Power crunch expected in 2011

London - South Africa will meet its power requirements for this World Cup year but further ahead the situation is much tighter, state utility Eskom's acting chairman and chief executive Mpho Makwana said on Thursday.

Makwana told Reuters in an interview Eskom's power margin between supply and demand will be a maximum 3,000MW in 2011, even tighter than in 2010's World Cup year.

"This year we will generate 40 700MW against demand of just under 36 000MW, giving a margin of 3 000MW," Makwana said.

"But in 2011 the reserve margin will be even tighter," he said, adding Eskom was importing power from neighbouring countries and buying power from independent power producers in 2010 to ensure adequate supplies during the World Cup.

Eskom has signed deals with oil and coal company Sasol and Sappi to buy 500MW from each in 2010, rising to 1 000MW each in 2011.

Sasol's Secunda plant could supply just under 2 000MW to Eskom through the grid, Makwana said.

Eskom's failure to secure a 35 percent hike in electricity tariffs had deepened the shortfall for new plant investment to more than R40bn, Makwana said.

Until 2013 brings new generation capacity, Eskom will remain vulnerable to load-shedding and needs to take action to cut consumption wherever possible.

Smelter cutback?

Eskom is in urgent talks with mining giant BHP Billiton on the power supply contracts to BHP's South African aluminium smelters.

Eskom has less than 10 deals with industrial consumers to supply power outside its usual tariffs.

The power contract with BHP's smelters which links power tariffs to aluminium prices is the highest profile of these.

The two smelters in Kwa Zulu Natal use more power than Johannesburg when operating at full capacity.

During the 2008 power crisis, the government was urged to cut power to the smelters to ease pressure on the grid.

Eskom's revenues took a big hit in 2009 because aluminium prices fell due to oversupply, which persists in 2010.

BHP's Hillside and Bayside smelters which make aluminium metal for export from alumina imported from Guinea employ around 2 000 people.

"We are in teams negotiating with BHP. It is urgent for us. It is happening," Makwana said, referring to smelter contract talks.

Aluminium sources said they expected Eskom and BHP would agree a revision of the power contract to allow prices to rise over a period of years rather than in one hike.

Makwana, who took over from former CEO Jacob Maroga, said he had no interest in a permanent CEO position at Eskom but he did not rule out becoming chairperson, if that is what the government decides.

Eskom held the first interviews for a permanent CEO on February 12 and will soon interview four internal candidates and 3 to 4 external candidates and both groups include women, he said.

Makwana said Eskom wanted to attract investors, partners and employees who would help the utility create a fresh outlook and not just concentrate of solving immediate crises.

The need for fresh thought and comprehensive planning would be reflected in South Africa's end-May second Integrated Resource Policy (IRP) which will include nuclear, solar and wind power, he said.

Eskom is seeking to borrow $5bn from the World Bank of which $500m will fund large-scale solar projects which could produce baseload power, he said.

"We need to substantially add generation by 2025 and to include renewables but we need to ensure we address primary baseload generation - wind power is not entirely dependable as the Germans have found out," he said.

"We have a lot of sunshine but solar is costly. A 1 500MW solar plant costs R200bn, compared with R140bn for the Kusile clean coal plant," he said.

Solar power could help significantly to take pressure off the overburdened grid, Makwana said.

If 1 million South Africans take up the offer of subsidised domestic solar panel fitting, this could cut 2,500MW of demand from the grid by 2012.