25 April 2012 – Analysis from Frost & Sullivan says that Botswana’s electricity industry is expected to grow significantly with additional power generation capacities coming on stream in 2012-13. This takes the form of the 600 MW Morupule B coal-fired power station currently under construction.

"New power generation capacity will most probably be based on coal, given the large untapped deposits available in the country. This capacity will be owned by independent power producers (IPPs) given the limited financial means available to the loss-making state-owned power utility, Botswana Power Corporation (BPC)," Frost & Sullivan’s energy and power systems research analyst Celine Paton says. "Indeed, new power generation capacity is urgently required in Botswana as peak power demand is hardly met."

Electricity demand in Botswana is projected to grow at a compound annual growth rate (CAGR) of 4.6% from 2011 to 2020, following robust economic growth and increasing rural electrification. It is further estimated that about US$750 million will be invested in the Botswana electricity industry within the next five years. Such investments will be critical, as power imports from South Africa (which supplied 68% per cent of Botswana’s power needs in 2011) will stop from 2013 onwards, in an attempt by the latter to address its domestic power supply deficit.

As the Botswana electricity industry moves forward, key challenges will include low electricity tariffs, combined with an inadequate electricity regulatory framework and a general lack of infrastructure. "Electricity tariffs are not cost-reflective, explaining the increasing operational losses encountered by BPC," Paton says. "Also, BPC has been facing spiralling costs of electricity imports, as a consequence of the tight power supply in the region as well as the successive electricity price hikes implemented by Eskom in South Africa."

Botswana will need to decrease its reliance on its neighbours as a source of power supply. Toward this objective, the government will need to revise its electricity regulatory framework with, as a first step, the establishment of an independent regulatory agency.

A new independent regulatory agency, the Botswana Energy and Water Regulatory Agency (BEWRA), is expected to be put into place by end 2012, if the process runs smoothly. It should help ensure a more cost-reflective tariff structure that will attract private sector investment.

"Partnerships between the public and private sectors are required to better allocate risk, expertise and financial means in the new power infrastructure projects to be developed in the country," Paton says. "Furthermore, strong technical know-how and significant financial means will be required if the country wants to follow a low carbon trajectory."

Both solar energy and coal-bed methane present strong potential as cleaner electricity sources, but the high initial capital cost of solar energy, and the technical challenges posed by the extraction of coal-bed methane which is still in an exploration phase, remain the main barriers to be overcome. As a consequence, it is expected that coal will remain the main energy feedstock in the foreseeable future, if related financing remains available.