The Business of Energy and the Energy of Business

South Africa is experiencing its worst energy crisis in 40 years. Eskom’s inability to guarantee energy supply is having a major impact on our economy and is estimated to be costing R50 billion in lost revenue. Eskom can’t supply more electricity. New-builds such as Medupi are behind schedule, existing generating units have not been maintained effectively, and the new commitment to nuclear energy will take years to build and potentially be costly to South Africa. Clear, consistent energy policy is needed with regards to what the optimal energy mix should be. This is what we discussed at our recent Thought Leaders event sponsored by Webber Wentzel.

Our first speaker , UCT GSB Prof Anton Eberhard, is founding Director of the Energy and Development Research Centre, and on the National Electricity Regulator of South Africa committee. Anton gave an excellent overview of the reality of South Africa’s energy landscape. He said that Eskom is producing less energy than it did in 2007 and that they will not be able to restore supply for the next 5 years. Other issues of concern are the consistently high price hikes with a 13% increase expected in 2015, while load-shedding and requests to curtail usage are inhibitors to growth. Anton felt that South Africa needs serious power sector reform.

Regarding our optimal energy mix:

  • Coal – coal resources are diminishing and some coal reserves are not the same quality thus producing less power. Many of our coal generating units are in desperate need of upgrading.
  • Nuclear – this is clearly an option that the government feels will solve our energy crisis, but in the 2013 update of IRP 2010, it was suggested that if nuclear costs exceed $6500/kW, then gas or other options should be used. Other international plants are suggesting costs of closer to $7000 – 8140/kW.
  • Renewable energy – South Africa has run a very successful IPP programme to produce energy from wind and solar. Solar PV prices have fallen 68% and wind 42%, however, Eskom’s infrastructure is not ready to absorb all this power.
  • Gas – with large gas reserves in Nigeria, Mozambique and Tanzania, gas is a viable option as an energy source, though there are cost implications of transporting gas. Shale gas, while still being an option, is being delayed by licencing issues.

Next we heard from Wayne Glossop, of Wartsila, a global leader in complete lifecycle power solutions. With major gas finds in Africa and in Mozambique in particular, gas is a viable alternative and in 2013, Wartsila launched Africa’s largest power plant running exclusively on gas-fired combustion engines for Sasol in 18 months, at almost 20% under budget, and providing a 40% reduction in carbon omissions. Sasol then commissioned Wartsila to build a similar plant in Mozambique. However, while gas plants are much quicker to build, total project time is estimated at 4 years.

This supports the view that gas is a viable option to address aspects of our energy crisis in South Africa, and particularly in the Western Cape. We will be exploring this topic further in 2015 due to impact that energy uncertainty has on business and economic growth.

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