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Scott Belinksi

Scott Belinksi

Scott Belinksi is an international energy consultant currently based in Moscow. His interests and areas of expertise include Eastern European politics, shale gas, deep-water drilling…

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How To Solve South Africa’s Energy Crisis

With sun-drenched deserts to the north and the windswept Atlantic on its western coast, South Africa has abundant clean energy reserves. Recently discovered natural gas in neighboring Mozambique could add another relatively clean source of energy for Africa’s largest economy, and yet the South African government has opted to prioritize dirty coal and expensive nuclear as the answer to its ongoing energy crisis.

While the national monopoly Eskom celebrated a year without power cuts (or load shedding, as the company likes to call them) with glitzy ads, the underlying problems that made possible the 99 days of rolling blackouts are far from being solved.

The power cuts have been blamed for shaving a full percentage point off South Africa’s GDP and contributing to the 1.2 percent contraction in the first quarter. Describing the power outages as the country’s biggest challenge, President Jacob Zuma has been keen to promote his government’s efforts to boost the country’s power supply. Part of the plan involves the opening of up to three new coal-fired plants, the first of which, located at Medupi, north of Johannesburg, went live last August, producing 794 MW (of a projected total of 4,764 MW once all six units of the plant are complete in 2019). A second plant at Kusile is also slated to begin operations next year, although many are skeptical.

Apart from the long delays and huge cost overruns that saw four executives from Eskom suspended during an investigation into their management of the projects, increasing South Africa’s coal powered energy output is only going to add to the environmental and health woes already plaguing the country. In the Mpumalanga province - which currently hosts 12 coal plants - levels of sulfur dioxide, nitrogen dioxide and particulate matter are often twice the recommended maximum level, causing severe respiratory problems and lung cancer among a population where many residents already have compromised immune systems due to the prevalence of HIV.

Indeed, coal can never be a long-term solution in the post-COP21 world. As such, South Africa is exploring a series of potential options to meet its energy demands and Zuma announced that the country would build up to eight nuclear power plants to generate 9,200MW of energy by 2030. The catch is that nuclear power comes not just with an eye-watering price tag of $100 billion, but also with multiple security concerns. Observers have been quick to cast a skeptical eye on the plans, noting that the first phase of the Medupi plant was originally due to open in 2011 and ended up costing $10 billion, more than twice the initial estimate. Related: Forget Driverless Cars – Driverless Air Taxis Are The Future

By the same logic, Hartmut Winkler, a professor of physics at the Johannesburg University writes that, “if similar circumstances prevail in the nuclear build, that would result in a construction process of 20 years or more and a price tag of one or two trillion rand.” This is without factoring in the likely legal challenges to the construction of nuclear facilities by local populations worried of a Fukushima style accident occurring at one of the plants. The country’s finances are in dire straits as well, with a Reuters poll finding that a majority of analysts expect the credit rating to be cut to “junk” status this year.

To be fair, South Africa does intend to generate 42 percent of its energy mix from renewable sources by 2030, and has made significant strides in that direction, adding over 4,000 MW of renewable energy capacity in less than four years. That figure is nearly equal to what the Medupi plant has managed to deliver in the nine years since it was first mooted in 2007. Similarly, wind energy has taken off exponentially at the same time, thanks in large part to the construction of the Cookhouse Wind farm in the Eastern Cape. Related: The Magic Number For Oil Bulls Remains In Sight

Finally, the discovery of natural gas reserves in neighboring Mozambique provides a huge opportunity for South Africa to procure some of its supply from a relatively clean and proximate source. Earlier this year, the Italian company ENI was awarded a contract by the Mozambican government to build a floating liquefied natural gas plant to begin exploiting the estimated 180 trillion cubic feet of gas off the coast of the East African country. Shortly after ENI secured that deal, the governments of Mozambique and South Africa agreed to build a 2,600 km pipeline to transport the gas to South Africa. In order to protect its offshore energy infrastructure, Mozambique took a series of steps, such as buying a fleet of patrol vessels through the EMATUM government agency to stave off the growing piracy threat plaguing its shores.

Again, the contrast in time and cost between gas-to-power and coal is stark, with the former requiring a three-year construction time and costing $0.80 per watt versus 10 years for coal at a cost of $5 per watt. Even if gas prices are at an all-time low due to global excess capacity, and it could, in the short-term, be cheaper to import LNG from the U.S., South Africa’s focus on regional LNG supplies makes sense over the long run.

Celebrating a year without load shedding does not mean that blackouts have become a thing of the past. With a bit of help from renewables and Mozambique’s LNG, South Africa’s power generation should receive a nudge in the right direction, but that will not cancel out years of underinvestment and public malfeasance.

By Scott Belinski for Oilprice.com

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