Installed gensets vs building new peaking plants


Electricity demand response services company Premium Power has indicated that it will oppose a licence application for two new open-cycle gas turbine (OCGTs) being procured under a much-delayed Department of Energy (DoE) ‘Peaker Project’ scheme, arguing that the capacity is not required, that the procurement process is flawed and that there are lower-cost alternatives.

Premium Power director Mark Pickering says that Eskom should rather purchase capacity from the “thousands” of standby generators that have been installed across the country, describing such a model as “more flexible” and “cheaper than the OCGT plants, which he estimates will cost R8-billion to construct. By 2008, it was estimated that some 3 500 MW of standby capacity had been installed across the country.

The objection will be made at the National Energy Regulator of South Africa (Nersa) public hearings on July 13 into applications for generation licences for a 670 MW OCGT north of Durban and a second 335 MW facility, which is proposed for the Coega industrial development zone, in the Eastern Cape.

The two peaking projects, known as the Avon and the Dedisa respectively, are being developed by the Suez-Inkanyezi consortium, which is led by GDF Suez, of France.

The developers expect Avon to produce 43 000 MWh during its two-month operational period in 2013, but for sales to climb to 255 000 MWh/y from 2014 onwards. The 335 MW Dedisa plant should be operational by the end of July 2013 and produce 53 000 MWh by the end of that year. From 2014 onwards, the developers expect the plant to produce at a yearly rate of 127 000 MWh.

But Pickering argues that Eskom peaking projects approved during the protracted period between 2004, when the peaking independent power producer (IPP) project was endorsed by Cabinet, and today are sufficient to address South Africa’s immediate peaking capacity requirement.

Besides the initial development of 1 000 MW of OCGT capacity at Ankerlig and Mossel Bay, Eskom had subsequently doubled the capacity of those plant, which met the country’s “original target” for peaking capacity. The utility had also moved ahead with the construction of a further 1 352 MW of peaking capacity in the form of the Ingula pumped-storage scheme, which should be commissioned by April 2013.

Therefore, Pickering argues that the original rationale for the Peaker Project has fallen away and the DoE should not have pursued negotiations with the consortium, which he argues was “disqualified” from the original procurement process.

The DoE’s predecessor, the Department of Minerals and Energy initially selected an AES-led consortium as its preferred bidder, but negotiations were terminated in April 2008. A month later, talks were launched with Suez-Inkanyezi, which was the only other respondent to the DoE’s request for proposals.

The projects have been included in the Integrated Resource Plan, which was promulgated last year, but Pickering argues that the absence of “any competitive bidding process” has increased the risk that the consumer will pay over the odds for capacity that “is probably not required”.

An alternative could arise, Premium Power argues, from the gensets that have been installed at industrial and commercial sites through a commercial arrangement whereby Eskom compensates the owners for making capacity available during critical periods, as well as for the cost of the diesel consumed.

“This approach is widely used in Australia, Europe and the US,” Pickering says, noting that in the UK, the National Grid has 2 000 MW of “dispatchable distributed standby diesel gensets under contract”.

Frost & Sullivan business unit leader for energy and power Cornelis van der Waalagrees that South Africa should interrogate all available options to inject next capacity into the South African grid, including the use of standby power.

He says that investors in such schemes would be only too happy to have a new mechanism for recouping their investment and suggests that an audit should be conducted into the installed base and how it could be liberated in such a way as to reduce Eskom’s capital expenditure and relieve tightness in the system.

However, because of the current tightness Van der Waal also believes that all options should remain open and that the focus should instead be on removing the current regulatory and legislative obstacles to investment by IPPs.

“Funding should go to where it is most needed. There is an urgent need for investments into renewables, into energy-efficiency-type initiatives, as well as any other programmes that can make a difference in the relatively short space of time to reduce demand or increase capacity,” he says, adding that the economics of the projects are also vital as the current rise in tariffs was dangerous for jobs, new investment and even sustaining existing industries.

Another well-placed electricity industry practitioner, who spoke on condition of anonymity, argues that there is definite merit in Premium Power’s proposal. But the source also warned that, once power demand recovered fully from the slump associated with the recent recession, it is likely that both options could well be required.
He also says that serious discussions were under way about an active demand market scheme as part of short-term mitigation efforts to keep the lights on.
One potential impediment to the use of private gensets could be an objection by municipalities, which are concerned with sustaining revenue from electricity sales and have traditionally opposed schemes that could be perceived as undermining that revenue.