Industry welcomes private power station

    Energy Intensive User Group chairman Mike Rossouw. Picture: FINANCIAL MAIL
    Energy Intensive User Group chairman Mike Rossouw

    THE 600MW coal-fired independent power project being proposed by the Exxaro Resources-GDF Suez joint venture has been welcomed by Energy Intensive User Group (EIUG) chairman Mike Rossouw, whose members consume about 45% of the power generated in South Africa.

    Mr Rossouw says the project is being put forward following a request from the Department of Energy in December last year for additional coal base-load power.

    “That’s positive because it shows clearly that for the first time government is following up on its stated policies and is actively looking for new players in the power generation space,” he says.

    “It’s also positive in confirming that coal will continue to be part of the country’s energy future.”

    Greater involvement of independent power producers (IPPs) in South Africa’s power-generating plans is one of the cornerstones of the EIUG’s position on how South Africa’s energy crisis should be solved, as well as dealing with Eskom’s concerns over the security of its future coal supplies.

    Previous attempts by companies proposing to supply power to Eskom through IPP projects have frequently been stymied by red tape and an apparent lack of commitment from the government.

    Two pioneering IPP groups — CIC Energy and Ipsa — paid a heavy price because of foot-dragging by the government on their projects.

    Ipsa was among the first independent power producers to respond to South Africa’s power crisis and brought its NewCogen plant, near Newcastle in KwaZulu-Natal, into operation in October 2007.

    It was forced to shut the plant in September 2008 because of delays in getting Eskom to sign a power purchase agreement, which was eventually put in place only in August 2010.

    In 2009, TSX-listed CIC Energy was ready to start construction of a 1,300MW coal-fired power station in eastern Botswana but was unable to negotiate a power purchase agreement with Eskom and was eventually taken over by Jindal Steel & Power, an Indian company.

    Mr Rossouw says the EIUG believes another key step in meeting Eskom’s coal requirements is for the government to play a facilitating role in establishing a black economic empowerment coal co-operative.

    “Coal projects require long-term investments, so it makes sense to consolidate the small players into a co-operative that can secure finance,” Mr Rossouw says. “This also avoids the current unsustainable arrangement of Eskom trying to deal with a plethora of small, uneconomic operators.”

    Mr Rossouw says the EIUG believes Eskom and government policies should not demand any more from the current unsustainable, small BEE coal operators. He also stresses that the government should not introduce any policy aimed at capping coal prices or forcing the allocation of coal.

    “That will have the exact opposite effect of causing prices to rise and supplies to dry up.”

    Mineral Resources Minister Susan Shabangu announced in January that coal had been declared a strategic resource.

    It is widely believed Eskom was the driving force behind this move because of its concern about the security of future coal supplies for its power stations.

    This is despite repeated assurances from the mining industry and groups like the South African Coal Road Map steering committee that the country has enough coal reserves to meet domestic and export requirements.

    Eskom’s power stations burn a lower grade of coal than the variety that is exported.

    Until recently, Eskom held a virtual monopoly as the sole bulk consumer of that grade of coal, which could not be exported. That changed when India embarked on a programme to build a series of large coal-fired power stations that will burn the same coal.

    India cannot meet its own forecast demand from its domestic coal industry and is now looking to import a lower grade from South Africa, thus posing a direct competitive threat to Eskom.

    The topic was raised during hearings last year in the run-up to publication of the African National Congress’s State Intervention in the Mineral Sector document.

    In their submissions, mining groups such as Anglo American stressed the critical role of the export market and pointed out that curtailing exports would damage the coal business and negatively effect Eskom.

    The reason is that the higher revenues from export sales help make viable the development of mines to supply the lower-grade and far cheaper coal that Eskom needs. The most efficient way to produce the coal is from multi-product mines like Exxaro’s Grootegeluk operation.