Botswana set for power industry challenges/opportunities

Botswana could host a hive of electrical power infrastructure development activity if the country moves earnestly to plug a gap to be left when its supply from South Africa’s Eskom ceases as expected in 2013.

This suggestion comes out of the latest research analysis by consulting firm Frost & Sullivan on the state and prospects of Botswana’s electrical power.

A summary of the analysis said electricity demand in Botswana is projected to grow at a compound annual growth rate (CAGR) of 4.6% from 2011 to 2020, following robust economic growth and increasing rural electrification.

The analysis estimated that about $750 million was likely to be invested in the Botswana electricity industry within the next five years. “Such investments will be critical, as power imports from South Africa will stop from 2013 onwards, in an attempt by the South Africa to address its domestic power supply deficit. South Africa supplied 68%of Botswana’s power needs in 2011.

The Frost and Sullivan analysis from said Botswana’s electricity industry is expected to grow significantly with additional power generation capacities coming on stream in 2012-13. A 600 MW Morupule B coal-fired power station was currently under construction. Other power generation capacities were planned to be commissioned in 2015-16 (300 MW), and possibly in 2017-18 (300 MW).

Frost & Sullivan’s energy and power systems research analyst Celine Paton said “New power generation capacities will most probably be based on coal, given the large untapped deposits available in the country”. These were most likely to owned by independent power producers (IPPs) given the limited financial means available to the loss-making state-owned power utility, Botswana Power Corporation (BPC). “Indeed, new power generation capacities are urgently required in Botswana as peak power demand is hardly met”

Key challenges will include low electricity tariffs, combined with an inadequate electricity regulatory framework and a general lack of infrastructure.

“Electricity tariffs are not cost-reflective, explaining the increasing operational losses encountered by BPC,” said Paton. “Also, 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 South Africa.”

The analysis said government of Botswana will need to revise its electricity regulatory framework. The establishment of an independent regulatory agency should be the first price.

A new independent regulatory agency – Botswana Energy and Water Regulatory Agency (BEWRA) – was expected to be put into place by end 2012, if the process runs smoothly. It should help ensure a more cost-reflective tariff structure that will attract private sector investment, said the analysis.

“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,” concludes Paton. “Furthermore, strong technical know-how and significant financial means will be required if the country wants to follow a low carbon trajectory.”

Both solar energy and coal-bed methane present strong potential as cleaner electricity sources, but their high initial capital costs (solar), and the technical challenges posed by the extraction of coal-bed methane, (still in an exploration phase) remain the main barriers to be overcome. As a consequence, it is expected that coal will remain the main energy feedstock in the foreseeable future, if related financing remains available.

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