SA reassures energy investors

7 September 2007

The government has appointed state company Eskom as the sole buyer of power from independent power producers, providing a measure of certainty for investors looking to enter South Africa’s energy market.

Speaking to journalists after a Cabinet meeting in Cape Town on Wednesday, government spokesman Themba Maseko said Eskom would be responsible for ensuring that the government’s target of sourcing about 30% of SA’s new generation capacity from independent producers was met.

The Cabinet’s decision would “provide certainty to private providers that their power will be bought,” Maseko said.

“Government is basically giving some certainty to the market – that if you invest billions of rands into power generation capacity, we as the state … will actually buy that power.”

Negotiations over pricing for the power produced by the independent power producers would be handled in liaison with the National Energy Regulator of South Africa (Nersa), Maseko said.

The issue of profitability for investors entering the power generation market “will be looked at,” Maseko said, “and that is why the issues of pricing will not just be left to Eskom.”

However, production-cost benchmarking would be done with the state company to ensure “that the lowest-cost production of electricity is achieved.”

The Department of Minerals and Energy was busy defining the amount of new power-generating capacity needed to meet South Africa’s electricity demands, Maseko added.

The reserve margin of South Africa’s power system has fallen in recent years due to strong economic growth in the country.

Eskom is the eleventh-largest electricity utility in the world and the biggest power supplier in Africa, currently supplying about 63% of the continent’s needs and about 95% of the electricity consumed in South Africa.

In February, Public Enterprises Minister Alec Erwin said Eskom had made “significant progress” in a R97-billion programme to revamp the country’s electricity infrastructure.

Spending on Eskom’s build programme amounted to about R11-billion so far, Erwin said, with three coal-fired power stations which were mothballed in 1990 about to come back on stream to help meet the country’s rampant energy demands over the short term.

Erwin also confirmed at the time that South Africa would be building a second conventional nuclear power plant in one of the three Cape provinces – Northern Cape, Eastern Cape or Western Cape.

While nuclear power will remain Eskom’s domain in South Africa, the government wants to see more private build of power plants, setting a target for independent power producers to build more than 50% of all new non-nuclear power plants in SA over the next 20 years. reporter and BuaNews