Ensuring Power

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Given the importance of providing sufficient electricity to the smelters of the world's largest mining market, particularly in light of the power shortages that plagued the country last year, energy security has become an overriding concern for South Africa.

Eskom, the state's power utility, has been rationing electricity and implementing strict conservation programmes since their national grid nearly collapsed last year after years of mismanagement, causing over 130 industrial and corporate clients, including mines and factories, to temporarily shut down operations.

Mining giants DeBeers, Anglo-Platinum and Gold Fields, amongst others, saw their mines slow to a virtual standstill for four days in January 2008, resulting in millions of dollars of lost revenue. Rolling blackouts became a common issue for months afterwards and until April, customers across the country were asked to reduce their electricity usage to the lowest level possible, with Eskom's network officially acknowledged at "very high risk."

One year later, with the country feeling the pinch of the deepening global recession, and growth forecasts for 2008 being revised down from 6% to 4%, the utility has hinted that it is willing to revaluate its conservation restrictions, in an attempt to boost economic output and encourage national growth objectives.

Jacob Maroga, Eskom's chief executive, spoke with local media earlier this month, stating, "We have a much more secure power system than we had last year... but we are not out of the woods yet." Nonetheless, he added, "We don't want to be the constraint to growth." To revamp its supply and overcome the limitations of its production and distribution network, Eskom has embarked on an ambitious expansion programme.

In a bid to claw back a reasonable reserve margin, Eskom has unveiled its plans to invest R343bn ($34.6bn) in boosting supply over the next five years. The plans, which will be partially funded by a tariff increase, call for a wide range of energy sources, with coal and nuclear providing the bulk of new capacity. Renewables, comprised largely of hydroelectric plants, will supply the remainder.

Currently, Eskom has a production capacity of 39,500KW, and has officially stated that its reserve margins, which were 25% in 2001, are now at 8%, having fallen to 5.6% a year ago - the international average is between 15% and 18%.

R227bn ($22.9bn) worth of the investment plan will go to two new coal power stations. Approval has been granted for a new coal-fired powered station to be built in Lephalale in the Limpopo province. The first unit of the 4500-MW Medupi plant is scheduled for completion in 2013, with the entire station expected to be completed by 2017. Eskom said that a number of preliminary steps have already been taken to prepare the ground for the construction of a second coal-fired power station, Kusile, in the Mpumalanga province. In total, 9600 MW of new coal-fired capacity is planned.

Nuclear power is the second major ingredient in South Africa's energy plan. Currently, the country runs two reactors at its 1800-MW Koeberg nuclear plant in the Western Cape. Eskom has plans to increase nuclear capacity to 20,000 MW by 2015, which would represent 25% of total generating capacity - up from the current 6%.

Eskom's network has benefited, in a sense, from the slowing South African economy, as a number of energy-intensive mining smelters have been closed, freeing up capacity and increasing the reserve margins. Moroga was reported as saying that the utility was expecting a 3% overall reduction in demand for 2008/09, mostly due to cuts made by factories, while demand growth in 2009/10 would be flat. This new outlook is significantly down on the 4% growth initially forecasted. However, the downturn has also forced the company to reconsider the requirements for its investment plan. The company has postponed its decision on setting up a new nuclear facility, and has delayed the work schedule for a pumped-storage scheme in Limpopo. Furthermore, Eskom is expected to face a funding gap for its upgrade projects, even with the tariff rise, meaning it will need to borrow an estimated R150bn, a difficult task in these illiquid times.

Although the country is currently under no obligation to reduce carbon emissions under the Kyoto Protocol, the government is keen to use this investment plan as a chance to promote cleaner forms of energy. On January 30, the signing of an historic co-operation agreement between Minister of Minerals and Energy Buyelwa Sonjica and Danish Minister of Foreign Affairs Per Stig Müller highlighted South Africa's commitment towards renewable energy, in particular wind energy. Under the agreement, Danish researchers and engineers will run comprehensive tests and studies in South Africa, with the aim of showing the enormous potential of wind power generation. By 2010, Eskom is expected to have 50 wind turbines providing a total of 100MW.

While South Africa's energy crisis of 2008 may have passed, worries of the country's ability to adequately supply growing demand remain high, particularly with the looming global downturn and the anticipated shift in economic policies preceding the upcoming election later this year. The investment plan should provide a sufficient boost to network capacity , assuring the country can supply and cater to its energy needs.

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