Nampower Turkeys Vote for Early Christmas

                      Nampower Turkeys Vote for Early Christmas

Last week’s announced electricity price increase of 8%, which is above the current rate of inflation of 6.7%, is part of a long painful series of price increases that has been demanded by Nampower. Last year the approved increase was 16%. These huge price increases are driven by a number of factors including catch-up on past electricity prices. Nampower has a plan to increase the price of electricity to consumers at a rate of 15% per annum until 2020, that is assuming that the Electricity Control Bard (ECB), the government’s regulator, will allow them to do so. But even if this commercial folly is permitted by the regulator there have been some fundamental technological changes in electricity generation that set clear limits to the path of price escalation that Nampower is pursuing.

On the supply side the country remains dependent upon two source of power. One is form the Ruacana Hydro projection the Kunene which supplies some 345 MW of power, another 80 MW comes intermittently from the Van Eck coal fired plant in Windhoek. Both of these work intermittently depending on the rains in Angola and the supply of expensive trucked coal for Van Eck. This creates potential installed capacity of approximately 480 MW  in 2016. While peak demand in July 2016  was approximately 600 MW. The second source of power is based on imports mainly from South Africa which in a “normal” year supplies 60% of the country’s energy needs . While Namibia is committed to increase domestic capacity, the situation which existed from 2008 onwards when  Eskom did not have the capacity to supply South Africa’s demand, let alone the neighbouring markets of Namibia, Botswana and Zimbabwe has now completely changed.

 Demand for electricity in South Africa has started to fall while capacity has started to increase substantially. Eskom now proudly says that it has 4GW of excess power and this is only set to increase. By 2022 the two thermal  mega-plants at Kusile and Medupi are set to be operating at full capacity. South Africa’s capacity will then rise to 55GW, almost double current demand. The decline in demand in South Africa is a disaster for all concerned, as much as the load shedding was of several years ago. The excess demand is a sign of the weakness of the South African economy.

Electricity consumption is always a good indicator of just how  an economy is doing and the decline in demand is widely seen as a ‘Zuma’ effect and the lack of confidence in South Africa by the business community.

 As a result, Eskom is now hungry to sell its excess capacity to its neighbours and this will make developing local capacity all the more difficult as it will now be willing to make contracts that are cost reflective but coal fired plants are still amongst the cheapest. This will only encourage a return to the bad old days of  complete  dependence on South African supply and will  only breed future energy insecurity because when Zuma finally  leaves and simultaneously the economy begins to recover, South Africa’s appetite for electricity increases, we could see a repeat of the situation that existed over the period 2008-2015. This is a complete  reversal of the situation just two years ago where South Africa’s neighbours, including Botswana and  Namibia, were forced to buy electricity from Eskom at ‘spot’ prices, i.e. the highest prices which are linked to the cost of generating electricity using diesel generators. It was these exorbitant prices that were charged to Botswana and Namibia to keep the lights on that Namibians seem to be paying for now in higher prices agreed by the Electricity Control Board.

 But something almost unnoticed has also happened in Namibia. In 2015 the government agreed to the development of what is called a ‘’feed in tariff’’ to allow the development of solar PV and wind powered systems. License holders can charge 1.37 Nam$ per kWh generated from a 5 MWSolar PV plant. These were prices that were considerably above the price normally paid for electricity by Nampower from Eskom.   Four small 5 MW plants are already in existence in Omaruru, Otjiwarongo, Tsumeb and Grootfontein and a total of 70MW of similar types of plants are expected to go on grid by mid 2018. On top of this, the regional electricity distributors to which Nampower sells,  such as the City of Windhoek along with other towns  have agreed to pay a price for electricity generated into the local grid by private suppliers at what is called the ‘’avoidable cost’’ which is approximately $1.13 per kw hour. This will mean that when I set up a solar unit on my roof and I generate more electricity than I need at home my electricity meter will start going backwards and I will be credited $1.13 for every kwh that I generate at home.

 What is happening to electricity generation  globally as well as in sun-blessed Namibia is nothing short of  a brave revolution where solar power will  do to Nampower what the cell phone did to landlines and to Telecom Namibia. I will soon be both a producer and a consumer of electricity. The only real question is does this make any commercial sense for me personally? Installing a solar system including the most important component, which is a solar hot water system, will pay me back in 5-7 years. By that time I will have paid back the $80,000 or so investment and stopped paying the City of Windhoek anything significant and they will start paying  me.

While  the capital cost of installing a solar system at home is still fairly high it is now appearing like it is viable here. You can get a tailored loan from banks like FNB to install home solar systems. What is certainly the case is that the price of installing solar costs is continuing to fall and it will, in a few years, become normal for people in Namibia to generate their own power at home.

 

Namibia, has committed  at global  climate change conferences to have 70% renewable power by 2030. Given the relatively  high price that was agreed initially to be paid for solar, N$1.37per kWh for a 5MW facility,  as solar  expands Nampower will no doubt be coming back to the ECB asking for ever greater electricity prices which will only accelerate the switch from them to home generated power. Nampower’s pricing policy of asking for 15% per annum is like the proverbial turkey voting for an early Christmas.  

 There is a more important development issue as Namibia plans to be not only environmentally sustainable but also to industrialize. If one looks at the history of resource rich countries that have actually transformed their economies, whether it is Malaysia or South Africa they have done it with cheap electricity. There is nothing cheap about the green road Namibia is now travelling and it will only serve to make manufacturing in Namibia even more expensive. Namibia cannot industrialize with expensive electricity and certainly it will not be able to beneficiate base metals which are particularly energy intensive. The best way around this is a clear two tiered pricing system based upon high prices for consumers and much lower prices for industry based on the cost of generating hydro power from Ruacana. Hydro remains the cheapest way to generate electricity and a price of electricity based on this will help give industry some relief from the high cost of environmental sustainability to which the government is committed.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.