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Coal, gas or nuclear? Power-hungry South Africa must decide now

A man walks past electricity pylons as he returns from work in Soweto, outside Johannesburg May 15, 2012. REUTERS/Siphiwe Sibeko
A man walks past electricity pylons as he returns from work in Soweto, outside Johannesburg May 15, 2012. REUTERS/Siphiwe Sibeko

By Olivia Kumwenda-Mtambo

JOHANNESBURG (Reuters) - On paper, South Africa's long-term energy plans look solid, with coal, nuclear, gas and renewables all viable options.

But none are likely to prevent potentially crippling future power crunches in Africa's biggest economy unless a decision is made soon on when and how to add capacity to the grid.

South Africa's failure to invest in new power plants nearly two decades ago meant it paid dearly in 2008 when the grid nearly collapsed, leading to power cuts that cost the economy billions of rand in lost output and dented investor confidence.

State-owned power utility Eskom is scrambling to finish new power plants, including Medupi and Kusile, massive coal-fired outfits with a combined capacity of about 9,500 megawatts (MW).

But they are still several years away from completion, and in the interim Eskom will be battling to keep the lights on, nursing its fleet of ageing generating units and hoping breakdowns do not reduce reserve margins to critical levels.

The utility has declared four power "emergencies" since November and earlier this month imposed rolling blackouts, known locally as "load shedding", for the first time in six years.

Although they lasted only a day, the blackouts came at a bad time for President Jacob Zuma and his governing African National Congress two months before a national election. The ANC is expected to win but its majority is likely to be reduced by public anger over corruption scandals and deficient delivery of public services in many poor black townships.

The worst is not over, says Eskom, which provides 95 percent of South Africa's electricity and has a total generation capacity of 42,000 MW. This is slightly less than Turkey but almost 10 times more than Nigeria, sub-saharan Africa's second biggest economy and top oil producer.

Although South Africa's infrastructure is generally the envy of Africa, at the moment nearly a quarter of its power generation capacity is out of action, mainly for maintenance.

The first power from Medupi, about 800 MW, is expected in the second half of this year. Eskom admits this will not prevent more blackouts should the system come under further strain.

Any event leading to a loss of more than 1,500 MW could have a significant impact on the grid, Eskom said.

"TEN YEARS TO FIX"

Eskom Chief Executive Brian Dames said South Africa was still feeling the repercussions of the ANC government's decision not to build new plants when asked by the utility to do so in 1998. Construction of Medupi only started in 2007 and has been plagued by delays related to design flaws and labor unrest.

"It will take 10 years to fix the 1998 problem," said Dames, who steps down at the end of this month.

In its 20-year Integrated Resource Plan (IRP), running up to 2030, the government says coal, nuclear, hydro, shale gas and renewable energy are all options to beef up power supply.

And after the 2008 debacle, the government realizes it could pay a heavy price if it does not decide in time on the next phase of power construction when Medupi and Kusile are complete.

"We are working around the clock to arrive at decisions quickly," Public Enterprises Minister Malusi Gigaba said.

The IRP is revised every two years, the latest revision being last year. Cabinet has yet to approve the updated plan which proposes a delay in construction of more nuclear power plants and a focus instead on coal, hydro and gas.

Eskom's problems are compounded by increasing maintenance needs at its decades-old plants, and unplanned outages.

It also faces challenges relating to the quality of coal fed into its power stations. The recent blackouts were imposed after torrential rain soaked coal stockpiles and the coal could not be fed properly into the system.

"I don't think there is nearly enough attention being given to the supply of coal for Eskom. That's an area government needs to do more work on," said Mike Rossouw, chairman of the Energy Intensive Users Group, which represents heavy power users such as mines and factories.

Eskom's coal stockpiles are mostly kept in the open, in part because of the high cost of storage, and so are prone to damage from heavy rain. Storage bunkers are available but not enough to protect all the coal and the problem is compounded by most of Eskom's supply coming from exposed open-pit mines.

DIVERSIFY THE ENERGY MIX

Eskom generates most of its electricity from coal-fired plants but also has one nuclear plant, gas turbines, hydro-electric and wind facilities. Coal is likely to remain the main feed stock for base-load power, given that South Africa is a major producer and exporter of coal.

To diversify its energy sources and reduce its reliance on coal plants, South Africa started three years ago to procure renewable power from independent producers.

To date, the government has signed off on 64 renewable energy projects with a combined capacity of 3,850 MW. Eskom said 19 projects had been connected to the grid to date.

Analysts say more needs to be done to allow private players in - and not just for renewable energy, which is struggling to produce power at rates Eskom deems competitive with coal.

"The industry is by far not deregulated enough. We need to have more participants in base-load generation in South Africa," said Cornelis van der Waal, an energy analyst at consultancy Frost & Sullivan.

"Whether that base load is coal, nuclear, gas or hydro, let's leave that to the industry to decide who can supply the most reliable electricity at the best rate."

(Reporting by Olivia Kumwenda-Mtambo; Editing by Ed Cropley, Pascal Fletcher and Giles Elgood)

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