namibia electricity supply demand options march 2008 final

8/8/2019 Namibia Electricity Supply Demand Options March 2008 FINAL

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MINISTRY OF MINES AND ENERGY

Renewable

Energy &

Energy

Efficiency

InstituteREEECAP

Renewable Energy and Energy Efficiency Capacity Building Programme

Electricity Supply and DemandManagement Options for Namibia.

A Technical and Economic Evaluation.

FINAL REPORT

March 2008

Prepared by:

P O Box 1900

Windhoek

Namibia

Tel + 264 - 61 224 725

Fax + 264 - 61 233 207

Email [email protected]


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Electricity Supply and Demand Management Options for Namibia. A technical and economic evaluation.

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Executive Summary

The Executive Summary starts with a presentation of key findings a summary of thesummary before giving the full executive summary:

KEY FINDINGS

The Namibian electricity industry stands at a cross roads. Domestic electricity generation isnot adequate to meet current and future projected demand. To complicate this, supplyconstraints in South Africa are resulting in Eskom not being able to meet South Africanelectricity needs let alone those of Namibia. The cost of sourcing electricity has almost tripledin the last eight years.

The study developed eight generation scenarios that aimed at illustrating differentapplications and interpretations of the Namibian energy policy as defined in the 1998 WhitePaper on Energy Policy. This energy policy spells out a number of goals that shouldinfluence the decisions on how to procure electricity.

This report will show that decisions need to be taken and these decisions need to be takenquickly. The price for a lack of action today will be very high indeed.

This study set out with three objectives.

The first objective was to determine whether Namibia can meet its electricity demands.

It was found that this can be done but urgent action is required.

Continued reliance on imported electricity could result in blackouts equal to 10% ofelectricity demand by 2012. This has serious economic implications. It will impact onlivelihoods and destroy jobs.

Demand side management is economically efficient. It has a role to play in avoidingblackouts and should be implemented as a matter of urgency.

The second objective was to identify generation and demand management options within thecontext of the White Paper. It was found that:

Relying on imported electricity is the worst option. It is economically inefficient, resultsin the most blackouts and pollutes the global village.

The most economically efficient mix is a balanced combination of a wide variety ofgeneration options. This is cost effective, creates jobs, generates incomes and keepsemissions low.

Other, more specific, policy options like energy security or maximising the diversity ofsupply involve difficult tradeoffs between cost, blackouts, emissions, etc.

The third objective was to determine the role that renewable resources could play. It wasfound that:

The use of some renewable resources is economically efficient.


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Within a balanced generation mix:

o Renewables, other than hydro power, could supply up to 20% of demand at aslight price premium.

o When hydro power is included, renewables could supply up to 90% ofelectricity demand.

o Renewables reduce future price risk, resource risk, supply risk and emissions.

o Renewables create jobs and contribute to gross value added (GVA).

INTRODUCTION TO THE EXECUTIVE SUMMARY

The Namibian electricity industry stands at a cross roads. Internationally high oil andcommodity prices have had a ripple effect on the price of gas and coal. Energy prices areescalating at alarming rates. Global warming and a growing awareness of the damagegenerated by fossil fuels is seeing increasing pressure on countries to turn to other ways ofgenerating energy. Within Namibia there are growing misgivings about the Van Eck dry coalfired power station on the outskirts of Windhoek. And Eskom, the South African power utilitythat supplies half of Namibias electricity, has not been able to keep pace with electricitydemands in South Africa and is being forced to reduce power to parts of South Africa andneighbouring countries. Compounding this is the historic availability of cheap electricity fromEskom which has been an inhibiting factor to the construction of any new power stations inNamibia and to this day dominates the price expectations in Namibia.

At the same time Namibia has very limited options with using the traditional generationtechnologies of coal fired, hydro or nuclear power. Namibia does not have any coal reserves

that have been proven to be exploitable and must import coal. It is simply cheaper to importelectricity from South Africa than import South African coal. Namibia is a very dry countrywhich limits hydro options. Nuclear is an option but is constrained by high capital costs and arelatively small skills base.

Yet there are opportunities. Namibia is one of the sunniest countries in the world. There arefeasible wind resources at the coast. There is a major offshore gas field. In the north of thecountry there are thousands of hectares of alien vegetation that desperately need clearingand are an obvious fuel source. There is the Kunene River that holds promise for additionalhydro power.

This report will show that decisions need to be made and these decisions need to be made

quickly. The price for a lack of action today will be very high, already in the near future.

This study develops eight generation scenarios that aim at illustrating different applicationsand interpretations of the Namibian energy policy as defined in the 1998 White Paper onEnergy Policy. This energy policy spells out a number of goals that should influence thedecisions on how to procure electricity. The Energy White Paper identifies self-sufficiency,security of supply, inclusion of renewable energy source, sustainability and costeffectiveness and efficiency as potential policy objectives.

This study therefore aims to inform the policy interpretation and application process inNamibia by illustrating what the various policy drivers might mean in practice, both at atechnical and financial level and in terms of the economy. To our knowledge this is the first

comprehensive study for Namibia that considers alternative energy sources and fossil fuel


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and hydro electricity generation options. It also explores in detail the financial and economicimplications of various possible supply mixes.

THE CHALLENGES:

Namibia produces power locally and imports about half its electricity, with the bulk of thisbeing supplied by Eskom in South Africa and the balance by ZESCO in Zambia. NamPoweralso imports on a smaller scale from Zambia for supply to the Caprivi Region and exports ona small scale to Angola and Botswana. There are currently three power stations in Namibiawhich are owned and operated by NamPower, i.e. the Ruacana hydro-electric power station,Van Eck coal-fired power station, and the Paratus diesel power station.

The challenge faced by Namibia is that domestic generation is not adequate to meet currentand future projected demand. To complicate this, supply constraints in South Africa areresulting in Eskom not being able to meet South African electricity needs let alone those ofNamibia. For the past twenty years Eskom has had surplus generating capacity and has sold

electricity at very low prices by world standards. However, slow and stagnant electricitysupply industry (ESI) reforms and government intervention in South Africa have delayedEskom capacity extension plans, resulting in the capacity shortages that are now prevalent.

Namibia has in the past had very favourable long-term contracts with Eskom, based on theexcess capacity in South Africa. A new contract has been negotiated recently, but this nolonger offers firm supply and prices are escalating rapidly due to the change from excesscapacity to supply shortages in South Africa. The nominal cost of sourcing electricity asreported by NamPower has almost tripled in the last eight years.

Namibia therefore finds itself in a difficult position. Its security of supply is compromised andpower shortages are likely during the coming years because of insufficient local generation

capacity and constrained imports. This is an unprecedented occurrence in a country that hasenjoyed a reliable and stable power supply in the past. Power outages were an uncommonand rare occurrence in recent Namibian history. At the same time electricity prices are risingdramatically due to a conglomeration of factors. This places strain on people and businessas well as on the utilities struggling to fund the necessary investments and still providequality service.

THE APPROACH

This study set out to address potential solutions to the pending electricity crisis and toexplore the role that renewable resources could play in the solution. The results to the

analysis were technical results, on the one hand, to ensure the supply of electricity isadequate to meet growing demand at a reasonable price. On the other hand the analysisalso aimed at showing the economic, social and environmental implications of the technicalanalysis.

The approach that was adopted was to start with the technical analysis and use the resultsas an input into the economic analysis.

The technical analysis starts with a demand forecast about the likely increase in demandfor electricity in Namibia. Second a range of generation options and demand managementoptions were identified, assessed and costed. Finally, these inputs were processed throughan electricity dispatch model.


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Nine feasible generation options were identified and three demand side managementoptions. The generation options are:

Baynes Hydro-Electric Power Generation Coal-Fired Power Generation Natural Gas Power Generation Nuclear Power Generation

Electricity Generation from Biomass

Concentrating Solar Thermal Power Plants Solar Photovoltaic Power Plants

Wind Energy Power Generation Integrated Solar Combined Cycle Plant

On the demand management side the options are:

Compact Fluorescent Lamp roll out

Ripple Control for water heating Solar Water Heater roll out

Following the determination of likely future demand and identification of potential generationand demand management options an electricity dispatch model was developed. The modeltakes a specified constellation of generators, demand side management options and loadgrowth and solves the dispatch equation until supply and demand balance. If it cannot matchdemand with existing supply then there is a residual called unserved energy.

The dispatch of generators and the revenue requirement for transmission and distributiondefine the cost to be recovered through electricity sold and thus determine the end consumercosts. As distribution consumers are price sensitive higher prices result in reducedconsumption, and a different dispatch pattern for the generators. The model is designed toiterate this sequence and solve for the lowest cost and least unserved energy.

Following this the generation and demand side management options were grouped into eightscenarios where each scenario attempts to depict a particular policy option. The scenariosare:

Scenario 1: Base Case. This scenario depicts a policy of using proven and conventional,large scale, centralised generation options. In this scenario only two power plants are built,namely a 350MW coal plant commissioned in 2011 and 360MW of additional hydro on theKunene River in the form of Baynes in 2017. This is augmented by increasing imports fromEskom, based on the assumption that Eskom will be able to supply increasing capacity againstarting from 2012. Van Eck power station is retired as soon as replacement capacity can beobtained from Eskom. This scenario does not implement demand side management orenergy efficiency options.

Scenario 2: No New Local Generation. This scenario centred on the analysis of doing aslittle generation as possible within Namibia and relying primarily on electricity imports. Itcould also be seen as depicting a scenario where no investment decision is made eventhough there are possible options. This scenario produces severe amounts of unserveddemand, meaning that wide spread load shedding cannot be avoided. This scenario alsodoes not implement demand side management

Scenario 3: Price minimised. This scenario centred on providing the cheapest electricity

possible while still avoiding extensive load shedding. A biomass power plant is built in 2009and expanded in 2010. A small coal plant in 2011 and a small concentrating solar plant isbuilt in 2010. This is necessitated in order to cover the time before Eskom capacity again


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becomes available. Baynes hydro opens in 2017 to harness additional the hydro potential ofthe Kunene River.

Scenario 4: Maximum Supply Diversity. This scenario centred on the analysis ofdiversifying the generation options as much as possible in order to minimise the riskexposure to any one particular energy carrier or plant technology. In this scenario a coal firedstation opens in 2011; biomass production starts in 2009 and is scaled up over the next threeyears; concentration solar starts in 2009 and is doubled in 2013; wind power takes off in2009; and a combined cycle gas turbine (CCGT) from Kudu commences in 2017. Solar PV isnot build because of cheaper alternatives nor is nuclear because of the very long lead time.Van Eck is retired and Baynes is not built because it utilises the same river as Ruacana,posing correlated risk. Demand side management is included in this scenario.

Scenario 5: Generation Self Sufficiency. This scenario centres on generating as muchelectricity within Namibia as possible. Imported fuels are part of the mix as are the importedcomponents of capital and operating expenditure on both the supply and demand side. Thisscenario calls for the construction of a small coal plant which, because of the short lead time

opens in 2011; a gas power plant which opens in 2012 as well as the Baynes hydro plantthat would come on line in 2017. These are augmented with smaller renewable plant, whichoffer short implementation times and contribute to long term supply stability and diversity.Demand side management is implemented.

Scenario 6: Energy Imports Minimised. This scenario is similar to scenario 5 but apartfrom just limiting electricity imports it aims at also minimising imports of fuel and coal. Thisgeneration mix consists of biomass starting in 2009 and scaling up over the next two years;concentrating solar and wind both coming on line in 2010 and Kudu gas coming on line in2012. It would also be necessary to build a small coal station as base load support until thegas power station can be completed. Demand side management is included.

Scenario 7: Maximum Renewable Energy Options. This scenario centred on using asmany renewable energy generation options as possible and seeks, as far as possible, toavoid fossil fuel generation. The resulting generation portfolio relies heavily on concentratingsolar (with storage) as well as biomass and wind, while also building Baynes hydro andcontinuing reliance on imports from Eskom. This is one of the few scenarios where even asolar PV plant is built despite its high price. Van Eck is retired later than in the otherscenarios. Demand side management is implemented.

Scenario 8: All options considered. This scenario was compiled because it mixes astrong renewable focus with a strong concern for supply diversity to minimise risk exposureto energy carriers and technology types. It is intended as the main counterpoint to the basecase scenario, and also seeks to bring in strong decentralised elements. This scenario relies

on a small coal plant, biomass and Baynes hydro as the backbone for 24 hour electricitysupply. This is complemented by an array of diverse renewable generators, each limited insize to ensure grid stability and cost effective grid integration as well as a balance betweendispatchable (firm) and intermittent generators. This scenario implements demand sidemanagement. The scenario has excluded the building of nuclear or gas plants. Nuclear isexcluded because of its environmental issues and long lead time. Gas is not built because ofthe current difficulties in getting the Kudu project going.

Two types of economic analysis were used. These are a cost benefit analysis and amacroeconomic analysis. Cost benefit analysis is a means of taking all the direct costs andall the direct benefits of a proposed project and comparing these. It is the conventionalmethod that is used in project appraisal. The outcome of this analysis is the reporting of a net

present value (NPV), a benefit cost ratio (BCR) and an internal rate of return (IRR). Thisanalysis is done by adjusting for shadow prices and wages and removing the potential


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distortions caused by taxes and subsidies. A high BCR is usually a good indicator that itwould be possible to raise finance to implement a project. In the case of a private sectorinvestment the good BCR would be part of the business case to funders. If it is a publicinfrastructure project, a high BCR should give confidence that it is worth funding the projectdirectly from its Treasury or, alternatively, to make suitable institutional arrangements for theinvolvement of the private sector in the projects funding.

The second type of analysis is macroeconomic analysis. This focuses on the overallcontribution of the proposed project to the national economy. It reports on contribution togross domestic product (GDP), job creation, tax generation, etc. The size of a national orregional economy is measured in terms of the sum total of all economic activities takingplace within the area concerned, both in the public and private sectors. For countries likeNamibia, this necessarily includes measures of informal sector activity as well. The namegiven to the measure of the size of the economy is GDP. Sometimes this is referred to as(GVA) which is a slight variation on GDP. The unit of measurement is the national currency.

While there are a number of different types of macro-economic effects, the two most

important are contribution to GDP and the creation of jobs. The importance of job creation isobvious. Increases in GDP are synonymous with increases in peoples economic standardsof living. Increased GDP i.e. increased production is experienced in the form of morejobs, higher wages and reduced economic hardship.

ANALYTICAL RESULTS

The analytical results of this study are presented in nine parts:

1. Cost of the Generation Options

A calculation was made of the capital cost for each generation option as the cost per MW ofgenerating capacity. These costs include the overall capital costs, which consist of theovernight capital cost, the interest during construction and the decommissioning costs. It wasfound that the generation option with the lowest capital cost is the combined cycle gasturbine, followed by wind, biomass and clean coal. The most expensive option isconcentrating solar, followed by nuclear, Baynes and solar PV.

2. Cost benefit analysis:

Base Case Without EE 15,385.3 14,086 29,471 2.09No New Local Generation -13,325.1 13,362 37 0.00Price Minimised 20,750.1 14,804 35,554 2.40Maximum Supply Diversity 20,578.0 17,225 37,803 2.19

Generation Self-Sufficiency 18,800.0 18,183 36,983 2.03Minimum Energy Imports 18,114.0 18,098 36,212 2.00

Renewables Maximised 20,463.3 15,859 36,322 2.29All Options Considered With EE 23,168.8 13,697 36,866 2.69

All amounts are given in N$ million, 2007 prices

Comparison TableNPV

Total

PV

Costs

PV

Benefit

B:C

Ratio

Table 0-1: NPVs, incremental costs, incremental benefits and BCRs

The results of the economic cost benefit analysis are presented in Table 0-1. The cost

benefit analysis is a comparative exercise which is why the no new local generationscenario has a BCR of zero - the benefits of all the other scenarios are compared to this


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scenario. The scenario with the highest BCR is the all options considered (2.69) followed byprice minimised (2.40), renewables maximised (2.29), maximum supply diversity (2.19)and the base case (2.09). The minimum energy imports has the lowest BCR (2.00). Itshould be noted that from an economic perspective this scenario is still more desirable thanthe no new local generation scenario because the BCR is greater than 1.

The following conclusions are drawn:

The all options considered scenario is the most desirable scenario from an economicefficiency perspective.

This is followed by the price minimised generation mix, the renewables maximisedscenario and the maximum supply diversity.

The least desirable scenarios are no new local generation and minimum energyimports in that order respectively.

The all options considered scenario remains the most desirable scenario even whentesting sensitivity to the inclusion of energy efficiency; changes in economic growthrates; changes in Eskom prices; increased or decreased Eskom shortages, the valueof unserved energy; and the value of carbon credits.

3. The key conclusions from an electricity price perspective are:

The no new local generation scenario has the lowest overall electricity price but thegreatest price volatility and the highest risk of unserved energy.

The maximum supply diversity and maximum renewable scenarios have thehighest electricity prices but are less volatile than the no new local generation

scenarios.

The all options considered scenario results in a price level only about 5% higherthan the price minimised and base case scenarios.

From a sensitivity perspective the all options considered scenario has a significantlylower exposure to variations in resource costs than the base case; and has a lowersensitivity to South African import constraints than the base case.

4. As far as contribution to GDP is concerned:

The renewables maximised scenario, at NAD 14.0bn, makes the greatest

contribution to GDP. This is the result of the high construction costs involved withconstructing additional capacity at the Baynes hydroelectric power station (more thanin any of the other scenarios), as well as requiring significant plant size fromConcentrating Solar power stations.

The next highest contribution is from the minimum energy imports and thegeneration self sufficiency scenario at NAD 13.1bn.

The all options considered scenario makes the fourth largest contribution to GDP atNAD 12bn.

The no new local generation scenario, at NAD 3.0bn makes the lowest contributionto GDP. The reason for this is the extremely low expenditure that would go intoproducing electricity in Namibia.


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The maximum supply diversity, at NAD 7.5bn has the second lowest contribution toGDP.

Both the base case and no new local generation have high amounts of unservedenergy which poses a significant cost to the economy.

5. From a social perspective:

Two issues are quantifiable job creation and promotion of small, medium and microenterprises (SMME).

For jobs the following conclusions are drawn:

The number of unskilled jobs outweighs the number of skilled jobs for eachgeneration scenario.

The renewables maximised scenario at 8 553, creates the most jobs. This is

followed by the minimum energy imports, the generation self-sufficiency scenariosat 5 851 and the all options considered scenario at 5 600.

The main reason for the high job creation for these four scenarios is theimplementation of the Biomass (invader bush) generation option. This is a labourintensive generation option, particularly at the unskilled level.

The option with the least job creation potential is the no new local generationscenario, followed by the base case scenario. The reason that these two scenarioscreate so few jobs is that they do not have the Biomass (invader bush) generationoption in their mixes and they are also more heavily dependent on imports fromEskom and the Hwange power station in Zimbabwe.

The following conclusions are drawn on the degree of SMME promotion:

The biomass (invader bush) generation option has the greatest potential to promoteSMME development, followed by the Baynes hydroelectric scheme and then theKudu gas field and the gas/solar hybrid generation options.

Many of the generation options will not promote much SMME development.

Scenarios generation self-sufficiency and minimum energy imports scenario scorethe highest as far as potential SMME development is concerned. This is largely dueto the Kudu, Baynes and biomass (invader bush) generation options contribution.

As would be expected the no new local generation scenario (mainly imports) scoresthe lowest, followed by the base case.

6. From a renewable energy perspective:

At the moment nearly one half of all Namibias electricity generation comes fromrenewable generators in the form of hydro power. In time the maximum renewablescenario could contribute between 90% and 100% of all of Namibias electricityneeds. In contrast, and as could be expected, the no new local generation scenariohas the lowest renewable component.


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If one excludes hydro generation then the non hydro renewable part of the maximumrenewable scenario stands at 46% in 2014 to 2017 before dropping to 25% asBaynes comes into the generation mix.

7. As far as emissions are concerned:

On average the maximum renewables scenario has the lowest emissions, followedby the generation self-sufficiency and minimum energy imports scenarios.

The all options considered scenario has the fourth highest level of emissions but isnot considerably larger than the lowest three.

On average the no new local generation scenario has the most emissions, followedby the 'base case' scenario.

The maximum renewables generation scenario continues to have the lowest levelsof emissions.

Considered over time the 'all options considered' scenario achieves the second bestlevel of emissions in the latter part of the model horizon preceded by the maximumrenewables scenario.

The no new local generation scenario continues to have the highest level ofemission even though these do take place in South Africa and not in Namibia.

All scenarios that include the Baynes hydro display a sharp drop in direct emissionswhen that power plant comes on-line.

8. There are broader social and environmental issues that need to be taken into

account:

When comparing the base case and the all options considered scenarios, it isapparent that the base case relies more heavily on fossil fuels both within Namibiaand outside its borders through Eskom imports. Although the Van Eck coal-firedpower station is likely to retire after 2012, until that time the power station is likely torelease high levels of air pollution into the atmosphere. Additional power could beavailable in South Africa after 2012 and available for import to Namibia. The lack ofdemand-side management and energy efficiency alternatives in the base casescenario avoids the role that the public and private business alike should play in theeffective use of electricity. Without such a programme in place the general publicdoes not take ownership for their electricity use nor understand the relationship that

the generation of electricity has in its impacts upon the environment.

However, there are additional environmental aspects associated with thetransmission of power that will need attention both in South Africa and Namibia.These include:

o The transmission line losses and thus, ineffective use of natural resourcesfrom the generation source to the point of use,

o The cost of operation and maintenance of land beneath the long-distancetransmission lines,

o The risks of fire under these lines, with the potential loss of power to Namibia,and

o Wildlife and bird inter-actions of power lines and the loss of power or electricitysupply interruptions to Namibia.


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Due to the mix and diversity of supply options proposed under the all optionsconsidered scenario, the environmental and social impacts should be less than thoseof a larger, centralised power station. Under this scenario, the general public will takegreater ownership of the electricity they use through the use of diverse renewableenergy options and demand side management (DSM). For Namibia, the location ofthe biomass will not necessarily be where the need for electricity is on the system.However, more localized, distributed power supply options could be considered toavoid the high carbon footprint and cost of transporting the biomass over greatdistances to a centralized power station. Also, smaller, localized systems couldsupport communities in the area of the station by buying fuel and/or employing peoplefrom the surrounding areas. If planned properly, land for biomass-for-energyproduction in Namibia should not have to conflict or compete with land for foodproduction for the country. However, this would have to be verified and is outside thescope of this study.

9. The final set of conclusions relates to a comparison of the base case to the alloptions considered scenario.

The all options considered scenario has a cumulative contribution to GDP ofNAD 12.05bn, compared to the NAD 8.98bn of the base case although the alloptions considered scenario does reduce economic productivity because theelectricity price is higher than that of the base case.

At 5 600 average annual jobs the all options considered scenario creates manymore jobs than the base case at an annual average of 2 200. This is particularly thecase for unskilled job because of the inclusion of the Biomass (invader bush)generation option in the all options considered scenario.

As far as the price of electricity is concerned the all options considered scenario has

a lower electricity price than the base case in the early years. However, from2011/12 onwards the electricity price in the all options considered scenario is moreexpensive than the base case.

The all options considered presents a lower risk profile due to less exposure to fuelprice fluctuations, greater diversity in the generation profile and higher level ofgeneration self-sufficiency compared to the base case.

Due to the utilisation of smaller generation plant and concomitant shorter lead timesthe all options considered scenario results in lower levels of unserved electricity thanthe base case, in particular in the short term.

THE POLICY IMPLICATIONS

This study set out with three objectives. The first was to determine the electricity outlook thatNamibia faces. The second was to identify generation and demand management optionswithin the context of the 1998 White Paper on Energy Policy. Here it was important todetermine the technical feasibility and economic implications of the various options. The thirdwas to explore the potential and role of renewable energy resources and energy efficiencymeasures in these generation mixes.

Namibia faces a pending electricity crisis. If Namibia continues to rely on imported electricityand does not invest in local generation capacity then unserved energy, power outages inother words, could be as high as 9.7% of total demand. Peaking in 2012/13 cumulativeunserved demand could be as high as 10.8% of total demand. It has also been shown that,


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based on some specific assumptions that a 24 hour blackout for one day a month, theequivalent of a 3.29% drop in electricity supply, would reduce Gross Value Added by up to3.7%. These calculations suggest that there could be some dramatic impacts on theNamibian economy because of the shortage of electricity.

The Energy White Paper of 1998 identifies a number of policy options including self-sufficiency, security of supply, inclusion of renewable energy source, sustainability and costeffectiveness and efficiency. Each of these has been explored separately in this study withinthe context of eight separate scenarios. What has been found is that there is no, one, singlescenario that satisfies all of the policy criteria. Some of the options are economically efficientbut do not maximise the use of renewable resources. Others are cheap but do not guaranteesecurity of supply. Others, in turn, maximise the use of renewable resources but areexpensive. The consequence is that there is trade off between the various options and thefinal decision needs to taken at the political level. What this report does is to inform on theconsequences of the various policy decisions.

There is however one conclusion that is unequivocal. Demand side management measures

should be introduced as a matter of urgency. They have been shown to be cost effective.They are desirable from an environmental perspective. Probably the most important shortterm advantage is they will help to alleviate the imminent power outages and in the long termreduce the need for generation capacity. The analysis indicates that the investment neededfor demand side management breaks even at an unserved energy value between NAD2/kWhand NAD10/kWh. Both these values are substantially less than the low value attached tounserved energy in South Africa which has been assumed at R20/kWh in the 2004 NIRP.

There is a second conclusion that is almost as unequivocal although more muted.Generation from renewable resources is desirable. It is environmentally responsible, willcreate jobs, make an important contribution to the economy and ranks well from an economicefficiency perspective. However this option is not without risks and cannot be expected to

supply all Namibias electricity need, at least in the short term. The all options consideredscenario demonstrates that, excluding hydro, it is possible to have renewable energyproducing 20% of electricity needs without escalating end consumer prices more than 7%above the cost of importing electricity from South Africa. It also avoids the power outageproblems having unserved energy of as little as 0.4% of total demand.

From an economic perspective the least desirable option is relying on imports from SouthAfrica. While this option has the lowest average price it also has the highest amount ofunserved energy and therefore the worst benefit cost ratio. Probably the most importantobservation that can be made is that such an option would continue to leave Namibia at themercy of South African politics and policy with a similar risk exposure currently experiencedin the capacity shortages in the South African electricity sector.

One policy option is that of security of supply. What has been found in this study is that it hasa higher cost, because it means more diversified supply sources. It also means making useof both the cheapest supply sources as well as small amounts of alternate sources that havelittle or no correlated risks with the mainstream supply sources. This option has one of theworst impacts on the current account, has the second lowest benefit cost ratio and one of thehighest electricity prices, indicating that security of supply as dominant policy driver

What this study has shown, and where the research moved to as the results became evident,is that a balanced approach to electricity generation and demand side management isprobably the most desirable option. In this study this became known as the all optionsconsidered scenario. This generation mix relies on a small coal plant, biomass and Baynes

hydro as the backbone of base-load electricity supply. This is complemented by an array ofdiverse renewable generators, each limited in size to ensure grid stability and cost effective


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grid integration as well as a balance between dispatchable (firm) and intermittent generators.This scenario also implements demand side management. This option is the most efficientand desirable from an economic perspective. It makes a contribution to the economy which islittle different to the top contributing scenarios. It creates a handsome number of jobsalthough not as many as the renewables maximised scenario. It has the least poweroutages, low environmental emissions and average electricity price that it not that far out ofline with the cheapest options. It presents a lower risk exposure to unserved demand througha higher level of generation diversification, less reliance on fossil fuels and more self-sufficiency.

Expanding the generation capacity by including small scale renewable options allowsNamibia to grow generation modularly with demand growth thus reducing the size of theprojects and associated risks as well as the need to sell excess capacity in the region.

Namibia stands at a cross roads and the price of not taking action could be very high indeed.We trust that the work that has been done in this study will assist policy makers in makinginformed decisions that will benefit all Namibians.

Is has become clear that an integrated resource plan for electricity in Namibia is needed.This needs to be developed under the leadership of the policy maker with full participation ofall major stakeholders to ensure that the end result is a balanced plan drawing on thewisdom of diverse specialists and viewpoints.


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Authors

This report was prepared by:

Emcon Consulting Group: technical analysis

Uli von Seydlitz

Axel Scholle

Economics Information Services: economic analysis

Barry Standish

Antony Boting

Geo cc, environmental analysis

Catherine Fedorsky


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Disclaimer

While every effort is made to ensure the accuracy of analysis performed, no responsibility istaken for errors or financial losses or any other incidental or consequential damages arisingas a result of its use.


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Table of Contents

Executive Summary................................................................................................................ iKey findings......................................................................................................................... iIntroduction to the Executive Summary .............................................................................. iiThe Challenges: .................................................................................................................iiiThe Approach.....................................................................................................................iiiAnalytical Results.............................................................................................................. vi

The Policy Implications....................................................................................................... x

Acknowledgements................................................................................................................1Authors ..................................................................................................................................2Disclaimer..............................................................................................................................3Table of Contents ..................................................................................................................4List of Tables ......................................................................................................................... 9

List of Figures ......................................................................................................................11Abbreviations....................................................................................................................... 151 Introduction...................................................................................................................172 Current Situation and Potential Outlook........................................................................ 20

2.1 Electricity Usage....................................................................................................202.2

Electricity Supply ...................................................................................................23

2.2.1 Generation......................................................................................................232.2.2 Transmission and Distribution......................................................................... 252.2.3 Electricity Tariffs ............................................................................................. 25

2.3 Demand and Supply ..............................................................................................262.4 Environmental Issues ............................................................................................ 282.5 Potential Outlook ...................................................................................................29

2.5.1

Cost................................................................................................................ 29

2.5.2 Supply options................................................................................................31


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2.5.3 Environmental considerations......................................................................... 323 Description of Methodology .......................................................................................... 36

3.1 Technical Methodology..........................................................................................363.1.1 Demand Forecast........................................................................................... 363.1.2 Generation and Demand Management Options.............................................. 393.1.3 Dispatch Modelling ......................................................................................... 53

3.2 Description of Generation Scenarios ..................................................................... 603.2.1 Scenario 1: Base Case................................................................................... 613.2.2 Scenario 2: No New Local Generation............................................................ 623.2.3 Scenario 3: Price minimised ........................................................................... 633.2.4 Scenario 4: Maximum Supply Diversity........................................................... 643.2.5 Scenario 5: Generation Self Sufficiency.......................................................... 653.2.6 Scenario 6: Energy Imports Minimised............................................................ 663.2.7 Scenario 7: Maximum Renewable Energy Options ......................................... 673.2.8 Scenario 8: All options considered ................................................................68

3.3 Economic Methodology ......................................................................................... 693.3.1 Cost Benefit Analysis...................................................................................... 693.3.2 Macro-Economic Analysis...............................................................................70

4 Analytical Results, Sensitivity Analysis and Interpretation............................................. 774.1 Analytical Results ..................................................................................................77

4.1.1 Economic Cost Benefit Analysis ..................................................................... 774.1.2 Electricity Price Projections and Sensitivities.................................................. 834.1.3 Economic Impacts .......................................................................................... 904.1.4 Social Impacts ................................................................................................934.1.5 Supply Interruptions and Unserved Demand................................................... 954.1.6 Contribution of Renewable Resources to Electricity Generation ..................... 994.1.7 Grid Cost: Centralised vs. Decentralised ...................................................... 1014.1.8 Emissions .....................................................................................................101

4.2 Comparison of the base case and the all options considered scenarios ........... 1054.2.1 Contribution to GDP...................................................................................... 1054.2.2 Job Creation................................................................................................. 1074.2.3 Balance on Current Account......................................................................... 1094.2.4 Electricity Price.............................................................................................1114.2.5

Macro Economic Sensitivity Analysis............................................................ 111

4.2.6 Environmental assessment...........................................................................118


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C.6.1. Technical Issues........................................................................................... 172C.6.2. Resource & Generation Potential.................................................................. 173C.6.3. Financial Overview ....................................................................................... 173C.6.4. Environmental and Social Aspects................................................................ 174C.6.5. Risks ............................................................................................................ 177

C.7. Nuclear Power Generation...................................................................................178C.7.1. Technical issues........................................................................................... 178C.7.2. Resource......................................................................................................178C.7.3. Generation Potential..................................................................................... 179C.7.4. Environmental and Social Aspects................................................................ 179C.7.5. Financial Overview ....................................................................................... 182C.7.6.

Risks ............................................................................................................ 183

C.8. Electricity Generation from Biomass....................................................................185

C.8.1. Technical Issues........................................................................................... 185C.8.2. Resource......................................................................................................186C.8.3. Generation Potential..................................................................................... 187C.8.4. Environmental and Social Aspects................................................................ 187C.8.5. Financial Overview ....................................................................................... 190C.8.6. Risks ............................................................................................................ 190

C.9. Concentrating Solar Thermal Power Plants ......................................................... 192C.9.1. Technology Status........................................................................................ 192C.9.2. Resource......................................................................................................193C.9.3. Generation Potential..................................................................................... 194C.9.4. Environmental and Social Aspects................................................................ 194C.9.5. Financial Overview ....................................................................................... 197C.9.6. Risks ............................................................................................................ 198

C.10.

Solar Photovoltaic Power Plants ...................................................................... 199

C.10.1. Technical Issues........................................................................................... 199C.10.2. Resource......................................................................................................199C.10.3. Generation Potential..................................................................................... 200C.10.4. Environmental and Social Aspects................................................................ 201C.10.5. Financial Overview ....................................................................................... 203C.10.6. Risks ............................................................................................................ 204

C.11. Wind Energy Power Generation ....................................................................... 205C.11.1. Technical Issues........................................................................................... 205C.11.2. Resource......................................................................................................205


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List of Tables

Table 0-1: NPVs, incremental costs, incremental benefits and BCRs ................................... viTable 2-1: The carbon intensity of a number of countries..................................................... 33Table 2-2: Externality costs for a range of supply options .................................................... 35Table 3-1: Estimated Generator Capacities and Step Sizes................................................ 49Table 3-2: Technical Model Key Characteristics ..................................................................56Table 3-3: Technical Model Key Assumptions...................................................................... 58Table 3-4: Technical Model Limitations................................................................................ 59

Table 3-5: Scenario Definitions............................................................................................ 60Table 3-6: Comparison of GDP multipliers ........................................................................... 72Table 3-7: Growth rates, elasticities of demand and production effects from electricity

outages per economic sector ........................................................................................ 76Table 4-1: NPVs, incremental costs, incremental benefits and BCRs .................................. 78Table 4-2: Demand Side Management Sensitivity................................................................ 79Table 4-3: Economic Growth Sensitivity............................................................................... 80Table 4-4: Commodity Price Sensitivity................................................................................ 80Table 4-5: Eskom Price Sensitivity.......................................................................................81Table 4-6: Eskom Shortages Sensitivity............................................................................... 82Table 4-7: Cost of Unserved Demand.................................................................................. 82Table 4-8: Value of Carbon Credits......................................................................................83Table 4-9: SMME contribution of each generation scenario ................................................. 95Table 4-10: Effect of supply interruptions on GVA................................................................ 97Table 4-11: Contribution of the base case to Gross Domestic Product............................. 105Table 4-12: Contribution of all options considered to Gross Domestic Product................. 106Table 4-13: Base case Contribution to Direct Jobs........................................................... 107Table 4-14: Base case Contribution to Indirect Jobs......................................................... 107Table 4-15: Base case Contribution to Total Jobs ............................................................ 108


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Table 4-16: All options considered Contribution to Direct Jobs......................................... 108Table 4-17: All options considered Contribution to Indirect Jobs ...................................... 108Table 4-18: All options considered Contribution to Total Jobs .......................................... 109Table 4-19: Scenario evaluation matrix.............................................................................. 125Table C-1: Potential Environmental and Social Impacts of Energy supply Options ............ 154Table C-2: Social Impact Checklist Baynes Hydro .......................................................... 160Table C-3: Environmental challenges at coal fired power stations...................................... 167Table C-4: Social Impact Checklist Coal Station at Walvis Bay....................................... 168Table C-5: Social Impact Checklist Gas Power Station in Oranjemund Area................... 176Table C-6: Average Emission Levels .................................................................................180Table C-7: Social Impact Checklist Nuclear Power Station at Walvis Bay....................... 182Table C-8: Social Impact Checklist Biomass to Electricity............................................... 190Table C-9: Concentrating Solar Power Technical Potential................................................ 195Table C-10: Social Impact Checklist Solar Concentrating Plant in Namib Desert............ 197Table C-11: Social Impact Checklist Solar PV Plant in Namib Desert ............................. 203Table C-12: Social Impact Checklist Wind energy plants near Lderitz and Walvis Bay..208Table D-13: Summary information on CFL measure .......................................................... 216Table D-14: CO2 Emissions Reduced and Avoided Kuyasa CDM Energy Upgrade Project

................................................................................................................................... 218Table D-15: Summary information on SWH measure......................................................... 219Table D-16: Summary information on ripple control measure............................................. 222


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List of Figures

Figure 2-1: Electricity Revenue by Sector (NAD millions) in 2002........................................ 20Figure 2-2: Electricity usage as a percentage of turnover by user type ................................ 21Figure 2-3: Contribution to GVA and electricity usage per economic sector in 2002 ............ 22Figure 2-4: 2005 Load Curve ...............................................................................................22Figure 2-5: Electricity Demand and Supply Trend by Source ............................................... 23Figure 2-6: The Namibian Transmission Grid and Power Stations ....................................... 24Figure 2-7: Namibia Installed Capacity and Peak Demand .................................................. 26

Figure 2-8: Namibia Demand and Supply Forecast.............................................................. 27Figure 2-9: South African Demand and Capacity ................................................................. 27Figure 2-10: NamPower Average Electricity Procurement Cost ........................................... 30Figure 2-11: South African Generation Cost Forecast.......................................................... 30Figure 2-12: Regional Electricity Prices ...............................................................................31Figure 3-1: Dispatch Model Overview ..................................................................................36

Figure 3-2: Average weekday demand profile for winter and summer.................................. 37Figure 3-3: NamPower Demand Forecast............................................................................ 37Figure 3-4: Current Demand Forecast System Peak......................................................... 38Figure 3-5: Full estimated capital cost for generating options NAD million per MW. ............. 48Figure 3-6: Estimated base tariffs for generating options ..................................................... 48Figure 3-7: Timeline of generators that could be built........................................................... 49

Figure 3-8: Base case generation mix ................................................................................61Figure 3-9: No new local generation generation mix........................................................... 62Figure 3-10: Price minimised generation mix...................................................................... 63Figure 3-11: Maximum supply diversity generation mix ...................................................... 64Figure 3-12: Generation self sufficiency generation mix ..................................................... 65Figure 3-13: Energy imports minimised generation mix...................................................... 66

Figure 3-14: Maximum renewable generation mix .............................................................. 67


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Figure 3-15: All options considered generation mix ............................................................ 68Figure 4-1: Projected Average Electricity Price .................................................................... 84Figure 4-2: Projected Electricity Price Development............................................................. 85Figure 4-3: Average Electricity Price Sensitivity to Economic Growth .................................. 86Figure 4-4: Electricity Price Sensitivity to Economic Growth................................................. 86Figure 4-5: Average Electricity Price Sensitivity to Resource ............................................... 87Figure 4-6: Electricity Price Sensitivity to Resource Costs ................................................... 88Figure 4-7: Average Price Sensitivity to Import Constraints.................................................. 89Figure 4-8: Electricity Price Sensitivity to Import Constraints................................................ 89Figure 4-9: Projected Peak Demand at an economic growth rate of 3.7%............................ 90Figure 4-10: Projected Electricity Demand at an economic growth rate of 3.7%................... 91Figure 4-11: Projected Demand for Electricity at an economic growth rate of 2% and 6%. .. 91Figure 4-12: Projected System Peak Demand at economic growth of 2% and 6%............... 92Figure 4-13: Cumulative impact on GDP under different scenarios, NAD billion (2007 values).

.....................................................................................................................................93Figure 4-14: Total jobs within each scenario........................................................................ 94Figure 4-15: Electricity Demand Profile................................................................................ 96Figure 4-16: Potential Cumulative Unserved Electricity Demand ......................................... 98Figure 4-17: Potential Unserved Electricity Demand............................................................ 99Figure 4-18: Projected Renewable (including hydro) Generation Contribution ................... 100Figure 4-19: Projected Renewable Generation Contribution excluding hydro..................... 100Figure 4-20: Cumulative environmental emissions............................................................. 102Figure 4-21: Projected CO2 Emissions...............................................................................103Figure 4-22: Projected NOx Emissions .............................................................................. 104Figure 4-23: Projected SOx Emissions .............................................................................. 104Figure 4-24: Comparative Cumulative Contribution to GDP ............................................... 106Figure 4-25: Comparison between Average Total Job Creation by Skill Level ................... 109Figure 4-26: Balance of Current Account for the base case and the all options considered

Scenario .....................................................................................................................110


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Figure C-18: Average daily power generation profile of a 55MWpeak plant .......................... 201Figure C-19: Risk chart for solar PV power plant ............................................................... 204Figure C-20: Risk chart for wind generation power plant.................................................... 209Figure C-21: Risk chart for integrated solar combined cycle power plants ......................... 211Figure D-22: Risk chart for CFL energy efficiency measure ............................................... 215Figure D-23: Risk chart for conversion to SWH.................................................................. 219Figure D-24: Risk chart for ripple control DSM measure .................................................... 221


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Abbreviations

BCR Benefit cost ratio

CBA Cost benefit analysis

CBEND Combating bush encroachment for Namibias development

CCGT Combined cycle gas turbine

CDM Clean development mechanism

CFL Compact fluorescent lamp

CSP Concentrating solar (thermal) power

DSM Demand side management

ECB Electricity Control Board

EA Environmental assessment

EE Energy efficiency

EIA Environmental impact assessment

EMP Environmental management plan

ESI Electricity supply industry

EWH Electric water heater

GDP Gross domestic product

GVA Gross value added, the same as Gross domestic product

GWh Giga watt hour

IDC Interest during construction

ISCC Integrated solar combined cycle

kWh kilo watt hour

LRMC Long run marginal cost

MET Ministry of Environment and Tourism

MME Ministry of Mines and Energy

MW Mega watt


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MWh Mega watt hour

NER National Electricity Regulator (South Africa)

NPP Nuclear power plants

OECD Organisation for economic co-operation and development

PBMR Pebble bed modular reactor

PV Photovoltaic

RE Renewable energy

RED Regional electricity distributors

REEECAPRenewable energy and energy efficiency capacity buildingprogramme

RSA Republic of South Africa

SAM Social accounting matrix

SAPP Southern African Power Pool

SMME Small medium and micro enterprises

SWH Solar water heater

USDOE United States Department of Energy

WACC Weighted average cost of capital

WEC Wind energy converter


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1 Introduction

The Namibian electricity industry stands at a critical cross road. Internationally high oil andcommodity prices have had a ripple effect on the price of gas and coal. Energy prices areescalating at alarming rates. Global warming and a growing awareness of the damagegenerated by fossil fuels is seeing increasing pressure on countries to turn to other ways ofgenerating electricity. Within Namibia there are growing misgivings about the Van Eck coalfired power station on the outskirts of Windhoek. And Eskom, the South African power utilitythat supplies half of Namibias electricity, has not been able to keep pace with electricitydemands in South Africa and is being forced to reduce power to parts of South Africa andneighbouring countries. Compounding this is the historic availability of cheap electricity fromEskom which has been an inhibiting factor to the construction of any new power stations inNamibia and to this day dominates the price expectations in Namibia.

At the same time Namibia has very limited options with using the traditional generationtechnologies of coal fired, hydro or nuclear power. Namibia does not have any currentlyexploited coal reserves and must import coal. It is simply cheaper to import electricity fromSouth Africa than import South African coal. It is a very dry country which limits hydro.Nuclear is an option but is constrained by high capital costs and a relatively small skills base.

Yet there are opportunities. Namibia is one of the sunniest countries in the world. There arefeasible wind resources at the coast. There is a major offshore gas field. In the north of thecountry there are thousands of hectares of alien vegetation that desperately need clearingand are an obvious fuel source. There is the Kunene River that holds promise for additionalhydro power.

This study was sponsored by the Renewable energy and energy efficiency capacity buildingprogramme (REEECAP) with the intention of exploring the technical, economic, social andenvironmental implications of existing supply generation, on the one hand, and other supplyand demand options, on the other. The intention is to inform policy makers about the rangeof options, the costs of these options and the degree to which they can contribute to thefuture economic and social well being of Namibia.

This study set out with three objectives. The first was to determine the electricity outlook thatNamibia faces. The second was to identify generation and demand management optionswithin the context of the 1998 White Paper on Energy Policy (MME 1998). Here it wasimportant to determine the technical feasibility and economic implications of the variousoptions. The third was to explore the potential and role of renewable resources in these

generation mixes.

This study therefore aims to inform the policy interpretation and application process inNamibia by illustrating what the various policy drivers might mean in practice, both at atechnical/financial level but also in terms of the economy, and what their relative merits mightbe. To our knowledge this is the first comprehensive study for Namibia that considersalternative energy sources and fossil fuel and hydro electricity generation options. It alsoexplores the financial and economic implications of various possible supply mixes.

It will be shown that:

Namibia faces a pending electricity crisis. If Namibia continues to rely on importedelectricity and does not invest in local generation capacity then unserved energy,power outages in other words, could be as high as 9.7% of total demand. Peaking in


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2012/13 cumulative unserved demand could be as high as 10.8% of total demand. Ithas also been shown that, based on some specific assumptions that a 24 hourblackout for one day a month, the equivalent of a 3.29% drop in electricity supply,would reduce Gross Value Added by up to 3.7%. These calculations suggest thatthere could be some dramatic impacts on the Namibian economy because of the

shortage of electricity.

There is no, one, single policy option that satisfies all of the policy criteria the WhitePaper on Energy Policy identifies. Some of the options are economically efficient butdo not maximise the use of renewable resources. Others are cheap but do notguarantee security of supply. Others, in turn, maximise the use of renewableresources but are expensive. The consequence is that there is trade off between thevarious options and the final decision needs to taken at the political level.

There is however one conclusion that is unequivocal. Demand side managementmeasures should be introduced as a matter of urgency. They have been shown to becost effective. They are desirable from an environmental perspective. Probably the

most important short term advantage is that they will help to alleviate power outagesand in the long term reduce the need for generation capacity.

There is a second conclusion that is almost as unequivocal although more muted.Generation from renewable resources is desirable. It is environmentally responsible,will create jobs, makes an important contribution to the economy and ranks well froman economic efficiency perspective. However this option is not without risks andcannot be expected to supply all Namibias electricity need, at least in the short term.

From an economic perspective the least desirable option is relying solely on importsfrom South Africa. While this option has the lowest average price it also has thehighest amount of unserved energy and therefore the worst benefit cost ratio.

Probably the most important observation is that such an option would continue toleave Namibia at the mercy of South African politics and policy.

A balanced approach to electricity generation and demand side management is themost desirable option. In this study this became known as the all options consideredscenario. This generation mix relies on a small coal plant, biomass and Baynes hydroas the backbone of hour electricity supply. This is complemented by an array ofdiverse renewable generators, each limited in size to ensure grid stability and costeffective grid integration by avoiding grid issues that would arise for larger versions ofthe same plant type. This scenario also implements demand side management. Thisoption is the most efficient and desirable from an economic perspective. It makes acontribution to the economy which is little different to the top contributing scenarios. Itcreates a handsome number of jobs although not as many as the renewablesmaximised scenario. It has the least power outages, low environmental emissionsand an average electricity price that is not far out of line with the cheapest options.

This report has five sections:

Section 1 introduces the report.

Section 2 describes the current situation and potential outlook for the generationindustry and the implications of this for Namibia.

Section 3 describes the methodology that was used in this study.

Section 4 reports on the result of the technical and economic analysis.


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Finally Section 5 reports on the main conclusions to the study.

Four appendices contain the following:

An overview of the terms of reference for the study

An overview of the electricity supply industry in Namibia

Details of the new generation options considered in this study

Details of the demand side management options considered in this study


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2 Current Situation and Potential Outlook

This section describes the current electricity situation in Namibia. It also paints somepotential future developments given existing knowledge and known policy decisions of thecountry.

2.1 ELECTRICITY USAGE

Namibia has a surface area of almost 825 000 square kilometres and a population of around2 million, giving it one of the lowest population densities in the world (2.5 people/square km).Two thirds of the population live in rural areas with limited access to infrastructure,specifically to grid electricity. According to the 2001 census only 32% of households haveaccess to grid electricity for lighting.

A description of electricity demand by the Namibian economy is shown graphically in Figure2-1, Figure 2-2 and Figure 2-3.

Electricity Revenue by Sector

Government Services

$190

Mining$100

Urban Households - Wage &Salary

$91

Transport$49

Electricity$40

Other$311

Figure 2-1: Electricity Revenue by Sector (NAD millions) in 20021

Figure 2-1 indicates that in 2002 government services, at NAD 190m, was the largest user ofelectricity. This was followed by the mining sector (NAD 100m) and then urban households(NAD 91m). These three users together made up nearly 50% of all electricity revenue in2002. It might seem counterintuitive from Figure 2-1 that the mining sector uses lesselectricity than government services. One of the reasons for this is that mines pay a lower

1The charts are based on an analysis of the Namibian SAM


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Contribution to GVA and Electricity Consumption

0

1,000

2,000

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GovernmentServices

Mining

Trade,Repairs

Fishing

Marketing,RealEstate&

BusinessServices

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RealEstate-Own

CommercialAnimalProducts

Fina

nceandInsurance

Transport

HeavyManufacturing

HotelsandRestaurants

OtherPrivateServices

Communication

FishProcessing

L

ightManufacturing

Construction

Electricity

GrainMilling

FoodFor

OwnConsumptionWater

Textiles

P

etroleum

Products

MeatProcessing

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ercialOtherCrops

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DirectPurchasesA

broadbyResidents

GVA(N$million

s)

0

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ElectricityConsumption(

N$millions)

Gross Value AddedElectricity Consumption

Figure 2-3: Contribution to GVA and electricity usage per economic sector in 2002

The final aspect of interest on the demand side is the load curve i.e. the varying demand forelectricity over the course of a day. Figure 2-4 (ECB 2006) shows the resulting set of loadcurves for 2005. The 2005 load curve is characterised by a strong evening peak, a day-timeplateau and a night-time trough. The evening peak is largely attributed to household demand

stemming from cooking, electric water heaters, lighting and a variety of other energy usages.

2005 Load Curve (Categorised)

200

225

250

275

300

325

350

375

400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour

MW

Low High Max

Figure 2-4: 2005 Load Curve


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2.2 ELECTRICITY SUPPLY

This section gives a brief description of the Namibian electricity supply, transmission anddistribution infrastructure. A more detailed presentation is given in Appendix B.

Namibia produces power locally and imports about half its electricity, with the bulk of thisbeing supplied by Eskom in South Africa. NamPower imports on a smaller scale from Zambiafor supply to the Caprivi Region and exports on a small scale to Angola, Botswana and SouthAfrica. The only current trading interconnection is to South Africa, with the Caprivitransmission link being under construction3. This composition and the trends in this areillustrated in Figure 2-5.

1989

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Namibia Grid Demand for Electricity

(excluding Skorpion Zinc Project)

Units sold in Namibia

Supplied by NamPow er

Generation

Supplied by Eskom

Supplied by Other

Financial Year ending June

MWhperannum

Figure 2-5: Electricity Demand and Supply Trend by Source4

2.2.1 Generation

There are currently three major power stations in Namibia which are owned and operated byNamPower, i.e. the Ruacana hydro-electric power station on the Kunene River, the Van Eckcoal-fired power station at Windhoek, and the Paratus diesel power station at Walvis Bay.The location of these is shown in Figure 2-6 (NamPower 2006a).

3Trading links are different from import and export links in that they support two way trade at high volumes. The small scale

import (such as to Caprivi from Zambia) and export (such as to Botswana, Angola and South Africa) links support one wayenergy flow only and are not considered trading links. Trading links are normally at transmission voltages whereas export/importlinks are at sub-transmission or distribution level.

4 Compiled from NamPower annual reports from 1993 to 2007. The Skorpion Zinc Project is supplied from Eskom withNamPower wheeling the power across its transmission network. For this reason Skorpion is excluded from the normal statisticsfor the NamPower interconnected system.


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constraints it has been run mid-merit to base load5. The power station has very limitedemissions control equipment installed and thus emits high levels of air pollutants.

The Paratus diesel power station is located in Walvis Bay. It has a rating of 24 MW using four6MW diesel generators. The station has a black start up diesel generator and was

commissioned in 1976. It is used mainly as a standby and peaking power stationrespectively, but it is also contractually bound as an emergency standby plant for the city ofWalvis Bay. Paratus is in good workable condition, although it runs at very high short runmarginal cost of just under NAD 80c/kWh (NamPower, pers. comm., October 2007)

2.2.2 Transmission and Distribution

As a result of the fact that the existing domestic power stations are located so far apart, thetransmission system is a critical component in delivering power. This is compounded by thegreat distances of in-coming supply coming from South Africa along high voltage power lines.

Transmission is divided into two businesses within NamPower - the wires business and thesupply business. The wires business manages and operates the transmission network, whilethe supply business looks after the transmission customers. These transmission customersinclude some large mines, the Regional electricity distributors (REDs), plus some smallersupply points that are connected directly to the transmission grid largely for historic reasons.

The REDs are responsible for the distribution and supply of electricity to end consumerswithin their respective areas. Three REDs have already been established and are operational(NORED, CENORED and Erongo RED), while Central RED and Southern RED are delayedindefinitely for various (largely political) reasons.

2.2.3 Electricity Tariffs

Electricity tariffs in Namibia are regulated by the Electricity Control Board (ECB). The enduser price is the sum of generation cost, transmission cost, distribution costs and a LocalAuthority surcharge. The customers supplied directly by NamPower Transmission do nothave distribution costs and a Local Authority surcharge included in their price. The regulatoryapproach to tariff determination is based on cost reflectivity plus a regulated return on assets.

The cost of demand side management initiatives undertaken and paid for by NamPower isusually recovered through the tariff but is not accounted for separately.

In terms of tariff structure NamPower has very recently introduced time of use (TOU) tariffs toits transmission customers, but not yet to distributors. The distributors typically offer creditmetered tariffs to commercial consumers, and credit metered or prepaid tariffs to residentialconsumers.

New generators feeding into the NamPower transmission grid will compete price-wise mainlywith the Eskom imports, which are by far the cheapest current source of power except for

5A mid merit power plant is typically operated 24 hours a day, but at varying output to follow the demand on the system. A

peaking plant only runs during peak times and is not utilised during off-peak times. A base load plant runs at full output all the

time. Ruacana is run as base load when there is enough water available in the Kunene river. As water flow reduces after therainy season the plant can no longer run at full output for 24 hours a day. It then follows the load during the day while water isdammed up in the diversion weir during low demand times (typically at night). As water flow drops even further the water isdammed in the diversion weir for use only during peak demand time in the evening and early morning.


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Ruacana Power Station. The current lack of clear policy interpretation regarding supply mix,self sufficiency and promotion of renewables makes it very difficult for the regulator and thetrader to take decisions on power purchase agreements for new generators because it is notclear what premium (if any) should be attached to the above-mentioned policy directivescontained in broad terms in the energy policy paper of 1998. This policy vacuum should be

resolved under the leadership of the Ministry of Mines and Energy through the developmentof a national integrated resource plan to be approved by the Ministry which will guide futureinvestment decisions.

New generators which are small enough to feed into the distribution grids without needing toaccess the transmission grid, compete with the selling rate of NamPower Transmission, andnot with the rate of Eskom imports because the REDs buy from Transmission and do notimport directly. This higher small scale in-feed price offers an opportunity for small,decentralised power plants.

2.3 DEMAND AND SUPPLY

The challenge faced by Namibia is that domestic generation is not adequate to meet currentand future projected demand. To complicate this, supply constraints in South Africa areresulting in Eskom not being able to meet South African electricity needs let alone those ofNamibia.

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Namibia Peak Demand for Elect

namibia electricity supply demand options march 2008 final

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