Maravi

Expert calls for subsidies on hydro power ventures

Expert calls for subsidies on hydro power ventures
By Chiwoyu Sinyangwe
Tuesday February 26, 2008 [03:00]

Government should make hydro power business viable for the private sector to venture into by providing smart subsidies, energy expert Emmanuel Matsika has said. Matsika was commenting on the proposal by the South African government to provide up to 60 billion rand (about K3 trillion) to support the financing of state power utility Eskom's investment programme.

Matsika, a current Doctor of Philosophy researcher at the University of Bolton, also commended the South African government for the decision although he described it as 'fire fighting techniques'.

He said for as long as power remained a highly regulated public commodity strongly and inevitably linked to the economy, governments had to play an active role.

“Government would benefit socially and economically by new investments in the hydro power generation sector,” Matsika said. “Overall, because electricity is a highly regulated 'public' commodity, government has to step in through smart subsidies to make hydro power business viable.”

Matsika also said that the limiting factor that constrained viability of privately run mini-hydro power generation stations related to investment gearing, tariff and internal rate of return (IRR).

“With particular reference to hydro-electricity, I had a privilege of working with Centre for Energy, Environment and Engineering Zambia (CEEEZ) to analyse privately run mini-hydros. The key parameter related to investment gearing, tarrif and IRR,” Matsika said.

“Results showed that for a typical investment in a 2 mega watt mini-hydro with equity of about 25 per cent and the rest being a loan, the tariff would be around US 7 cents kilowatt-hour (kWh) to produce a viable IRR. However, as you know, Zambia runs on uniform tariff which is around US 4 cents per kWh.”

Matsika said that analysis meant that the private sector scenario would not be viable since they would be required to sell their electricity at the uniform tariff.

He also said power generation and supply could not be left entirely to the private sector as that would lead to the risk of sabotage.

“The other point to note is that the power sector must be protected by the government through its strategic participation. The strong link that economic development has with energy supply must be protected,” Matsika. “Power generation and supply cannot be left entirely to the private sector to minimise the risk of sabotage. Can you imagine turning off power from the engine of Zambia's economic backbone, the mines!”

The South African government has proposed, as part of its budget, providing up to 60 billion rand (about K3trillion) to support the financing of state power utility Eskom's investment programme.

South Africa is currently in the grips of a power crisis that threatens to curb the republic's economy, and has forced mining companies to reduce power usage by some 10 pct.

In outlining the proposal in his budget presentation at Cape Town, finance minister Trevor Manuel said the 60 billion rand would be 'on terms structured to assist in meeting cashflow requirements over the next five years.

Eskom is a South Africa’s electricity public utility, established in 1923 as the Electricity Supply Commission (ESCOM) by the government.

Labels: ENERGY

posted by MrK @ 4:35 AM