date has been finalised yet.

Zulu dismissed concerns that Tubatse could be needed earlier in case there was a delay to one of the other projects.

“We’ve done the necessary calculations, we are comfortable with it,” he said.

Eskom previously expected demand for energy to grow by 4% each year, based on a 6% gross domestic product growth forecast.

South Africa’s economy is now expected to grow 3% in 2009, down from 3,7% last year.
Analysts say they see energy demand growth dropping to about 2%, while the utility said it could even stagnate in the next year or two. - Reuters

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