'New projects for power demand'

"It is IPSA's challenge to install and commission fast-track gas turbine capacity to meet the ever-widening gap between supply and demand for power in South Africa," said IPSA chairman Stephen Hargrave.

IPSA commissioned a combined heat and power generation plant in Newcastle, KwaZulu-Natal, and took the first steps towards making Coega South Africa's first integrated liquified natural gas-to-power project in 2007.

Both projects provide an important diversification away from the dependence on South Africa's northern coal reserves.

The group's other principal power project is the Elitheni project to develop a clean coal technology plant in the Eastern Cape.

Reporting its annual results for the year to end September 2007, the independent power producer earned its first commercial revenues from its operations in South Africa.

The AIM- and AltX-listed group reported revenue of £37m for the 12 months to end September but as anticipated, the group made an operating loss of £942 000 during the year - more than double the £364 000 operating loss reported the year before.

Its loss for the year also doubled to £2.85m from £1.03m.

"Economic growth inevitably leads to an increased demand for electricity," said Hargrave.

"South Africa still needs a further 6 000MW to replace the reserve capacity that has been eroded by many years of inaction," he said.

"South Africa needs a minimum of 3 000MW of new capacity every year just for the supply-demand balance to stand still," he added.

But he warned that while South African power utility Eskom had announced a number of initiatives to build new coal-fired power plants, the lead time for coal-fired capacity is such that it will be up to seven years before the full benefit of this investment programme would be felt.

During 2007 IPSA signed a memorandum of cooperation with the South African government's Central Energy Fund to integrate IPSA's project into the national energy plan for the Industrial Development Zone at Coega.

Under the agreement, IPSA would install a 521MW open-cycle gas turbine plant outside Port Elizabeth, and would look at constructing a further four plants with the same capacity and technology at a later stage.

This would add an additional 2 600MW to IPSA's capacity in South Africa.

IPSA's 1 600MW Coega fast-track combined-cycle gas turbine project is already under way.

The project is being developed in collaboration with PetroSA and iGas so that new privately financed power generation capacity can be rapidly installed.

IPSA chief executive Peter Earl said while there is an urgency to install new power capacity, power plants cannot be built overnight.

Aside from the complexity of the plants, power generation shortages elsewhere have meant the lead times for turbines and boilers are being extended across the globe as other countries compete for equipment delivery.

But he said IPSA's track record in using "grey market" equipment to cut lead times and to install fast-track power blocks.

"IPSA is well placed to deliver fast open-cycle capacity at Coega and at Elitheni, but its management is facing ever greater challenges to repeat the success of finding fast solutions for turbine procurement," said Earl.

"The greater realism in South Africa as it faces a winter of continued load-shedding means that some of the regulatory obstacles IPSA has faced in getting its capacity dispatched into the national grid will not be repeated in 2008 and 2009.

"We therefore look to the future with optimism and we expect to announce other new power generation projects, supplying Eskom, municipalities and mining companies as they seek to meet electricity demand with new independent power producer capacity supplied by IPSA," Earl said.

At 11:11 shares in IPSA were 10 cents up at 1 310c on the JSE's AltX.

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