Following up on Part 1, in which we looked at the big picture of energy supply and use in Botswana, and Part 2 where we examined coal resources, we turn our attention in this post to electricity production, the Botswana Power Corporation, electricity tariffs, and appraise developments over the last few years.
Botswana Power Corporation (BPC) is the government-owned electrical utility and is the only entity that is responsible for the supply, transmission, and distribution of electricity throughout Botswana. As a result, discussions about electricity in Botswana often center on BPC and its operations and performance. Much of the electricity situation in the country is summarized in the figure below, where we have plotted data for the past 21 years. The blue bars show how the total annual amount of supplied electricity (generated locally and imported) has doubled over this time period. The orange line shows the percent of electricity generated in-country by BPC, largely from their Morupule operations. (Data for 2017 are estimates based on data from the first two quarters only.)
Data Source: 1997 to 2004; Adjusted BPC annual report results. 2004-2017; Statistics Botswana
There are two important details to note from this chart. The first is the remarkable turnaround since 2011 in the amount of electricity generated in-country. It has increased from less than 10% in 2011 to an estimated 77% in 2017. This is a result of the improved operability of the Morupule B operation and it is likely that, within a few years, that Botswana could be generating enough power internally to supply all of its domestic needs. Remarkably, in July 2017, there was a report that Botswana had, for the first time, exported (!) electricity into the South African Power Pool for a short period.
The other point of note is that the amount of electricity supplied from both local generation and imports appears to have peaked and levelled off since 2014 at just below 4000 GWh. The data from the first two quarters of 2017 suggest that there might even be a further drop in electricity supply in 2017. This decrease in supply could result from several reasons: less demand from the mining industry due to the closure of the BCL copper and nickel mine, reduced diamond production, energy-efficiency drives, and perhaps more temperate weather that required less heating and cooling.
For many years, electricity generation in Botswana was a disappointment. The Chinese-built Morupule B 600 MW coal-fired power plant experienced operating problems right from the start. There were many problems with the contractor and operability of the equipment that impacted reliability and limited availability. A damning report released by the World Bank highlighted many project errors, including selection of an unqualified contractor, safety issues on site that resulted in five deaths during construction, and poor project overview by BPC.
According to the 2015/2016 BPC annual report, Morupule B only had availability of 55.8% compared with the expected 89%. Although progress has been made in improving the operability of this plant, problems with the contractor, China National Electric Equipment Company, remain and cost overruns have ballooned. The investment in Morupule B and the electricity imports to cover for its lack of operation are now of the order of 12 billion pula ($1.2 billion) and the Botswana government is negotiating to sell Morupule B back to the contractor, following which BPC will buy back the electricity though a power purchase agreement.
At the same time that Morupule B was being commissioned and was experiencing operating problems, the ageing Morupule A plant was shut down in 2013. To compensate for the Morupule B problems, a decision was subsequently made to refurbish the Morupule A operation. This is being undertaken by Doosan, a South Korean company. The scheduled completion date is December 2017, but delays have been experienced.
Despite the many problems associated with the Morupule B plant, the recent good news is that its operability has improved and, according to the chart above and data from a recent Statistics Botswana report, local generation of electricity has improved. In the first two quarters of 2017, more than 75% of the power needs of the country were locally generated. The equivalent numbers a year earlier were ~50%.
Even as the refurbishment of Morupule A is taking place and the reliability of Morupule B is being improved, plans for further expansions of Botswana’s generating capacity are underway. A 300 MW expansion of Morupule B to build two more 150 MW generating units (Units 5 and 6) was agreed to by a joint venture formed by Marubeni from Japan and Posco from South Korea. The joint venture was to act as an independent power producer and would design, build, and operate the plant to sell power to BPC under a negotiated power purchase agreement. However, progress on this project has now been halted owing to issues of loan guarantees for $800 million and contention regarding the proposed power purchase rates.
Negotiations are also underway with Kepco and Daewoo from South Korea to build another 300 MW (Units 7 and 8) of generating capacity. If all the units at Morupule are built and the refurbishment of the 132 MW Moropule A plant is completed, this would give Botswana a coal-fired generating capacity of 1332 MW. This would be well in excess of its present peak needs and will allow for electricity exports and growth in local demand.
It should be noted that the potential expansion of Morupule B and the award of contracts to foreign companies has been criticized by several local energy companies that have coal resources and that had made progress in developing their projects in order to bid competitively for greenfield 300 MW generating sites, in line with a 2013 Botswana government tender.
Generally speaking, there are a lot of electricity-generation projects on the drawing board and under discussion, including the mostly unexplored potential of solar generation. The table below lists the existing generating facilities (highlighted in yellow) and those in planning that we are aware of (highlighted in green). It is unlikely that all these projects will be developed, but it is encouraging that there is so much focus and interest in developing electricity generation in Botswana.
As Botswana’s only electricity utility, BPC has struggled with insufficient income and financial deficits for many years, although the annual report for 2015/2016 did show the deficit shrinking. Operating deficits have been made up by cash infusions from the government. As a result, electricity in Botswana is heavily subsidized. Recent BPC data show that ratepayers are paying only about 60% of the cost of electricity: the average cost for procured electricity in Botswana (local generation and imports) is 139 thebe/kWh (US$ 0.14 kWh), whereas the average selling price to ratepayers is 82.1 thebe/kWh (US$ 0.082/kWh).
BPC is working hard to transform itself and to deal with its operating deficit. It has recently appointed an ex-patriot CEO from Germany and has prepared a turnaround plan called MASA 2020 that focuses on cost cutting, operational efficiency, selling of assets, and working with independent power producers. In line with many power companies across the world, BPC is looking to transform itself into a transmission and distribution utility, as opposed to a fully integrated generation, transmission, and distribution entity. The plan to sell problematic Morupule B back to the contractor that built it is part of this strategy. BPC is attempting to address the deficit/government subsidy issue by increasing electricity prices and improving operational efficiencies. In April 2017, electricity prices were increased between 8 and 13%, with the largest increases leveled at medium and large businesses.
Another challenge for BPC is that not all of the electricity generated or purchased from the South African Power Pool makes its way to customers. There are expected losses in the transmission and distribution grid due to the resistance of the wires, but there are also losses due to theft or meters not correctly recording actual electricity usage. It is notable that the losses from the BPC grid are large. The chart below shows that the recorded electricity losses, as determined by the difference between supply and customer sales, generally exceed 10%; based on the most recent data, these losses have risen to 15%. Such losses are considered large: global average transmission and distribution losses numbers, as determined by the World Bank, are 8.3%. Losses at Eskom in South Africa are typically 9% or below. Electricity losses in other neighboring countries are also high, e.g., Zimbabwe at 16.4%, Zambia at 15%. This represents an important opportunity for improvement.
In summary, the electricity situation, at least in terms of local electricity generation, has much improved during the past few years and as a result coal mining has also increased. It seems that load-shedding (rolling blackouts), as experienced in 2013/2016, could be a thing of the past due to local generation improvements and reduced electricity import costs with the economic downturn in Southern Africa. However, dealing with electricity blackouts, due to unexpected or scheduled maintenance inconveniences, is still very much part of life and doing business in Botswana. Nevertheless, we are encouraged at the progress that has been made.
In Part 4 of this series, we turn our attention to renewable energy projects and various government programs directed at the energy sector.
In the meantime, remember to turn off the lights when you leave the room.
Mike Mooiman and Karen Giffard
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