Investors baulk at putting up local factories due to electricity risks
Namibia’s over-reliance on imported electricity, this week claimed its first investment victim when a consortium of investors who attended the Investment Conference in November 2016, said they view the country in a very favourable light but after analysis of available energy data, the security of future electricity supply stands out as a major risk.
Speaking to the Economist on the condition of anonymity, the consortium’s spokesperson said their investment team is looking for suitable investment destinations in southern Africa to expand their industrial manufacturing base. Namibia was one of the countries at the top of their list after they attended the Investment Conference and Exhibition.
According to the consortium, energy is the biggest portion of the operating cost of their industrial plant and they were therefore looking in detail at the stability of electricity supply as this can pose a major risks to their operations.
“Our studies were going to conclude mainly in favour of Namibia but when we looked at the security of the electricity supply in Namibia, we had to reconsider due to our analysis and were shocked to discover that Namibia is dependent on their electricity supply on a few single points of failure and seem to be insecure in the long term. This surprised us and we wanted to share our findings with you,” the spokesperson told the Economist this week.
Despite the country’s power utility, NamPower’s mandate to reduce the importation of power from neighbouring countries, as well as Harambee Goal # 11, “Increase in local electricity generating capacity from 400MW to 600MW”, the analysis conducted by the consortium on the data on NamPower’s SCADA dashboard for June to September 2017, revealed that Namibia has imported approximately 97% of the average daily consumption.
The analysis revealed that 97% of NamPower’s average hourly power load from outside Namibia in September 2017 (465MW out of 480MW) indicated that 77% came from South Africa, 2% from Zimbabwe, and 18% from Zambia.
NamPower in their 2016 Annual Report, issued in March 20l7, stated the importance of ensuring Namibia’s security of supply.
“Fulfilling our mandate of ensuring security of supply has come at a very high cost. This is not sustainable in the long run, and therefore to lessen the reliability on imports which poses a strategic risk, and to curtail the flight of capital, we need to invest in our own local base load power generation plant as a matter of urgency. Of the total 4505 GWh units of electricity into the Namibian system during the year under review (2016), 68% (2015: 64%) was imported from the region”.
The statement by the power utility is in contrast to the analysis which the consortium said indicates that Van Eck has been running an average of 4 MW over the year, with Paratus and Anixas not producing a single MW.
The Economist in its own analysis of the SCADA dashboard found that for the past three months, NamPower was generating zero local electricity except for the daily 14 MW from solar.
“Namibia has really huge potential to attract foreign investments and host industries which would also be the starting point of development and increasing employment opportunities. It is however unfortunate that we can not invest in a country that can not supply their own electricity in support of their industry and the economy,” the consortium explained.
Furthermore in their analysis, they said that the National Integrated Resource Plan which refers to, “The White paper objective states that 100% of peak demand and 75% of the electric energy demand will be supplied from internal sources”.
Pointing out the weakness in NamPower’s ability to control the price of electricity, the consortium said that NamPower entered into a supply contract with Eskom earlier this year at N$ 0.80 in off-peak hours and N$ 1.24 during peak hours. In May this year, the Electricity Control Board allowed NamPower to increase electricity prices by 8% for the utility to be able to cover its financial obligations including the payments to local, independent power producers.
But the consortium said NamPower has not been able to successfully implement any real IPPs, with the average supply from the solar plants implemented in the last years oonly 9 MW and no base load power added, even though the consumers are currently paying more, while projects like Kudu continue to hang in the balance.
The consortium conceded that developing new power infrastructure is costlier than the use of established power infrastructure but is required if long-term economic security and investment is the focus.
“From the Fitch report they rightly stated [that] a new electricity generation plant would improve NamPower’s security of supply; however, it is likely the cost per megawatt hour (MWh) would be more expensive than the current imported energy,” the consortium stated.
“NamPower can rely on the oversupply from SA [in the] short term but has to do the right thing and use the savings from this to plan and invest in an environmentally friendly dispatchable power supply, that will in the long-term provide Namibia with the security of supply and buffer if the Southern African Power Pool is under pressure” they added.
“Given the growth of the Namibian economy and potential step-up in demand from extractive industries, demand will continue to outstrip domestic generation,” they concluded.