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ENERGY-SOUTHERN AFRICA: Small Is Beautiful, Say Independent Power Producers

Servaas van den Bosch

WINDHOEK, Feb 20 2010 (IPS) - Independent power producers argue that small hydroelectric plants have a key role to play in avoiding an energy shortfall in the Southern African region.

Zimbabwe's Kariba dam: Africa has tapped relatively little of its potential hydroelectric power potential. Credit:  Ben Bird/Wikicommons

Zimbabwe's Kariba dam: Africa has tapped relatively little of its potential hydroelectric power potential. Credit: Ben Bird/Wikicommons

Cheap power from South Africa – which derives most of its 40,000 MW from coal-fired plants – has delayed investments in the Southern African Development Community’s (SADC) electricity sector for three decades. But South Africa’s surplus is drying up and countries are scrambling to build up generating capacity.

“No significant new power plant has been built or commissioned in SADC since 1975,” says Simson Haulofu, generation manager of Namibia national power utility Nampower.

“Hydropower is the most logical answer to our predicament,” he says. “It’s clean, cheap and never runs out.”

The case for generating energy from Africa’s rivers seems straightforward. “The continent has only tapped 20 percent of its 100,000 megawatt hydropower potential,” calculates Katai Kachasa, general manager of the independent Lunsemfwa hydropower station in Zambia.

“Africa has 12 percent of the world’s hydropower potential, but has harnessed relatively little (of this),” adds Lewanga Tesha, senior manager hydro generation of the Tanzania Electric Supply Company. “This is strange, because after nuclear power it is the cheapest energy source per unit of electricity, followed by respectively coal, gas, oil, wind and solar.”

According to World Bank figures, hydropower contributed 36 percent of Africa’s power generation portfolio, or 76,000 GW/h per year, compared to 4 million GW/h per year that is theoretically possible.

But backed by international development finance institutions, African governments have concentrated on large hydropower projects like Zimbabwe’s Kariba dam, Ghana’s Akosombo dam on the Volta and the extensive Gilgel Gibe project in Ethiopia.

A 2008 study of the Southern African power sector by market researcher Frost & Sullivan, found national power utilities showed limited interest in developing such projects. Where funds are available – and South Africa’s Eskom is the utility most actively raising capital – investment is usually geared towards large-scale projects which promise to deliver power at a lower cost per unit.

But even when large projects are successfully funded, constructed and brought online, they may not answer the particular needs of a growing continent.

“It’s just not feasible to erect an 80 kilometre power line to power an isolated town, the provider will not make back the investment in a hundred years,” says Haulofu.

Zambia’s Kachasa argues small hydroelectric plants are the route countries must pursue. “Grand projects are hard to fund and are immensely complex to realise,” says Kachasa. “Why not engage local IPPs to make small units of 5 or 10 MW at a cost of US$10 to US$15 million? Such a project can unlock a specific region, even where they don’t feed into the grid.”

A 10 MW plant could power an African town of 50,000 people.

Estimates of the untapped potential for small hydro plants in Africa range to over 60,000 MW, but only several hundred megawatts of capacity has been built. Independent producers argue that low tariffs and the monopoly position of national power utilities – which often function as generator, single-buyer, distributor – are obstacles to filling that gap, complain IPPs.

“Countries must open up the regime, make the playing field clear and predictable,” says Kachasa. “If the tariffs are not cost-reflective no one will come.”

Southern African electricity tariffs, says Frost & Sullivan, are the lowest in the world, but raising prices for consumers and industry counters development goals of governments. A way out of the predicament would be to create incentives without immediately raising the tariffs, counter the IPPs.

“IPPs in East Africa have benefited from (value-added tax) exemptions and waived import taxes,” says John Berry of IPP Bujagali Energy in Uganda. “By reducing the costs, hydro-resources can be developed and the tariff can rise over time.”

IPPs complain that incentives for smaller independent producers are still missing in Southern Africa.

“But that’s not an issue of price,” says Electricity Control Board of Namibia CEO Siseho Simasiku, who argues the region is moving towards a cost-reflective tariff.

“If it wasn’t for the financial downturn we would have been there already, now it will take another two years. For green energy we already offer IPPs a competitive tariff.”

Simasiku accuses the region’s parastatals of protectionism. “It’s the power utilities that simply do not want competition. After three years of negotiating with an IPP that wants to build a windfarm on the coast, Nampower still hasn’t signed a Power Purchase Agreement. In South Africa Eskom shows exactly the same reluctance.”

Simasiku says the attitude of national power utilities compels regulators to take action. “In 2010 we will put in place regulations that force the parastatal to open up the regime.”

Since Uganda liberalised its electricity market in 1993, IPPs have initiated hydropower projects that, when completed, will triple the country’s total generating capacity, adding 565 MW of hydropower.

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