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South Africa: Private sector gets leading role in generation expansion

The government yesterday took a decisive step towards involving the private sector in the energy arena with the appointment of a consortium led by U.S. power producer AES to build two new independent power plants at a cost of more than 5bn.
The minerals and energy department's decision will boost the establishment of independent power producers (IPPs) and dilute power utility Eskom's monopoly.

The two plants, to be built in Durban and Port Elizabeth, will have a combined generating capacity of 1000 MW and will provide much-needed peaking power generation capacity to meet the country's electricity supply challenges.

South Africa is facing an electricity supply crunch. Unprecedented growth has seen power demand outpacing expectations, pushing Eskom's power reserve margin to below 8%, against the international norm of 15%.

AES, which beat fellow bidding consortium Suez-Inkanyezi, will own and operate two open-cycle gas-turbine peaking power plants, a 760 MW plant near Durban and a 342 MW plant near Port Elizabeth. The combined 1000 MW generating capacity is the equivalent of just under 3% of SA's current generating capacity.

Financial closure is expected by early December and the two plants should be operational before the end of 2009.

Eskom will purchase the electricity from the plants over a period of 15 years.

AES CEO Paul Hanrahan expected that the contract would pave the way for further projects in the region, which could include opportunities in alternative energy.

Industry observers yesterday welcomed the appointment of AES to build the power plants as a significant step to introduce competition into the local market. But an independent power analyst had some reservations, noting that the role of IPPs in the industry for the foreseeable future would be tightly controlled so as not to materially weaken Eskom.

Announcing AES as the preferred bidder, Minerals and Energy Minister Buyelwa Sonjica said the project was initiated in response to the cabinet's decision to introduce competition to the generation segment of the electricity supply industry.

The government has set a policy requiring that the private sector build 30% of the new generating power through independent power plants.

The two gas turbines are the first of these planned investments by the private sector, and are in addition to Eskom's capital investment programme of R150bn over the next five years.

Additional information: Read the full story at AllAfrica
News date: 28/08/2007

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