Amy.Offord_111 Aug 14

IN SOUTHERN AFRICA, COAL REMAINS KING – FOR NOW

IN SOUTHERN AFRICA, COAL REMAINS KING – FOR NOW image

The region is trying to shake its addiction to fossil fuel, writes Neil Ford.

The Southern African energy landscape is dominated by South Africa – the epicentre of power demand and production – which lies at the heart of the Southern African Power Pool (SAPP) – the continent’s most developed regional power network.

Electrification rates are improving across this diverse region, but consumers’ inability to pay energy tariffs that are high enough to encourage either domestic or foreign investment in new power projects is constraining the expansion of power generation.

Sub-Saharan Africa’s power generation mix typically comprises a large chunk of hydropower, along with gas, oil and diesel, while in the south coal is the dominant fuel, thanks to both South Africa’s huge reserves and consumer demand. This may change as the region looks for cleaner energy to meet rising demand. Production from Mozambique’s large offshore gas reserves, along with gas field discoveries off of South Africa itself, could also affect the region’s fuel mix. But for now, coal remains king.

ESKOM ON THE ROPES

State-owned South Africa power company Eskom is the dominant force in the sector, though it has struggled in recent years after becoming embroiled in the country’s wide-reaching corruption scandals and racking up debts of R420bn ($29bn) by the end of 2018 – equivalent to about 15% of all state debt. Meanwhile, its inability to maintain power supplies to one of sub-Saharan Africa’s most developed economies continues to make headlines. 

South Africa has power rationing, due in part to a lack of infrastructure and a failure to increase its generating capacity. While the situation has improved in recent years, this was as much down to stagnating demand in an ailing South African economy as it was to improved supply.

And the problems remain – rolling four-hour residential power cuts were employed by Eskom in March this year as part of the company’s load-shedding strategy and it has had to rely on expensive diesel back-up plants to prevent the situation becoming even worse. The reliability of South Africa’s older coal-fired plants will be put to the test further from June to August, a period when power demand spikes. If they can’t stay online, further supply problems could ensue.

GAS BOOST

Pretoria is committed to reducing South Africa’s carbon emissions, but creating a low carbon power sector is easier said than done in what is one of the world’s most coal-dependent countries. The construction of 3.5GW of gas-fired capacity along the coast has helped, given gas plants typically produce around half the emissions of similar-sized coal plants. South Africa is also in the process of developing some of Africa’s largest wind and solar power capacity, even if Eskom has downgraded its plans for concentrated solar power (CSP).

However, coal still accounts for around 80% of the country’s generating capacity, albeit an improvement from a decade ago, when it was closer to 95%. And more coal capacity is being built in the shape of the huge Kusile and Medupi projects, each adding 4.8GW of output, although both have been subject to delays and cost overruns. 

Such projects do little to support government pledges to tackle the country’s carbon emissions, but successive ANC administrations have been loath to withdraw support for the coal sector, given its central role in the economy and as an employer. 

There is little chance of newly built coal plants being shut down for  years, but the government and Eskom do now have some weighty decisions to make. Coal-fired plants that account for 27% of Eskom’s generating stock are scheduled to close over the next decade because they are deemed too inefficient or polluting to remain open. But new generating capacity must be developed to eliminate the need for blackouts and keep pace with the rising demand for power. The government aims to boost the national electrification rate to 95% of the population by 2030.

INVESTMENT  CHALLENGES

Eskom’s problems affect the entire region, given its core role in the SAPP, which allows the 16 countries of the Southern African Development Com-munity (SADC) to trade electricity. The lack of a reliable supply from Eskom, on which the SAPP is heavily reliant, is encouraging other countries to develop more of their own generating capacity.

However, many Southern African countries still struggle to attract investment from the independent power producers that could provide a cost-effective model for ramping up power production. Resistance from state power firms has played its part in their reluctance to invest, while state control over tariffs makes it difficult to persuade them that they will have adequate revenue streams.

In March, the Zimbabwe Power Company (ZPC) cancelled the contract awarded to India’s Jaguar Over-seas to revive the ageing Munyati coal-fired power plant because the latter has been unable to secure project finance over the past four years. The ZPC is now expected to discuss the project with other companies that bid for the original contract in 2015.

Two months earlier, in January 2018, the Botswanan government halted talks with Posco Energy and Marubeni Corporation over a 300MW expansion of another coal-fired plant, Morupule B, because of differences over the investment terms. The government said it had failed to agree with Marubeni and Posco Energy on various issues, including an $800m state-backed guarantee to protect their investments. An indication of the private sector’s current attitude to Botswana will be the level of interest shown in the development of coalbed methane projects in the southeast of the country.

The economics of these will be shaped as much by power tariffs in bordering South Africa as on the terms of investment from Gaborone, as the associated power plants are likely to supply far more South  African consumers than they are Botswanan consumers. Tlou Energy said that it was making “excellent progress” on its drilling programme, which is  designed to provide feedstock for a gas-to-power project. 

This article is an extract from the Africa Energy Yearbook 2019, a partnership between African Business and EnergyNet.