COMMENTS ON THE EPUPA DRAFT FEASIBILITY STUDY
The following is a brief review of some sections of the draft
feasibility study (FS), focusing
primarily on the Epupa Main Technical Report (Part B2). The Baynes
Technical Report is a simple copy of the Epupa report, with only
key words and appropriate sentences being replaced. Hence the
focus below will be on the Epupa option.
Unfortunately, the study cannot be reviewed properly as the crucial
figures and appendices (for example to Chapters 23 and 24) are
missing.
EXECUTIVE SUMMARY
- The Feasibility Study does a poor job of weighing the consequences
of the reservoir’s high rates of evaporation, and downplays the
project’s impacts on Namibia’s water demand.
- The Study offers an inaccurate analysis of alternatives to the
project, especially the Kudu Gas project, now underway. The study
misleads the reader to believe that Kudu power will be more costly
than Epupa
- The analysis is based on scant hydrological data, and does not
take into account changing hydrological conditions. Changes in
the FS’s hydrological analysis could make this project an economic
burden on the country.
- The study’s Terms of Reference severely limited the scope and
precluded a comprehensive review of the nation’s energy and water
needs, meaning that the analysis is heavily weighted for a dam
on the Cunene and against all other scenarios. This means that
Namibia has gotten a report that is useless as a tool to determine
its best path toward sustainable development of its energy and
water resources.
USE OF CUNENE WATER
*) Evaporation losses from the Epupa lake would amount to many
times the total urban consumption of Namibia, and many times the
amount of water expected to be drawn from the Okavango (20 million
cubic metres per year initially). This is because of the enormous
lake surface of 380 square km at high water level (Strategic Summary
p 2-1).
The evaporation rate is calculated as 20 cubic metres/second (630
million cubic metres/year) in the Study. The suggested evaporation
rate appears to be on the low side, and the quoted evaporation
rate has not been proven to be accurate. Apparently, the authors
did not make independent evaporation measurements, despite the
importance of these measurements to the project’s economic viability.
Instead, they relied on data taken long ago at locations remote
from Epupa (p7-65). Based on guesswork, the authors have increased
previous evaporation estimates by 15 percent (p7-70), corresponding
to 100 million cubic metres per year of water losses from the
dam.
*) The authors conclude that the loss of water at the reservoir
is insignificant, since "the external costs of evaporative
losses must be set at nil due to a lack of alternative uses for
this water" (p3-5 Strategic Summary). This statement must
be disputed in the strongest possible terms. Setting the value
of a natural resource at nil just because it has not been utilised
yet amounts to a complete disregard for any future possibilities
and needs. (It would be equivalent to a commercial company valuing
its unsold stocks at nil.) Considering that arid Namibia has an
ever increasing water shortage problem, the Cunene represents
an priceless water reserve. The huge evaporation loss and the
desperate need for water in Namibia alone should conclusively
eliminate any proposal to build a dam which does nothing but waste
this reserve.
*) Quotes such as the following clearly imply that a sensible
water usage plan is not in place:
- "The water demand for central Namibia is estimated at about 200 million cubic metres for the year 2020 compared to the present supply potential of developed sources of about 72 million cubic metres/a"
- "...completion of the final Grootfontein-Okavango river component of this national water supply scheme early in the next century appears to be inevitable", (p10-38) and
- "The above findings have been accepted in principle by the Namibian Government and the Department of Water Affairs has drawn up a Water Master Development Map for Namibia..." (p10-38).
The study’s authors accepted results without justification from
previous studies such as the Water Master Plan, whose contents
must be questioned. Accepting the findings blindly, they state
that the lost Cunene water has no value and there is no need for
it, except of irrigation in Ovambo (p10-38). In the long term
the picture will change and the value of water will increase considerably.
The possibility of using the water for the central region has
apparently not been factored into the project’s cost-benefit analysis.
HYDROLOGY
The viability of the Epupa option is strongly dependent on water
inflow; the Baynes option critically so. Any adverse hydrological
conditions such as drought and upstream use are therefore a major
operational and financial risk for Epupa. Hydrological data and
its accuracy are therefore critical in determining the viability
of Epupa. Unfortunately, hydrological data shows that water supply
is decreasing; furthermore the data used is inaccurate:
*) According to the study, the worst water flows in the 49 year
record period occurred in 1992-1994. According to Nampower the
Cunene flow reached a new all-time low in 1997. The average Cunene
water flow over the past twenty years has decreased. There is
evidence of changing climate conditions and that drought periods
are increasing in duration and severity all over the world. Under
changing hydrological conditions, the future performance of Epupa
cannot reliably be tested with past river flow records. The study
does not address this issue.
This gives reason to believe that Epupa will perform worse than
expected, resulting in a financial burden to the country instead
of the forecast benefit. According to the risk analysis (p25-9),
the project is already economically marginal with 1992-1994 river
flow simulations. The project will not be economically viable
(p25-10), should a cost overrun also occur.
*) Only 12 years of reliable daily flow data were available for
the Cunene at Ruacana (1961-1972). The Ruacana flow sequence was
synthetically extended to span the period 1945-1994, by means
of correlation to the Okavango River (Rundu) (p7-1). This approach
definitely reflects an uncertainty and could have serious consequences
on the economic viability of Epupa/Baynes.
*) Angola has the right to withdraw water from the Cunene upstream,
and will increasingly do so. Quote from the FS: "The withdrawal
of water from the Cunene will increase from about 125 million
cubic metres per year to some 600 - 1100 million cubic metres
per year in the year 2035. These figures may also be compared
to the estimated average discharge at Ruacana of about 5000 million
cubic metres per year." Already, Cunene flow rates are so
low as to put the Epupa project in doubt. If roughly thirty percent
of water flowing into the lake is lost (through upstream abstraction
and evaporation), it becomes hard to believe in the viability
of Epupa under any, even optimal, hydrological circumstances.
THE OVERALL PICTURE
*) The authors of the FS appear to have complete disregard of
the overall water scarcity in Namibia, focusing instead only on
the immediate problem at hand. The possibility of using Cunene
water for urban consumption rather than for power generation,
for example, deserves detailed study. Given that Kudu gas will
easily provide for all power needs, and given the sensitivity
of the Okavango to water abstraction, Cunene water appears an
attractive alternative for urban needs.
Even if such wider considerations exceed the Terms of Reference
of the Epupa FS, the government should be taking the overall view.
Recent estimates by Earthlife Africa, as published in two open
letters, claim that, once such an integrated view of development
in Namibia is taken, large financial savings are possible. In
addition, all the environmental problems associated with both
the Epupa and the Okavango proposals would be eliminated. These
claimed huge benefits clearly deserve detailed consideration by
the government before any decision regarding Epupa is made.
COST OF POWER
*) "The total financing requirement of Epupa is calculated
as US$753.6 million, including price contingencies and interest
during construction" (p23-19). Unit costs of Epupa electricity
(excluding price contingencies/interest during construction) is
given as 4.4 to 4.9 UScents/kWh (USc/kWh), with and without Gove
Dam in operation respectively (p23-13). The study states that
"most probably the majority of consumers is willing to pay
substantially more" (p23-8) for Epupa power to justify the
project, since the price of Epupa power is higher than the current
electricity price of 3.7 USc/kWh (p23-6). This assumption defies
all logic. It is a truism that the consumer would prefer to pay
less, and would by implication prefer cheaper import power or
Kudu gas power.
In the light of the above figures, claims in the study that Epupa
power would be cheaper than any other alternative are self-contradictory.
Apparently Appendix 23.1 contains the financial analysis, but
the latter is not included in the version of the feasibility study
made available to the public.
*) The FS applies inconsistent criteria for evaluating cost of
power. On the one hand,
according to the study, "The financial assessment made indicates
that Epupa is financially viable" and "Baynes COULD
prove financially viable WITH Gove in operation. A key prerequisite
appears, however, to be that Nampower is allowed to raise the
tariff to 4.5 USc/kWh in 1997 prices no later than 2005 as assumed
in the calculations" (p23-19 Epupa, Baynes Technical).
On the other hand, however, when considering renewable energy,
the study writes on p5-27 (Approach to alternative energy): "The
review is thus pessimistic about the near to medium term future
for large scale renewables in Namibia. This is mainly because
the available conventional energy alternatives are cheap by world
standards and likely to remain so over, at least the next 10-20
years. Large scale promotion of the use of renewables would therefore
consume economic resources which could otherwise be used for other
investments."
In the above two costing estimates, the authors compare projected
costs (year 2010) of renewables to those of conventional power
options at unit costs of 3.0 USc/kWh and reject renewables because
they are more expensive than 3.0 USc/kWh. However, according to
their own analysis, there is no conventional energy option available
to NAMIBIA at unit costs of 3.0 USc/kWh. Epupa is claimed to be
closest at 4.5-4.9 USc/kWh. Therefore it would have been correct
to compare the costs of renewables to the costs of Epupa rather
than the unattainable ideal of 3.0 USc/kWh. If this had been done,
the projected wind power costs of 4.9 USc/kWh, as calculated in
the FS, would be competitive to Epupa. In addition, the FS cost
estimates of renewable energy projects appear to be unrealistically
high in any case (see comments below, under ALTERNATIVES).
ALTERNATIVE POWER SOURCES
The authors claim that they have made a thorough study of alternative
supply options (Strategic Summary p 3-7). The following points
refute this.
*) The study notes, "The purpose of this feasibility study
is to evaluate the development of Epupa/Baynes hydropower project
and not to present a full master plan for the electricity sector"
(p5-2). It is clearly not in Namibia’s best interests to weigh
its energy-development future based on one expensive study that
looks single-mindedly at one particular project (Epupa), without
a comprehensive master plan as a basis for comparison (see "The
Overall Picture" above).
Ideally, the better approach would have been to (1) identify all
the available alternatives, (2) to study them to such extent that
the most competitive and environmentally acceptable option can
be pointed out with confidence and finally, (3) to proceed with
this option.
Due to the superficial treatment of alternatives, this study does
not appear to facilitate this approach but rather compounds the
muddled thinking already in evidence. If the FS ducks the responsibility
of making realistic comparisons of ALL options in the electricity
sector, it would be the duty of the government to do so before
making any further decision on Epupa.
*) The study exhibits a general bias towards Epupa and Baynes
in all comparisons with alternatives. Several examples have already
been documented above. In another example,
the report states, "Experience with solar and wind on large
scale is generally limited, grid connected systems have not been
tried out in Namibia. Also, wind data for the country is limited.
Therefore, much uncertainty is attached to operational reliability
and costs for these alternatives." (p5-4) By contrast, the
authors are unrealistically positive about the Baynes project
even when it is plain that no solutions have yet been found: "There
are a number of complex design issues to be addressed, but these
are all within the realm of current technology" (Strategic
Summary p2-3).
*) The study concludes that wind and solar energy are not feasible
as they are more expensive than Epupa. The FS authors do mention
that international grants are available, e.g. by the World Bank,
to promote and implement environmentally friendly renewable energy
technologies. Yet they fail to include such international grants
and the resulting cost reductions in their calculations on renewable
energies (p5-9). Therefore, the presented simplified cost comparisons
are misleading.
The following comments describe the flawed logic found in the
report’s analysis of specific alternatives.
KUDU GAS
*) The evaluation of the Kudu gas alternative is based on the
assumption that gas will be supplied to the gas power station
only. In other words, the electricity from a small power station
must be sold at very high costs in order to recover the full gas
field development costs. Thus, the FS compares a very small 360
MW gas power
station to Epupa because of the similar size. It then proceeds
to conclude that Epupa/Baynes is more attractive, because of lower
electricity supply costs. (The price of electricity from the 360
MW gas station is given as 5.3 USc/kWh) (p5-11).
This is totally unrealistic. Obviously, the large Kudu gas field
will not be developed for a small power station only. In fact,
it is common knowledge that an agreement between Shell Namibia,
Nampower (a Namibian parastatal!) and Eskom has been signed providing
for a 750 MW power station at Oranjemund. This power station,
plus planned export of gas and/or power to South Africa, already
accounts for a large fraction of the field development costs.
Additional gas power plants that might be needed by Namibia, therefore
do not have to carry the full Kudu field development costs and
will hence come out considerably cheaper than claimed in the FS.
Secondly, the larger the wattage of gas power stations, the lower
the unit cost. The FS comparison between Epupa and only a small
360 MW gas power plant is therefore unfair towards gas. By contrast,
a larger gas power station (1300 MW), capable of exporting excess
power to South Africa, would generate power at 2.85 USc/kWh (p5-11),
as compared to 4.4-4.9 USc/kWh for Epupa.
Nevertheless, the authors maintain that Epupa is the most attractive
option, saying, "This is a difference in present value costs
of USD54.7 million in favour of the Epupa option" (p15-3
of the Epupa EIA). As shown above, such conclusions are highly
skewed by making the wrong comparisons. This is an important issue
and throughout the report the reader is misled that a gas power
station would necessarily be more expensive than Epupa.
*) The FS-quoted gas price of 2.0 USD/GJ (corresponding to fuel
costs of 1.31 US/kWh and 3.8 USD/MCF) BEFORE tax is substantially
higher than previous gas price estimates AFTER tax stated by the
World Bank/Pencol Engineering Consultants (1.14 to 1.34 USD/MCF).
"The gas price (of 2.0 USD/GJ) used was initially quoted
by Shell as a reference price for Kudu gas delivered (at) Oranjemund"
(p5-8). Since the gas price has a very strong effect on the electricity
price, it is strange that the authors do not elaborate on this
issue.
And yet the authors question the higher gas price of 2.0 USD/GJ.
"Based on the independent calculations of gas cost made,
the assumption of USD 2.0/GJ applied in the study implies an advantage
given to CC (gas power) relative to other alternatives which appears
unrealistic" (p5-9). Since the authors do not elaborate,
it can only be assumed that the reason behind this argument is
that gas power would be significantly cheaper than Epupa if a
lower gas price is used.
The above facts make clear that the feasibility study tries to
present gas prices in as unfavourable light as possible. A more
balanced comparison, taking into account the probable scenario
of large gas offtake, a large power station, plus export to South
Africa, would prove that the FS seriously overestimates costs
for gas-generated power.
*) Kudu gas power could make Namibia self-sufficient with respect
to power for at least 20 years, at which time advances in other
renewables (e.g., solar and wind) will make them commercially
competitive. Epupa would NOT ensure self-sufficiency. In fact,
the FS appears to state that gas would be needed to COMPLEMENT
Epupa power. Quote: "If the Gove dam is not in operation,
a total of 360 MW of additional gas turbines installation would
be required in order to satisfy the dimensioning criteria"
(p24-4).
In addition, if the gas needed to power the gas turbines is to
originate from the Kudu gas field, then the field development
costs should ALSO have been included in the Epupa financial analysis.
*) With this background, it is wrong to state that "Epupa
is the least cost option for supply in Namibia..." (p23-12).
Kudu gas power would be a more competitive option than Epupa.
Several summaries of alternative energy supply options found in
the study did not take the development of Kudu gas into account
in determining whether their viability is improved once Kudu is
developed (e.g. p5-27).
There is little doubt that, given the already existing plans for
a power station at Oranjemund, plus the above considerations,
Namibia’s power needs are easily and abundantly solved by using
Kudu gas. No amount of obfuscation by the FS can hide the simple
fact that the gas option comes out cheaper and safer.
WIND
*) Dealing with wind energy, the FS is either biased or technologically
out of date, as the following quote shows: "Setting up the
measurement study, monitoring wind speeds for 2 to 3 years, designing,
erecting and monitoring a pilot wind farm will take at least a
decade. Any decision on a major investment programme in wind cannot
therefore be made for at least this length of time" (p5-26).
This is unrealistic, considering that wind plants in Europe and
the US have been installed in very short times, far shorter than
a decade. Wind power is a mature technology and could be introduced
easily. It is characteristic of the FS bias against alternatives
that negative remarks are made towards the time needed for developing
a wind power project while hydro plants are known for their long
construction times.
Furthermore, the authors present a cost calculation without even
mentioning the average windspeed for which the evaluation has
been done. Neither, apparently was any use made of available weather
station information. The conclusion that under present conditions
wind power is not an attractive option for the country thus appears
based on unknown and incomplete information.
The presented costs of 7.0 USc/kWh appear to be too high (p5-25)
compared to already existing projects. For example, according
to the "Wind Power Monthly" Journal (January 1995),
the wind power purchase prices in INDIA (also a developing country)
ranged from 4 to 7 USc/kWh prior to 1995. Lower prices are also
quoted by another source (Renewable Energy, Sources for Fuel and
Electricity, edited by Thomas B.Johansson and others, 1993, commissioned
by the United Nations): At an average wind speed of 8.5 m/s, the
electricity cost from wind power in the year 2000 is estimated
at between 2.7 USc/kWh to 3.8 USc/kWh, for an interest rate of
6 to 12 percent. Indications are that the southern coastal regions
of Namibia have a high wind potential so that these international
cost estimates appear to be appropriate.
A telling argument in favour of wind energy is provided by the
German GTZ (Gesellschaft fur Technische Zusammenarbeit) which,
in collaboration with local Namibian firms, is undertaking a study
of a small-scale power-from-wind plant on the coast near Luederitz.
While clearly wind is unsuited for base-load applications, its
use in small-scale plants has the potential greatly to reduce
overall demand.
SOLAR WATER HEATING
*) "The electricity consumption in Namibia is dominated by
electricity use in households, small-scale manufacturing, etc."
(p 5-28), where water heating constitutes a significant part of
the household energy consumption.
The cost of heating water by means of solar water heaters instead
of grid electricity has been calculated as 8.8 USc/kWh. It is
then said that since the CONSUMER pays 6.0 USc/kWh for grid electricity,
this option is not an attractive alternative. Why then did the
authors argue that the consumer is willing to pay substantially
more for (Epupa) electricity (p23-8)? If the electricity price
is to be increased substantially as recommended, the price of
8.8 USc/kWh should have been compared to the new proposed price
the consumer would have to pay.
*) An important assumption in the calculation leading to 8.8 USc/kWh
is that a solar system lasts only 7 years. According to major
solar water heater suppliers, these systems work reliably for
15 years, and much longer if maintained properly. The corresponding
costs calculated with a lifetime of 15 years results in saved
electricity costs of 5.6 USc per kWh (or less if maintained).
This would therefore be cheaper than grid power. An added benefit,
and one not quantified in the report, is that the installation
and maintenance of these systems could be a reliable, ongoing
source of employment, dispersed around the nation (Kenya has reaped
such benefits from its own development of small solar systems.)
ENERGY CONSERVATION
The study of energy conservation measures was included in the
terms of reference for the FS. Unfortunately, only a superficial
discussion is presented. No thorough investigations into this
important option have been conducted. This is the cheapest of
all options immediately available, and clear recommendations to
the decision-makers up to the level of the strategic summary would
have been appropriate. (p5-28)
IMPORTED POWER
Imported power is a cheap supply option. Present costs for imported
electric power are are about 1.8 USc/kWh only (see p8-3, Epupa
Main Report Summary). Presently, an additional large 400kV interconnector
between South Africa and Namibia is under construction. The new
line is expected to be in operation from 1999 with a transfer
capability of about 540 MW. If reinforced, the new interconnector
will increase the total transfer capacity to around 900 MW. With
the new line, the total supply capacity from imports and existing
stations will be sufficient to meet projected electricity demand
well beyond 2015 (p8-3).
No unit electricity costs of import power can be found in the
study, but a World Bank study calculates transmission electricity
costs (400kV line) at 1.36 USc/kWh, charged over 15 years. Adding
the electricity costs charged by South Africa (1.8 USc/kWh, p8-3)
adds up to 3.26 USc/kWh, i.e. much cheaper than Epupa. (On p23-8
the authors quote an average import tariff of 3.0 USc/kWh they
have applied, instead of the current tariff of 1.8 USc/kWh. But
even this price would lead to a lower price than Epupa, at 4.36
USc/kWh.)
It is unclear how the authors nevertheless arrive at the conclusion
that Epupa is cheaper than import in terms of its present value
(p24-11). The study further argues that imports would make Namibia
too dependent on South Africa. On the other hand, the study omits
to say that future upstream water uses by Angola would pose exactly
the same risk and dependency on a neighbour (see "Hydrology"
above).
GOVE DAM
The Gove dam would increase power output from downstream stations,
including the Ruacana station. The proposal and the cost of first
repairing Gove is not included in appropriate sections. A recommendation
to repair Gove and then to upgrade Ruacana power station could
not be found anywhere in the study.
by Hans Eggers
Institute for High Energy Physics, Vienna
Email: eggers@hephy.oeaw.ac.at
Further Reviews:
- CDM Auditing Process Cheats the Climate, by Sid Harring
- Large Hydro Carbon Credits Banned from European Climate Exchange, by Steve Rivkin
- Outcomes of CDM Executive Board Meeting, by Jamal Gore
- A Year of Rivers, Water and Rights, by Kate Snaddon
- Brazil: Don't Shove Belo Monte Down Our Throats!, by Peter Willing
- US Companies Favoring Efficiency Over Offsets , by Steve Rothert
- California Climate Legislation and Offsets, by Hans Eggers
This page created January 22, 1998