Thursday, September 24, 2020

Getting to grips with the power challenge

In the eight years to 2020, Botswana’s demand for electricity will grow at a compound rate of 4.6 percent per year, according to analysis from consulting and market research firm, Frost and Sullivan. This growth will be on the back of economic expansion and increasing rural electrification.

Some $750 million in investment will go to the electricity industry within the next half-decade, estimates reveal. This will be a boon for Botswana’s power sector, given that imports from South Africa will cease beyond 2013. Last year, South Africa, through its power utility Eskom, provided 68 percent of Botswana’s power needs. The rainbow nation is now struggling to address its own deficit.

The Frost and Sullivan analysis, a 2011 update of Botswana’s electricity industry, says additional power generation capacity will drive much of the healthy growth. With the 600 mega watts (MW) Morupule B coal-fired power station providing a major fillip, this additional capacity will come on stream in 2012-2013. Other power generation capacities are planned to be commissioned in 2015-16 (300 MW), and possibly in 2017-18 (300 MW). This means in all, Botswana plans to add 1 200 MW of electricity to its national grid in the next six years as it grapples with and eventually seeks to overcome its power supply shortages. ┬á

┬á“On top of the Morupule B power station which will add 600 MW to national supply next year, we expect a brownfield power station consisting of two 150 MW units to be built through independent power producers by 2015/16,” Boikobo Paya, Permanent Secretary in the Ministry of Energy, told a southern Africa Coaltrans conference. “Another 300 MW greenfield power station is also expected to be built by independent producers by 2017/18.”

For long, Botswana had only one power station, Morupule A plant, which produces 120 MW, with the remainder of its power needs being imported mainly from South Africa. In anticipation of the higher demand for coal from new power plants, production at the country’s only coal mine, Morupule Colliery, will be increased from 1.2-million tons per annum to 2.8-million tons.

“New power generation capacities will most probably be based on coal, given the large untapped deposits available in the country,” says Celine Paton, Frost and Sullivan’s Energy and Power Systems Research Analyst. “They will be owned by independent power producers (IPPs) given the limited financial means available to the loss-making state-owned power utility, Botswana Power Corporation (BPC).”

With the country failing to meet peak power demand, new power generating capacities are indeed urgently needed. Botswana’s electricity industry will continue to be dogged by low electricity tariffs, a general lack of infrastructure and an inadequate electricity regulatory framework.

“Electricity tariffs are not cost-reflective,” says Paton. This explains the regular spate of losses at BPC, the power utility. “BPC has been facing spiralling costs of electricity imports, as a consequence of the tight power supply in the region as well as the successive electricity price hikes implemented by Eskom in┬áSouth Africa.”

BPC’s financial report for the year ending March 31, 2011 shows a loss of P796.62 million, the utility’s fifth straight deficit. The Auditor General’s report for the same year shows that revenue, including finance income, was higher than the previous year ÔÇô P2.45 billion compared to P1.74 billion. However, operating expenses were likewise higher at P3.04 billion compared to P2.9 billion in 2010. At the same time, “the corporation’s end user electricity tariffs have been lower than the generation cost per unit”, says BPC’s financial report. Government has approved a plan that will gradually raise tariffs to an economical and sustainable level.

This year, BPC’s operating expenses are again expected to top P3.1 billion, owing in part to the introduction of Morupule B Power Station. ┬áAccording to BPC chief executive Jacob Raleru, imported power is getting pricier, yet it carries a lower cost than any new facility such as Morupule B. “In the immediate to medium-term, we are not going to see a reduction in costs of power when compared to the cost from Eskom imports.”

Operating Morupule B indeed means higher costs. Maintenance is P50 million annually, while replacement of components has gone up to P389 million from P260 million. Despite these challenges, Botswana will need to decrease its reliance on power imports. In heading down this route, government will need to revise its electricity regulatory framework.  The first step would be to create an independent regulatory agency. That body, the Botswana Energy and Water Regulatory Agency (BEWRA) is expected to be up and running by the end of this year. BEWRA will help ensure a more cost-reflective tariff structure that will attract private investment.

“Partnerships between the public and private sectors are required to better allocate risk, expertise and financial means in the new power infrastructure projects to be developed in the country,” notes Paton. “Furthermore, strong technical know-how and significant financial means will be required if the country wants to follow a low carbon trajectory.”

Like Morupule B, other new power generation capacities will likely be coal based, given Botswana’s large untapped coal deposits. The country has coal reserves estimated at 212 billion tons, but only one operating mine. Three companies, CIC Energy, African Energy and Aviva Corporation, have expressed intentions to open new mines for both local use and exports.

Solar energy and coal-bed methane present strong potential as cleaner electricity sources. However, solar has much higher initial capital costs and extraction of coal-bed methane ÔÇô which still in an exploratory stage ÔÇô presents a technical challenge. There are currently 190 coal and coal-bed methane prospecting licences issued to 43 companies from Australia and elsewhere.

Meantime, Botswana will issue a tender for two 300 MW coal-fired power plants to be built by independent producers to meet rising demand. One of the projects will be an expansion at the existing Morupule complex. The 300 MW expansion needs to come online by 2015/16.

The other plant, due by 2018/19, can be built anywhere in the country, Nchidzi Mmolawa, Botswana’s acting deputy permanent secretary for minerals, told Reuters in Johannesburg on the sidelines of the southern Africa Coaltrans conference.

“The plan is to get the tenders out this year. If you can do it off your balance sheet, the better. So the first 300 MW and the other 300 MW will be done through an IPP model,” he said.

The independent power producers will be chosen to build and operate the plants and later sell the electricity to BPC.

Botswana hopes to boost the development of its coal mining sector, where currently only three million tons of coal are produced each year, Mmolawa said. A tender for new prospecting licences is currently ongoing.

Mmolawa said the country had available coal resources of over 200-billion tons, which should be exploited to boost power generation in the country and the region and to supply growing demand for coal from Asia.

“The current situation is that countries are so in demand that they are seeking coal from wherever they can get it from,” he said in response to questions about competition from the region, where South Africa is a major coal exporter and Mozambique is ramping up to become a key coal player.
The growth of the Botswana coal industry hinges largely on the need to develop necessary rail and port infrastructure.

There are studies ongoing which explore the options of exporting coal either through Namibia or Mozambique and Botswana, together with the private sector, hopes to soon make a decision which port makes for the more economically feasible solution, Mmolawa said.

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