Sasol pokes South Africa’s elecrticity future plans

The inauguration of the Sasol gas engine power plant in Sasolburg this week came as a remarkable poker for South Africa’s electricity generation future complex. Should the country rethink the role of natural gas in its electricity plans?

Coming on a week of an array of bad news from Eskom’s direction, the inauguration of the seven months old plant was well timed to pose potentially trajectory changing questions within South Africa’s electricity generation development ambitions.

As Sasol was celebrating a job well done on the largest gas engine power plant in Africa with 175 MW of installed capacity, South Africa’s public utility, Eskom, was dishing out a bundle of bad news. Whilst Eskom communicates otherwise, the financial numbers for the year ended March announced this week came with some worrying areas. While revenue increased to R128.8 billion from R114.8 billion in the previous year, profitability is sliding. Profit after tax more than halved to R5.1bn from R13.2bn.

Eskom profits were not expected to be one of the best as a result of its massive infrastructure development programme which is largely funded through debt currently standing at R209.9bn. But there is something else happening around Eskom’s profitability. The financial matrix seems to have been disturbed by the lower than expected tariff hike.

Eskom CEO Brian Dames said the funding plan for the build programme is well advanced with 82.9% now secured, enabling Eskom to complete all committed projects.Sasolburg Gas Engine Power Plant

Added Dames “Financial sustainability will be crucial, as is the support of government, to ensure we can maintain an investment-grade credit rating and raise the debt we need, at rates which are affordable for the country.

We must re-shape our business to adapt to the limits imposed by the 8% annual average tariff increase granted by the National Energy Regulator of South Africa (NERSA) for the next five years”.

Two days before releasing its financial results on Wednesday, Eskom announced a further delay in the development of its news coal fired power station Medupi.

Contracted as a R90bn build project with 4800 MW capacity, Medupi was initially scheduled to produce first power in 2012. Commissioning of first power has been postponed thrice due to a cocktail of obstacles including technical challenges and volatile labour relations on the construction site in Limpopo.

On the previous postponement to December 2013, the minister of public enterprise Malusi Gigaba promised to crack the whip should there be another postponement. “Heads will roll,” said Gigaba. This tough talk failed to prevent another postponement to the second half of 2014. Costs of the project have escalated to about R105bn. There are concerns that construction of the other coal fired power station Kusile in Mpumalanga will also be troubled.

The delay in the prevailing Eskom’s build programmes may be eating into future needs. While the introduction of Kusile and Medupi into the national grid will come to plug a whole but they will not place the country in a comfortable position. As such Eskom and government needed to clear the current projects to kick start the next development phase of electricity generation fleet. This is being sent deeper into the future by the prevailing delays while the Eskom’s older plants continue to age which means the national grid will remain tight for longer. South Africa needs to double its current electricity generation of about 40000 MW in the next 20 years or so to meet demand.

In its long term plan which speaks to the needs of reducing carbon emissions, government has spoken about a complex that mixes coal fired power station (48% of total), nuclear (13.4%), hydro (6.5%), other renewable (14.5%) and peaking open cycle gas turbine (11%). This plan is work in progress and may have been disorientated by the Fukishima nuclear disaster. Talk of an energy mix without nuclear has been doing the rounds recently.

That is why the inauguration of the gas fired power plant in Sasolburg can be seen as a poker especially when seen against the promising exploration of gas along the south eastern African region. The R1.3bn Sasolburg gas fired power station is made possible by Sasol’s gas fields in Mozambique. The same fields are to give birth to another gas fired power plant in Mozambique next year. This plant is undertaken by the parties behind the Sasolburg project, Sasol and global power solutions specialist Wartsilar. The Mozambican plant will feed power into the national grid of Mozambique.Sasolburg gas fired power

Speaking during the inauguration of the Sasolburg plant, Sasol Senior Group Executive of International Energy, New Business Development and Technology Lean Strauss said the company was looking further gas which could make possible more gas fired power plants in the region.

Strauss said the Sasolburg plant represent a significant milestone for Sasol which is now meeting 60% of its energy demands in South Africa. It will ease our load on the national grid and contribute to our own energy efficiency targets. We are proud of this new facility and it demonstrates how we can add versatility to natural gas”.

A portion of the power produced in the plant will be fed into the national grid. The plant enables Sasol to eventually reduce its CO2 emissions by a further one million tonnes per year.

Sasol emphasised the fact that the project was completed three months ahead of schedule and almost 20% below budget. The company added that gas powered plants require less time to build and install, taking between 20 to 30 months, opposed to the 40 to 50 months required for a coal power plant and 60 to 80 months for a nuclear plant.

Tony van Velzen, Regional Director, Africa, Wärtsilä Power Plants said “This inauguration marks a significant step forward for power generation based on gas fuel. Never before has a power plant of this size running exclusively on gas engines been installed on the African continent, and we see this as an important achievement on the road to cleaner and more efficient electricity production”.

Clearly this is space worth watching with South Africa’s energy plans.

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