2008:power and the economy
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POWER & THE ECONOMYPOWER & THE ECONOMY
Keith Jefferis
March 19, 2008
Structure of Presentation
� Consumption Trends – Short and Long-Term
� The Mining Sector
� Supply & Demand Forecasts
� Conclusions� Conclusions
Short & Long-Term Consumption Trends
Electricity Consumption & Economic Growth (Non-mining)
8%
10%
12%
14%
16%
5%
6%
7%
8%
9%
10%
Electricity
GDP
� Chart compares annual growth rates of non-mining electricity consumption and non-mineral GDP
� Both are cyclical (boom & recession)
� Track each other very closely –electricity consumption closely related to growth
0%
2%
4%
6%
8%
0%
1%
2%
3%
4%
5%
Electricity
GDP
NMGDP Electricity
related to growth
� 1% increase in non-mining GDP associated with 1.6% increase in non-mining power consumption
� Makes electricity consumption a useful leading indicator of economic activity
� Sharp fall in power supplies in Q1 2008 will lead to negative GDP impact unless power consumption efficiency increased
Long-term Consumption trends
200
250
300
Monthly Consumption (MWh ‘000)
� Very rapid growth in power consumption� 1998: avg 134,000
MWh/m� 2007: avg 268,000
MWh/m
0
50
100
150
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Mines Non-mining
MWh/m� doubled in 9 years
� Average annual growth 1998-2007� Total: 7.8% a year� Mining: 5.3%/yr� Non-mining: 9.8%/yr
Power Intensity of GDP
140
160
180
200
Index (1997/98 = 100)
� GDP growth avg. 5.8%
� Power consumption has grown faster than GDP (except 2006/7)
� Hence units of power consumed per unit of GDP produced has
80
100
120
140
Index (1997/98 = 100)
GDP Power
consumed per unit of GDP produced has increased
� Increased dependence upon electricity� e.g. increased household
electrification
Monthly Pattern of Power Consumption (Peak Demand, 1997-2007)
2%
4%
6%
8%
Deviation from average (trend)
consumption
� Regular pattern of peak power demand� Lowest in summer (Jan-
Mar)� Highest in winter (Jun-Jul)
System stress is most
-6%
-4%
-2%
0%
2%
Deviation from average (trend)
consumption
� System stress is most intense in peak periods
� Maintenance planned for summer period, but can be caught out by unexpected events (rain, cold)
Mining Sector
Mining Power Consumption
� Mining sector is major power consumer� 41% of total in 2007� down from 47% in 1998
� Major consumers:Orapa/Let’kane28%
BOTASH 1%
Tati Nickel12%
Mupani Gold3%
Major consumers:� BCL – copper/nickel
smelter (Selibe-Phikwe) –36%
� Debswana –Orapa/Letlhakane –28%
� Debswana - Jwaneng 20%
28%
Jwaneng
20%
BCL 36%
Mining in the Economy - GDP
Trade, hotels etc.
11%
Govt16%
Soc. & Per. Serv4%
� Mining dominates GDP
� 42% of total in 2006/07
� Share of power consumption in line with
Mining42%
Manuf4%
Water & elec2%
Constr.4%
Trade11%
Transp. & comms
4%
Fin. & bus. Serv11%
consumption in line with contribution of mining to the economy
Exports (2007)
Nickel/copper17%
Soda ash1%
Gold
� Minerals comprise 82% of exports
� Diamonds dominate at 63% (but lower than in recent past)
� Nickel & copper second largest
Diamonds63%
17%Gold1%
Other18%
� Gold & soda ash relatively minor mineral exports
� Importance of minerals in exports means that power supplies to mining sector are a priority
Major Mining Projects
� Major mining developments under way� BMR Activox refinery (Tati)
� Tati Nickel expansion (Selkirk)
� Debswana – Orapa & Jwaneng expansions
Mowana copper mine (Dukwe)
BPC Projections
Project Current 5 years
Tati Nickel 39 113
BCL 65 65
Orapa 44 93
� Mowana copper mine (Dukwe)
� Lerala diamond mine (Diamonex)
� AK6 diamond mine (Orapa) (African Diamonds)
� Gope diamond mine (CKGR)
� 80% increase in power demand projected over next 5 years
Jwaneng 41 77
Mowana 7 ??
Lerala/AK6 ?? ??
TOTAL 216 390
Supply & Demand Forecasts
Sources of Supply
150
200
250
300
‘00
0 M
Wh
/mo
nth
� 3 main sources:
� Morupule
� Eskom
� Other imports
0
50
100‘00
0 M
Wh
/mo
nth
Morupule Imports - Eskom Imports - other
� Other imports (ZESA/HCB/EDM)
� Shares in 2007
� Morupule 20%
� Eskom 72%
� Other 8%
Power Supply Issues
500
600
700
800
Peak demand (MW)
Emerging Supply Deficit � Peak demand increasing at around 11% p.a. 2008-2011
� Non-mining 9.8%
� Mining as per BPC ests.
� Over 750MW in 2011
0
100
200
300
400
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Peak demand (MW)
Morupule Eskom Deficit
� Eskom firm supply reducing from 2008-2011
� 2008,9: 350MW
� 2010: 250MW
� 2011: 150MW
� Eskom can cut up to 10% if load shedding in SA
Power Supply Deficit
30%
40%
50%
60%
400
500
600
700
800
% of peak demand
Peak Demand (MW)
� Anticipated shortfall on existing trends:� 2008: 0 MW� 2009: 70MW� 2010: 239MW
0%
10%
20%
30%
0
100
200
300
400
2008 2009 2010 2011
% of peak demand
Peak Demand (MW)
Eskom/BPC HCB/ZESA
Deficit % of demand
� 2010: 239MW� 2011: 412MW
� Remember:� peak demand is in
winter!� Eskom may be unable to
supply contracted amounts
Supply Options
� Short-term� Mozambique (via Zimbabwe)
� HCB – 60MW contracted in 2008
� 2009 - ?
� EDM - ?
� SA (Eskom), Malawi, Tanzania chasing the same power
� Medium-term� Diesel
� Available, flexible – but expensive
� Coal-bed methane� Not yet exploited
� Needs substantial investment in extraction
� Zimbabwe (ZESA)� Send Botswana coal to Bulawayo
and share power 50-50 (45MW)
Needs substantial investment in extraction
� Solar (PV/steam)� Resources plentiful (sunlight)
� Large-scale generation still experimental internationally
� With current technology, not competitive with coal for grid power
� Competitive for remote/off-grid settlements
� Technology changing fast
Supply Options
� BPC tender for 240MW from IPP by 2009
� At tender review stage:� Coal-bed methane (1)
� Diesel (3 proposals)
� Medium/Long-term� Morupule B (expansion, BPC)
� 600MW
� Tender award stage
� BPC timelines appear highly optimistic
� Mmamabula (CIC/IP)� Mmamabula (CIC/IP)� 2100-2400MW, 2013?
� BPC entitled to 25% offtake
� Bogged down in tariff negotiations with Eskom
� Morupule C� A further 600MW - 2015?
� Aviva, others
Price Impact
� Current BPC retail tariff� 40t/kWh
� Approx 6 USc/kWh
� Average Eskom tariff� Approx. 18 c/kWh (2.5 US
c/kWh)
� Cost per kWh of different options (new capacity, US c)� Hydro
� 2 – 4 c
� Coal � 6 – 8 c
Small-scale Dieselc/kWh)
� Steep price rises programmed, to fund new investment
� Will still be cheap by international standards
� Small-scale Diesel� 25 – 35 c
� Solar� 15c?
� Major tariff increases inevitable
� Short-term capacity (diesel/gas) likely to need large government subsidies
Conclusions
Concluding Points
� 2008 supplies should (just) balance demand, assuming no major Eskom problems, but winter (June-July) will be tight
� 2009 – 2011 supply/demand balance worsens sharply, both in Botswana and in SA
� Supply to diamond mines must be
� Solutions:
� Supply Side Enhancement� Expedite Morupule B (“national
emergency!”)
� Businesses - invest in expensive standby generators
� Actively encourage IPPs
� Short-term solutions (Diesel generators)� Supply to diamond mines must be
fully maintained
� Power cuts have major negative impact on:
� productivity
� business confidence
� investment climate & new investment
� economic growth
� Demand Side Management (DSM)� Defer major projects?
� Mothball BCL smelter (Selebi-Phikwe)?
� Rationing of industrial/ commercial/residential consumers
� Time-based metering/tariffs
� Energy-saving awareness
� Significant price increases inevitable:
� funding expensive new capacity, both long-term and short-term
� encourage more efficient consumption
Long-term Prospects
� Much more positive outlook for Botswana & region� Mmamabula
� Other major coal-fired generation projects
� Botswana and SA have major unexploited coal reserves
� BUT� Global warming/ climate
change issues may impact on coal-fired generation
� Obligatory carbon pricing / sequestration would add to costs of coal-fired powerunexploited coal reserves
� Rehabilitation of capacity in Zimbabwe, Zambia, DRC
� Grand Inga hydro (DRC)/ Westcor (30 000+MW)
� In ten years could have surplus of cheap power again – unexploited hydro and coal resources
costs of coal-fired power
� Would make hydro, solar (& nuclear) much more attractive
� Economics of power generation in flux!
Thank You
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