2016/2017 Botswana Energy Update – Part 3: Electricity by Mike Mooiman and Karen Giffard

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

mooimanm@franklinpierce.edu

karen@sosolar.co.bw.

2016/2017 Botswana Energy Update – Part 2: Coal Projects by Mike Mooiman and Karen Giffard

Following up on Part 1, in which we looked at the big picture of energy supply and use in Botswana, we turn our attention in this post to coal mining and usage and examine some recent developments.

In Part 1 of this series, we noted that coal provided 41% of Botswana’s energy supply in 2015. According to data from the International Energy Agency (IEA), coal usage has grown by an annual compounded rate of 4.7% per year since 2000. Botswana has significant coal resources and it is clear that coal will continue to be an important resource well into the future.

Botswana’s coal resources can be utilized in several ways: the most obvious are the mining and burning of coal to produce electricity and coal exports. Most of the operating, planned, and proposed coal operations are associated with coal-fired electricity production and exports. However, the production of liquid fuels from coal, known as coal-to-liquid technology, and coal-bed methane, in which the natural gas associated with coal deposits is released by drilling into the coal seams, are also options under consideration.

The only operating colliery in Botswana is the Morupule Coal Mine, located near Palapye. This operation mines and prepares coal for the nearby Morupule power station. As noted previously, and highlighted in the following post, the amount of electricity generated in-country has increased significantly over the past few years due to the increased operability of the Morupule B power station. This has led to the increased mining of coal, as shown in the chart below. The refurbishment of the Morupule A power station and further expansions of the Morupule B power generation operations, discussed in Part 3, indicate that expansion of coal mining at this location is likely to occur in the future.

Source: StatsBotswana

The Morupule Coal Mine was previously owned by Debswana, the joint venture between DeBeers and the Botswana Government, but in 2016 a deal was struck for DeBeers (a subsidiary of Anglo American) to sell its 50% ownership of the colliery to the Botswana Government-owned Minerals Development Company. This is part of Anglo American’s drive to slim down its commodities profile. Anglo American had also been developing coal mining assets at the Mmamabula coal fields and had carried out feasibility and impact studies, but this work has been halted.

Several years ago, there was a flurry of project proposals to start up new coal mines for exports and to build new power plants on-site or close to these collieries to feed electricity into the Southern African Power Pool or the Botswana grid. As a result, the list of coal projects proposed for Botswana is long (see the Coal Projects in Botswana tab on this blog.) Most of these projects are at varying stages of preliminary assessment—some are still under review, some have completed detailed feasibility studies, and some are just proposals—but most are currently on hold because of the large capital investments required and low coal prices (see chart below).

Source: InfoMine

Nevertheless, some coal projects have gained traction. Shumba Energy has proposed to build two coal-fired power plants, 600 MW at Mabesekwa and 300 MW at Sechaba, supplied by locally mined coal. These are aimed at both local electricity supply and the export market. Prefeasibility studies at Sechaba have been completed. The 450 MW Sese project is a coal mine and power plant that is being developed by African Energy and First Quantum Minerals. The output for this project targets electricity exports to the Zambian mining industry.

Exporting coal is another way for Botswana to utilize its natural resources. Data from the IEA indicated that, in 2015, 10% of Botswana’s mined coal was exported. Detailed information on these exports are difficult to come by, but we suspect that these were to local markets in Namibia, Zambia, and Zimbabwe. However, export of coal from Botswana to international markets is difficult due to the lack of direct rail links to the port of Walvis Bay in Namibia or to Mozambique via Zimbabwe, and there is limited rail traffic to Richards Bay in South Africa. Moreover, exporters have to compete against large established coal mines in South Africa that have better access to transportation and export networks. There have been several proposals to build rail links to Namibia or Mozambique, but, owing to the associated cost and the current low prices for coal, there has been little progress of these beyond the discussion stage. 

There are other ways to use local coal resources, such as the production of liquid fuels from coal, known as coal-to-liquid (CTL) technology, similar to that carried out at Sasol in South Africa, and coal-bed methane (CBM), in which the natural gas associated with coal deposits is released by drilling into the coal seams. There has been some progress in the CTL area. Botswana Oil Ltd., the recently formed government-owned oil company responsible for secure fuel supply and promoting involvement in the oil industry, has hired a consultant and issued a request for expressions of interest, which were to be submitted by August 2, 2017, to design, build, own, and operate a CTL facility in Botswana. It should be noted that implementation of CTL is a large and very expensive endeavor. It is a technically complicated, capital-intensive, highly polluting process with high operating costs that require high oil prices to be profitable. There are a limited number of these operations in the world: the largest is the Sasol complex in Secunda, South Africa; there are also some in China and several smaller operations scattered around the world.

Exploitation of coal-bed methane (CBM) appears to hold more promise because the technology is not as capital- and engineering-intensive. The Botswana Ministry of Mineral Resources, Green Technology and Energy Security has issued a request for proposals for the development of electricity generation plants with 100 MW capacity fueled by CBM. Two companies were recently short-listed to develop CBM projects and to each build a 50 MW natural gas-fired power station: Tlou Ltd., out of Brisbane, Australia, and Sekaname, Pvt. Ltd., a subsidiary of Kalahari Energy. The former has been granted a mining license to proceed on development.

In Part 3 of this series, we turn our attention to electricity supply and generation in Botswana. In the meantime, remember to turn off the lights when you leave the room. 

Mike Mooiman and Karen Giffard

mooimanm@franklinpierce.edu

karen@sosolar.co.bw.

Under Pressure – Botswana’s Coal Energy Resources

Dumelang*. As I have been reading the local press, internet articles and other literature, I was surprised at the number of coal-based projects that have been proposed for Botswana over the years. I was having trouble keeping them all straight so I decided to collect, summarize, and tabulate these coal projects. At the same time, I wanted to take a hard look at coal as an energy resource.

It is generally believed that Botswana has significant coal resources and it is clear, based on the existing, planned, and proposed projects listed in the table in the Coal Projects in Botswana tab on this blog, that coal will continue to be an important resource for Botswana well into the future. These projects range from the new coal-fired generators at Morupule, the refurbishment of the Morupule A operation, new coal-fired operations, coal-bed methane, coal-to-liquid projects, and new mining operations.

A number of years ago there was a flurry of project proposals to start up new coal mines and to build new power plants on-site or close to these collieries to feed electricity into the Southern African Power Pool. However, since the construction and partial commissioning of the large Kusile (4800 MW) and Medupi (4800 MW) coal-fired projects in South Africa, in combination with load shedding, efficiency drives, and renewable energy projects, there appears to be less call for smaller independent coal-fired power plants. Few, if any, of these smaller projects have gained traction.

The list of coal projects proposed for Botswana is long. (See the Coal Projects in Botswana tab on this blog.) Most of the projects are at varying stages of preliminary assessment—some are still under review, some have completed detailed feasibility studies, and some are just proposals—but most are currently on hold because of the large capital investments required and low coal prices. Moreover, many of the projects have been suspended because they are export-market driven and require the establishment of railroad infrastructure to Namibia or Mozambique to deliver coal to the international markets.

Coal is a troublesome energy resource. It is cheap and readily available. One tonne of coal, which costs about $50 on the world market, contains 24 000 MJ of energy—or approximately four times that of a $50 barrel of oil. Despite its high energy content, coal needs to be converted into another energy form to be useful: this could be as electricity or, in the case of the Sasol operations in South Africa, into liquid hydrocarbon fuels.

The ready availability and high energy content of coal is offset by the high levels of pollution associated with its use. Coal consists largely of carbon, as well as varying amounts of hydrogen, oxygen, nitrogen, and sulfur. Coal used for electricity generation normally has a carbon content greater than 75% and also contains compounds of aluminum, calcium, and silicon that form ash when the coal is combusted. Coal is also contaminated with deleterious metals, such as cadmium, mercury, selenium, lead, and others. The key problem associated with coal is that, on burning, it releases these nasty elements, as well as fine particulate matter, sulfur dioxide, nitrogen oxides, and carbon dioxide: these all end up in the off-gases and are released into the environment. Some coal plants incorporate expensive particulate-capture and gas-scrubbing units to reduce the emissions, but considerable quantities of these pollutants are still released into the atmosphere. In terms of greenhouse gases and increasing levels of carbon dioxide in the atmosphere, coal is particularly bad and coal-fired electricity is the largest contributor to man-made carbon dioxide emissions.

Coal or fly ash is another problematic byproduct of coal combustion. This consists largely of a fine, non-combustible silica and calcium oxide residue and can contain appreciable amounts of deleterious elements like cadmium, chromium, and others. The ash is stored on-site at power plants or is disposed of in landfills. In some cases, it can be used as a component of Portland cement.

It is all these nasty byproducts (deleterious metals, coal ash, carbon dioxide, fine particulates, and sulfur dioxide) that are behind the widely accepted assertion that coal is a dirty fuel…And this does not even begin to consider the issues associated with coal mining—which is a dangerous, difficult, and complex operation that has significant environmental impacts. Mined coal cannot just be used as is: it needs to be treated through various mineral-processing operations to upgrade its quality and reduce the portion of non-coal components. This beneficiation requires water and also produces a significant quantity of byproducts – known as middlings and discards. These byproducts can represent up to 50% of the mined ore and are typically accumulated on site at the colliery and stored indefinitely. Moreover, the sulfur in this mining waste reacts with air and water to form sulfuric acid which leads to acidic runoff, known as acid mine drainage, which, if not controlled, can contaminate local water supplies.

In a future post, I will take a look at “clean coal” and the many options available to mitigate the harmful effects of coal combustion. Each of these approaches has pros and cons, but in every case there is a significant economic penalty to be paid. As a result, promoting coal projects with state-of-the-art clean coal and pollution control installations requires enormous political will, stringent regulations, and the willingness to take on increased capital and operating costs—which will ultimately result in higher electricity costs. This is a price that many less developed countries are simply not in a position to pay.

When I cover coal as an energy source with my MBA students in the Energy and Sustainability track at Franklin Pierce University, I have them consider the entire value and utilization chain associated with coal, along with its inputs and outputs, so that they can appreciate the complexity and implications of the coal-fired electricity business. A summary of this value chain is reproduced below. As can be seen, the coal-fired electricity business is complicated, with several energy, water, and labor inputs and numerous outputs that have significant impacts on the environment. All of these energy and water inputs and the polluting and harmful outputs need to weighed against the benefits of useful electricity generation—without which our modern lives would not be possible.

Despite these drawbacks, coal will continue to be a very important fuel for a very long time all around the world. Some countries are moving away from coal and closing down aging coal plants, but these countries possess alternative sources of energy, such as those of natural gas and nuclear reactors, and, in some cases, renewable energy from solar and wind. These alternatives are not options for less developed countries like India, China, and much of Africa at present: coal will continue to be a very important part of the energy supply in these countries, regardless of the long-term environmental impacts. Ideally, one would like all coal-related projects to carefully evaluate the long-term environmental impacts of coal mining and coal burning against the immediate benefits of electricity production, but, unfortunately, this is (for various reasons) not always done.

Exploiting the coal resources in Botswana is a challenging endeavor. Mining is straightforward, but, once mined, the coal becomes a stranded resource. It is difficult to export due to the lack of direct rail links to the port of Walvis Bay in Namibia or to Mozambique via Zimbabwe, and there is limited rail traffic to Richards Bay in South Africa. Moreover, exporters of Botswana coal have to compete against large established coal mines in South Africa that have better access to transportation and export networks. There have been several proposals to build rail links to Namibia or Mozambique, but, owing to the cost of these rail links and low prices for coal, there has been little progress of these beyond the discussion stage.

The world is presently awash in coal: demand in countries such as the US and China is down; there is an excess of supply from coal-exporting countries like the United States, Australia, and Indonesia; so coal prices are depressed. The figure below shows spikes in coal prices in 2008 and 2011, which drove a lot of the interest in coal mining and coal-based projects. Since then, however, prices have fallen off considerably and are currently the lowest they have been in the last 10 years.

Source: InfoMine**

The exploitation of coal resources in Botswana is further complicated by the present water crisis in the country. As shown in the value chain above, coal mining and electricity generation require a great deal of water: any coal-related projects need to ensure a steady supply of water in the face of challenging shortages in the country.

Overall, coal exploitation in Botswana can be viewed as being under pressure from five directions, as shown in the figure below: 1) capital investment, 2) coal prices, 3) water resources, 4) environmental impact and increasingly stringent legislation, and 5) lack of transport infrastructure. Pressure can be relieved, to a degree, by exploiting these resources internally, such as by building more in-country power plants and perhaps even coal-to-liquid operations. Even so, such projects need large capital investments, large water requirements, and will still have significant environmental impacts. The successful exploitation of coal in Botswana will require dealing with all of these factors.

In my next blog, I will take a closer look at coal projects that do not involve the generation of electricity, particularly those involving coal-bed methane and coal-to-liquid production. Until next time, remember to turn the lights out when you leave the room so that less coal has to be burnt.

Tsamayang Sentle***

Mike Mooiman

mooimanm@franklinpierce.edu

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(*Greetings in Setswana)

(**Coal pricing is complicated: it depends on source and destination locations, quality, ransportation, and a host of other factors, so I have just used the North American Central Appalachian price (CAPP) as a proxy for international coal prices.)

(***Go well or Goodbye in Setswana)