South African Energy: growth and development

While France finally closed its World Cup debacle, South Africa is already preparing new adventures. Besides eye catching international sports events, it is working on the growth of its energy network, in stepped but well reflected way. A quick look at the energy picture of Bafana country.
Eskom, coal, evolving market
With the World Cup, South Africa moved closer to the status of an industrial country, or the image of it. Exactly as the Olympics did with the Chinese reality, so did the World Cup period also complete the reality picture beyond the sports facet: South Africa is growing and developing and cities have gone through impressive changes, but a country with an unemployment rate oscillating around 50% still has a long way to go. The same is true for the Energy sector.
The South Africa energy grid has the size of Western Europe and is mainly powered by coal and nuclear. It is dominated by one player, Eskom. With Eskom’s share evolving from 98% in 2008 to an actual 96%, the market appears to be slowly opening to other players. Very slowly. This process is not expected to significantly change anytime soon though.

Main energy sources of South Africa
A thorough review of potential evolutions has been done by the South African government during the rise of the unbundling discussions of the European utilities sector in the 90’s. Despite the country’s strong potential, all scenarios conducted to the same conclusion: not ready yet.
Cheap energy, load shedding, power rationing
One of the main hurdles was and still is the lack of capacity margin.  Currently, generation doesn’t meet the demand. Despite South African energy being amongst the cheapest of the world, Eskom is indeed obliged to periodically ‘prioritize’ the energy on the network.
Private users are namely subject to the system of controlled blackouts: ‘load shedding’. This means that for some areas, energy is shut down at preliminarily announced moments. Groups of users can be relieved of this burden if they can show that they attained a 10% reduction of their consumption, so-called ‘power rationing’. Efficiency related incentives are also foreseen for the industrial users [heavy industry accounts for 40% of the country’s energy consumption].
The main difference private users are faced with compared with industrial users is that they still have to recharge their energy supply with prepaid cards available in supermarkets (similar to system used by mobile phone companies). This also means that a closely followed meter reading is not yet possible.
2015 target, coal, renewables
The goal is to get the load shedding problem solved by 2015 through increased capacity.
Given that South Africa’s economy is – besides tourism – based on large-scale, energy-intensive mining and minerals industries, it has an above average energy intensity [only 10 other countries having higher commercial primary energy intensities]. Combined with the budgetary constraints, most new plants under construction are therefore coal plants. This on its turn, is a very ambiguous option. Coal plants are by far the easiest, fastest and cheapest to build. Moreover, the dry climate of the last 3 years has increased the burning quality of South African coal. Nevertheless, prices for coal have strongly evolved the last years, making it a tricky solution on the mid-term.
This explains why the share of renewable energy sources is slowly increasing. The Medupi facility, for which Eskom got a $ 3.75 billion World Bank loan in April, will include the development of a $485 million low carbon-emitting plant – including a railway to transport coal- but also a $ 260 million project of wind and solar power projects.
Whereas a growing number of companies try to sell their concentrated solar power systems in South Africa, effort is also put in energy efficiency projects. The Swiss Agency for Development and Cooperation, for instance, announced last week its plans to spend about $15 million on a program designed to increase energy efficiency in South Africa’s building industry.
Nuclear, Areva, Westinghouse
Given that South Africa’s main coal reserves are concentrated in the northeast, and much of the load in the South, moving either coal or electricity long distance has always been faced with much higher transport related efficiency losses than other countries did. This is why the Koeberg nuclear plant had been built in the 70s, close to Cape Town.
Although there had been no intention to build further nuclear plants for a logn time, the South African government announced in 2006 that it was considering the building of an addiitonal nuclear plant. Areva and Westinhouse did a bid. In December 2008, however, Eskom announced that it would not proceed with either of them, due to a lack of finance. Developments in the nuclear indsutry in South Africa , therefore, is on hold, but options are still open.
Future growth, carefull developments
ontrary to the controversial impression due to recent issues around freedom of the South African press or the questioning of the jurisdiction in the South African mining industry , evolutions of the last years clearly show a desire to move on. This desire is based on a controlled framework and planned, masterminded approach.
Although smart metering would be the ultimate dream of the South African energy industry, current investments focus indeed on capacity growth, combined with a diversification of resources. Of course, the approach is perfectible. But their personal experiences in primary industry have clearly shown the potentially negative impact of hasty decisions, based on Western inspiration.
They closely follow international evolutions in order to be able to plan ahead. If this gets combined with further international investments and some personal discipline, the Bafanas could very well have an energy sector that is ready for real growth and profound evolutions by the end of this decade.

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