Going ahead with the increasingly expensive Kusile power station is being questioned within the government, with senior officials saying it would be better to scrap the project and pay the penalties — which could amount to R30-billion — rather than to proceed.
The costs for the giant 4 800 MW Kusile, near eMalahleni in Mpumalanga, have been soaring since its inception, going from R80-billion to R142-billion. Industry talk is that the total cost for Kusile is now R175-billion, but this is denied by Eskom.
Kusile, intended to come on stream in 2013, is part of Eskom’s build programme, along with the Medupi power station in Limpopo, scheduled for commissioning in 2012.
‘Kusile should be removed; it’s not worth it. If you look at the cost , it is escalating and it seems to be beyond anyone’s control,” said a source familiar with the numbers. ‘If you cancel it, you pay penalties. If you continue with it, you pay whatever billions — It’s [more] cost-eff ective to pay penalties.”
Kusile is named in the first integrated resource plan (IRP1), gazetted on December 31. The tariff granted to Eskom by the National Energy Regulator of South Africa (Nersa) does not meet the funding shortfall the utility needs to complete the build programme, specifically Kusile. The difficulty in raising funding, argue a number of other players in the industry, will result in inevitable delays in Kusile’s commissioning.
Doug Kuni, managing director of the South African Independent Power Producers Association, said the funding issues around Kusile had delayed the IRP1 programme, meaning that Kusile could be delayed until 2014.
‘The 2011 to 2013 period has been marked by [Eskom] as high risk for load-shedding. Delays in Kusile will exacerbate load-shedding scenarios from 2013 onwards, not to mention suppressing economic growth,” he said, adding that Kusile would be a millstone around the country’s neck for the next 40 years.
Eskom is attempting to find private buyers to take a majority stake in Kusile, although how the power utility or the government will ensure returns on such an investment is unclear. But the department of public enterprises is adamant that Kusile will go ahead, as it is already included in the IRP1.
‘The inter-ministerial committee [IMC] on energy is engaged in trying to source alternative funding for the completion of the Kusile power station, and [this is] expected to be fi nalised before the end of the year,” it told the M&G.
Eskom’s financial chief Paul O’ Flaherty said: ‘We have always said that trying to introduce equity when we have already begun construction and there are no cost-reflective tariffs in place would be difficult. This is currently being investigated — and a final recommendation will be made to the inter-ministerial committee and Eskom board within two weeks.
‘Eskom and the IMC have, however, identified other very viable alternatives to ensure Kusile will go ahead and these are currently going through an approval process,” O’ Flaherty said.
Eskom’s chief officer for generation business, Brian Dames, said Kusile was approved for an estimated cost-to-completion amount of R141.5-billion in September 2009 by the Eskom board. This nominal value included all the fi nancing and escalation costs over the construction period of the station.
It is understood that Eskom expects to bring the final cost in at close to the approved amount. The so-called overnight cost, meaning what it would cost if Kusile could be built in a day, is R99-billion.
Interest and escalation charges during construction add the rest. Other industry insiders argue that South Africa needs Kusile or an equivalent power source to ensure it does not face catastrophic shortages.
The new integrated resource plan (IRP2) will map out the required new capacity and outline the technologies it will comprise — such as coal, nuclear and renewable energy sources.
Demand-side management and energy efficiency measures will help mitigate power shortages in the period 2014 to 2020 . This includes the roll-out of a million solar water heaters, and a power conservation programme being negotiated with large industry.
Emergency plan needed
Even if Kusile is commissioned on schedule in 2013, the country will still require the equivalent of roughly 3 000MW of power, or another Medupi power station, between 2014 and 2020, and where that power will come from is still to be determined, warned an industry expert.
It is understood that, to prepare for the possibility of shortfalls after 2014, large industrial users have approached the energy department and Eskom to work on a ‘plan B” should the requisite savings not be made.
The entry of independent power producers (IPPs) could be expedited if concerns around supply remain. Power imports from IPPs outside South Africa are possible, including from the coal-fired Mmamabula project being developed in Botswana.
To meet power constraints between now and 2013, cogeneration projects are being pursued under Eskom’s medium-term power purchase programme, as well as the phasing-in of renewable energy under a feed-in tariff.
Doug Kuni, managing director of the South African Independent Power Producers Association, argued that, should Kusile be cancelled, immediate consideration must be given to bringing alternative base-load power on stream in 2014/2015.
‘The present regulatory environment does not accommodate IPPs fairly, but it does not prevent IPPs from investing in plants and selling power independently,” he said.
The energy department is working to amend the law to create an independent body that will procure electricity from the grid and monitor the efficiencies of both Eskom and non-Eskom power producers.