Power trade in Southern Africa
The 2008 financial crisis brought to the fore Southern Africa’s inadequate power capacity and its potential to undermine the region’s economic growth.
As a result, many governments in the region have launched plans to expand their power generation capacities.
The South African Power Pool (SAPP) estimates that projects that will be commissioned between 2009 and 2013 will add another 13 584MW of capacity to the power pool which would be adequate to satisfy projected demand.
But energy experts say that plans to expand energy generating capacities present two limitations. First, many of the proposed projects are not realistic.
“Many of these projects are either not economically viable or are technically and politically so challenging that the chances of them being realized in the foreseeable future are slim,” energy lawyer Les Kugel pointed out.
Indeed several projects that were supposed to be commissioned in 2008, such as the rehabilitation of the Kariba North (30MW) hydro project in Zambia, and the rehabilitation of Inga 2 hydro (160MW) in the Democratic Republic of Congo (DRC) and the Tegeta (45MW) gas plant in Tanzania, were delayed until 2009.
SAPP expects no more than 803MW to be commissioned regionally in 2010, against an original target of 2 200 MW.
The second problem with energy planning in the region is that it overlooks the potential for increased regional trade, which economists argue, could hold the key to energy security in the region, especially in the long term.
In South Africa, ESKOM is pursuing a ZAR 461 billion ($61 billion) expansion programme, which could potentially add 16 304MW of capacity by 2017 and expand and improve the country’s transmission network. And regulators have agreed to let ESKOM double electricity prices over three years to finance part of the programme.
The government is also trying to use demand side management (DSM) to reduce pressure on power supply in the short term. In April, South African president, Jacob Zuma, announced an ambitious plan to roll out one million solar water heaters and compact florescent lamps to homes in South Africa as part of the programme aimed at saving over 5 000MW by 2013.
Other countries have also launched plans to increase security of power supply. In Botswana, an independent power producer recently commissioned a 70MW diesel generator. Lesotho is planning a 110MW expansion of the Muela hydro project, which is part of the Lesotho Highlands Water Project. Meanwhile, Botswana’s 600MW Morupule B coal-fired power station is expected is expected to come online in 2013. In Swaziland, the Lumumbo coal fired station could add 1 000MW and the Temane Gas project in Mozambique 750MW of generation capacity by 2013. Namibia is pushing a 20MW diesel generator by 2011 and the 83MW Ruacana hydro and 40MW Luderitz wind stations by 2012.
The case for regional power trade is simple. Several countries in the region have the potential to generate sufficient energy to meet demand of the entire region. For instance, the DRC, with a realistic potential hydroelectric resource of 40 000MW can almost double the present ESKOM capacity of around 42 000MW and largely satisfy southern Africa’s future energy needs which are forecasted to increase to around 93 637MW by 2025. Similarly, Tanzania is currently only exploiting five percent of its hydro capacity of over 4 700MW. There is another 6 000 MW of hydro potential in Angola ‘s Kwanza Valley, while Zambia has its own hydro resources. Moreover, Angola, Mozambique and Namibia together have combined reserves of 460 million cubic metres of natural gas.
Economists say that greater regional power trade would result in significant cost savings that could be passed on to end-users. A joint study by the SAPP and Purdue University researchers developed a model to forecast optimal construction costs for regional expansion of generation and transmission capacity over the next 20 years. For the 2000 – 2016 period, the study estimates the cost for meeting the region’s electricity requirements at $13.3 billion if free power trade is allowed, compared to $15.3 billion if power is generated locally.
Freeing up regional trade in electricity would also provide an incentive for greater private investment in the electricity supply industry (ESI).
“The regulatory environment and the dominance of a monopoly supply company in South Africa has resulted in power shortages. The South African government is now firmly on the path to relax the regulatory environment and separate the system operator and single buyer functions from ESKOM to facilitate independent power producers (IPP) participation. This will enable purchasing power agreements (PPA) to be concluded with IPPs,” said Doug Kuni, managing director of the South African Independent Power Producers Association (SAIPPA)
Energy trade is not new to the region. Electricity has been traded in South Africa since the 1950s. During the apartheid era, South Africa invested heavily in electricity generation capacity, leading to substantial excess capacity. For its neighbours, the costs of interconnecting to South Africa’ s power grid were much lower than installing their own generation capacity, especially as the country’s power utility, ESKOM, was offering discounted prices for the power it produced.
And in 1995, the SAPP was established as a voluntary market to coordinate both long- and short-term markets. In 2001, SAPP started the short-term energy market (STEM) where energy is traded a day ahead through bilateral arrangements. Twelve SADC countries belong to SAPP, but only nine are currently interconnected (Malawi, Angola, and Tanzania are not), and six are actively trading. The Day Ahead Market (DAM) was launched on December 15, 2009. The system allows for sellers and buyers to input their requirements for trade in the power pool a day ahead, and bid for excess capacity on a real-time basis. South Africa, Namibia, Botswana and Zambia are already trading on the DAM. But at a maximum of 200MW, volumes traded under STEM have been very limited and not much trade has taken place since 2007 in the short term energy market.
However, despite its limited success, SAPP has served to underline the importance of regional coordination with respect to energy, according to energy experts.
“The issue of regional trade will still remain important, because as projects come up, there will always be that demand gap that will need to be met at different levels in different countries, so regional interconnectivity and trade is still critical for the region,” observed regional energy expert, Gloria Magombo.
Countries in the region would have to address several constraints in order to develop a regional energy trading system. First, the region needs transmission networks with sufficient capacity. Although nearly all electricity generated in SADC is interconnected, the capacity of all lines are not sufficient to allow for much more trade that what is currently obtaining.
”The other limiting factor is the capacity of the transmission systems which exist in the region. Most of them have a limited carrying capacity – they can only transmit so much based on their design,” Magombo elaborated.
Another constraint is the fact that most of the planned shorter-term large regional power stations will be coal-fired, which would limit opportunities for trade between countries in the region and South Africa, the region’s largest market for electricity. With the world’s highest coal reserves and favourable costs, South Africa is more likely to build or purchase from coal-fired power stations than from other, more expensive resources such as hydro or gas stations. Additionally, South Africa, as a major market for regional electricity generation, has also committed to renewable energy sources to which the region holds the key, especially as far as hydro is concerned.
A third drawback to greater regional trade is the lack of legal and regulatory framework for regional energy trade. SAPP and other regional bodies such as the Regional Electricity Regulators Association of Southern Africa (RERA) are in a good position to develop such a framework.
“At the moment, it would seem as if the ancillary functions of SAPP, such as the development of a regional regulatory framework for regional trade, and assisting in identifying necessary regional generation and inter-connector projects, would be of more immediate use and interest as it opens the door for decreasing access and wheeling barriers,” Kuger pointed out.
Investments in new renewable capacity will also depend on political stability in some of the countries like DRC. Unlike the EU, SADC has no ‘muscle’ to force its members to agree or adhere to a regional energy plan and developments. In view of this, some investors become reluctant to pump their finances into these security-insecure countries.
Regional energy trade is by no means a short-term panacea to Southern Africa’s power shortages. Currently, there is simply not much excess electricity available to trade in the region. Faster than projected growth, underinvestment and an over-reliance on South Africa for cheap electricity, have taken a toll on the regional reserve margin which has dwindled to well below the internationally accepted norm of 15 percent or the regional target of 10 percent.
It is evident that increased power trade would be a boost for the whole region. What needs to be done is to garner collective and sustainable political will.
