BPC and Eskom � will the dinosaurs disappear sooner or later?

Roman Grynberg | Friday March 28, 2014 14:43

 

 

Of course predictions about the future are always built on assumptions and it was assumed at the time that access to telephony had to be based on building expensive land lines- there was simply nothing else. Time and technology put paid to that notion and with the development of mobile phones thankfully the coverage of Africa will be complete by the 2020’s- some 250 years ahead of schedule. 

Landlines, because of the need for heavy capital expenditure on cables gave themselves to what economists call ‘natural monopolies’- it made no sense to have two companies compete as there  was only need for one set of telephone cables. This gave rise to massive state and/or private monopolies. But to a younger generation of Africans these telephone monopolies sound positively antiquated given the competition that they know exists in the mobile telephone sector. BTC is still there, in effect an anachronistic dodo that monopolizes landlines as was the case a generation ago, but that monopoly seems to have been overtaken by the aggressive new global technologies of mobile telephones and the web which has rendered BTC as just one player in a big and relatively competitive telecommunications market.

 But if the American private sector has its way what happened to telephone monopolies in the last 15-20 years in Africa will soon happen to electricity. Ask BPC and they will tell you that the biggest thing holding back complete rural electrification in Botswana is the very high cost of building cables that supply electricity to often small and remote locations. Government provides millions in subsidies for rural electrification but the process is not yet complete. There is of course an obvious solution to this problem and that is generating electricity at home using either small scale photo-voltaic solar systems or wind turbines. More importantly at current prices solar can’t compete with BPC or even home diesel generator.

It has long been estimated that with the rates of decline of the cost of solar systems that these would reach the what is called ‘grid parity’ ie the same cost as electricity by the 2020 in the USA. However, what has held back the technology has been the access to small and effective batteries to store the electricity at night. In Botswana people looking for back-up to their home electricity can buy a quiet system based on batteries which lasts for several hours.

Usually if you want to supply your house you will find that you need four large truck batteries. These are not only enormous they usually only last 3-4 years and have to be replaced. They are the most expensive part of any system and finding a cheap and durable replacement to the current system is the one thing that will finally tip the scales in favour of solar power.

Now Tesla, the large US producer of electric cars is planning to build a USD 4-5 billion ‘gigafactory’ to produce small lithium ion batteries that can be used in their cars. They will start building the factory next year and they plan to produce enough batteries for some 500,000 cars by 2020.

Tesla expects that this gigafactory will decrease the cost of lithium ion (called lion)  batteries by some 30%  just through economies of scale with the existing technology. It also has impressive backers such as Panasonic which has announced that it intends to invest USD 1 billion in the plant. Of course the problem is that such a factory will only be viable at very substantial volumes and despite the impressive growth of sales of electric cars there is every reason to believe that the 500,000 figure maybe somewhat optimistic. But Musk has a secondary market perhaps just as large and even more important than that of electric cars and that is based on a planned  full scale assault on the electricity utilities. While these still have an economies of scale benefit which allows them to sell electricity because they generate from large low cost thermal, gas or hydro  facilities but like the telephone companies of the past they require very expensive wires to distribute electricity. Of course Tesla has two other problems. There has been a huge investment worldwide in the development of new battery technology and the lion technology that Tesla invests in today may, by 2020,  be as obsolete as the ‘brick telephones’ of the 1990’s are today.

The second problem is that the Chinese are now the world’s leading exporters of solar technology. The Chinese know just how important this technology is and will not  allow a massive commercial advantage to develop in favour of a large US producer. Given the Chinese  effect on solar prices in the past few years they will almost certainly enter the battery market in a big way and prices may fall even further.  

Recently Morgan Stanley, the US investment bank, has been reported as saying that if Tesla does decrease the price of batteries by 30% by 2020 as it predicts, then the average Californian will, by 2020, be able to run a solar plus battery storage system at a cost of P3100 per year which would be less than half of buying the same power from the electricity utility (around Pula 7,000 per year).

For those of us who sat through the very painful power cuts in Botswana the last two weeks and also know full well that once the dust settles on Moropule B then prices will almost certainly have to rise all this is positive news. The only response from Africa to Tesla should be -bring on the new technology, and as soon as possible! Some believe that this solar-battery pack model will come late to Africa. But the days of late technology application in Africa are passing. Given the speed and agility with which Africans accepted and adapted mobile telephony there is every reason to believe that Africans have had with the power utilities they will accept a proven low cost technology quickly given what has happened to  power supply of late.   

Fifteen years ago Eskom was the world’s third largest utility and while in 20 years they will still exist to supply energy to large scale industrial and mining ventures, at least for a while they too will eventually go ‘the way of the dodo’ once the economies of large power generation disappear and we can generate electricity at home.  BPC will replicate this path. This is no longer a pipe dream but an increasing commercial reality, which if the batteries work as projected,  has the potential to wipe out USD1.5 trillion worth of total global sales by  the electricity utilities. In the coming years it will be this commercial opportunity and not government subsidies to renewable that will make home generated solar electricity commercially viable throughout the world. But without the initial government backing the drive to solar would have been occurring thirty years from now.

Those who determine electricity policy in Botswana may argue that this technology is still far off. But in the 30-40 year life of a major electricity investment like Moropule B it is close indeed. To be caught with substantial coal-fired thermal power plants when the new solar-battery technology emerges and becomes economic will mean that businesses will simply shift over to new technology irrespective of past investments by BPC in Moropule A, B or the up-coming C.

* These are the views of Professor Roman Grynberg and not necessarily those of any institution with which he may be affiliated.