SA needs co-generation to avoid power crisis

South African industry needs to tap its 2 000MW co-generation potential to avoid another power crisis, but is facing pricing and regulatory hurdles, an industry official said on Wednesday.

Dave Long, a former regional manager at paper maker Sappi, said that despite a battle lasting years the industry has not been able to sell any co-generated power so far.

Co-generation involves production of electricity from steam, heat or other energy sources as a by-product of another industrial process.

“This is the fourth year that we are trying for something to happen ... we have the assets but we have no agreements in place yet,” Long told a co-generation conference in Johannesburg.

He said Sappi is generating more than 800MW worldwide and has signed power purchase agreements with utilities globally.

The paper maker has invested R100-million in power generation in South Africa alone but has yet to sell its first power to Eskom, even though the utility is battling to meet fast-rising demand.

“We have idle plants, we are losing money because we have invested in an opportunity that does not exist,” said Long, who is now an independent energy consultant.

Eskom has been rationing power since early last year when the national grid nearly collapsed, forcing mines and smelters to shut and costing the country billions of dollars.

The economic slowdown has given the utility a breather with industry temporarily suspending parts of its production, but Long said the risk of another crisis was “looming large”.

“Most of the smelters and the big electrical loads that have been off for the last nine months will be back on by the first quarter of 2010 ... we expect some tight time to return come next year,” Long said.

Regulatory deadlock
He said Sappi, like other potential producers, has been participating in the various bidding processes announced by the government, but all ended in a deadlock and empty promises.

Long said co-generation needed incentives such as the renewable energy feed-in-tariff (Refit) or subsidies the country introduced for power from wind, solar and hydro to urge industry to invest in its own power rather than buy it cheap from Eskom.

An integrated regulatory framework and purchase deals that would fit smaller co-generation projects were also key, he said.

His comments were backed by the head of Eskom’s single buyer office, Yousuf Haffejee, who said that co-generators needed to be given a market to trade their power.

“We have a monopolistic market in South Africa with power either produced by Eskom or bought by Eskom ...
we need to do something and we need to do it quickly,” he said.

The government recently changed the rules by which it has become the authority that will decide which sources of energy—be it Eskom’s own generated power, renewables, imports or from independent power producers—will be part of the energy mix.—Reuters

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