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Projects and Energy Weekly Snippets

6 March 2015

Report forecasts "dominant" role for gas in Africa's power mix

Gas has the potential to account for more than 40% of the electricity generated in sub-Saharan Africa from 2020 onwards, a new report by McKinsey & Company shows, adding that by 2040 gas-fired capacity could be responsible for more than 700 terawatt-hours in the region.

With the large gas discoveries in Mozambique and Tanzania over the past half-decade, McKinsey's Adam Kendall says that gas has become a much more attractive opportunity. There is potential, he estimates, for about 400 GW of gas-generated power, with Mozambique, Nigeria and Tanzania alone representing 60% of the total capacity. "But Africa is significantly underexplored from a gas perspective, so there is the real possibility of further gas discoveries on the east or west coasts and tapping such sources could result in a much cheaper levelised cost of energy."

The levelised cost of gas capacity across the region starts low, the report notes, ranging between $47 and $65 a megawatt-hour. Gas is inexpensive mainly because of government subsidies, which Kendall predicts will decrease over time, meaning that the levelised cost of gas-fired technology will increase to more than $90 a megawatt hour by 2040.   

Where the price at which the resource can be produced is lower than the average levelised cost of other choices, gas discoveries could be "game changers", says Kendall. In addition to conventional sources, the report also highlights that Mauritania, Nigeria and South Africa have further potential of about 62 GW in shale gas and 3 GW in coal-bed methane. The report suggests that shale gas in SA will potentially have the biggest effect on the markets, arguing that it could displace regional coal-fired power that would otherwise be built.

Engineering News, 27 February 2015

Eskom's low capacity blamed for power delay

Several postponements of the announcement of successful bids for the fourth round of renewable power by independent power producers are being attributed to Eskom's lack of financial and human resources to connect projects to the grid. Bids were invited in 2014 for the fourth round of procurement of 1 100 MW and more than 70 were received. The announcement of the successful bidders, expected in December, has not been made. But there has been no official explanation from the Department of Energy. It is an unfortunate hiccup in SA's renewable power programme, one of the most successful in the world.

Department acting director-general Wolsey Barnard told a recent conference that 32 of the 66 renewable energy contracts awarded to date were delivering more than 1 500 MW of power to the grid.

An Eskom spokesperson said that "in the past year Eskom has made available the option of a self-build on the transmission network. This was in response to requests from independent power producers who proposed that they can achieve cost and time efficiencies if allowed to exercise the option of constructing the transmission assets dedicated to their projects and handing the assets over to Eskom". But industry sources said bidders in rounds three and four had not expected to have to make their own grid connections, and had not made financial provision for it.

Asked if there was a problem in connecting renewable projects to the grid, the Eskom spokesperson said it has made funding provision to procure energy for all bid window three projects. In addition, he continued, funds have been made available to strengthen the network and facilitate connection of all projects under the third bid submission window.

Invitations to bid for a fifth round are expected to be issued by August this year.

Business Day, 2 March 2015

100 MW solar park to relieve pressure on national grid

The Department of Economic Development, together with Spanish solar company Abengoa and the Industrial Development Corporation, on 2 March launched a 100 MW concentrated solar power (CSP) park, about 60 km outside Pofadder, in the Northern Cape. Speaking at the launch of the ZAR7.9 billion KaXu Solar One park, Economic  Development Minister Ebrahim Patel said the park would provide much-needed energy to the national electricity grid, helping relieve the current 4 000 MW shortage the country was experiencing.

The Minister stated that KaXu Solar One park is the largest CSP plant on the African continent, as well as in the southern hemisphere. He added that the renewable energy programmes ensure that we deal with the energy crisis and reduce load shedding, to provide a predictable source of energy to every South African home.

Patel explained that the plant could provide enough energy to meet the demand for electricity by 80 000 households, or 400 000 South Africans, which was the combined yearly energy needs of Mosselbay, Oudtshoorn, Knysna and Swellendam.

The plant, which took about two years to build, was 3 km long, 1 km wide and contained 1 200 collectors – each containing 10 modules, built from glass mirrors and aluminium. In total the plant had 336 000 mirrors, which Abengoa plant manager, Sergio Olivier, said created direct radiation, which multiplied the sun's energy by 40 times. 

Engineering News, 2 March 2015

Bundu expects shale gas exploration right decision this year

Unconventional gas explorer Challenger Energy expects to hear by the third or second quarter of this year whether its subsidiary, Bundu Gas and Oil Exploration, will be allowed to explore for shale gas in South Africa's Karoo basin.

The ASX-listed company confirmed on 2 March that Bundu had lodged an updated environmental management programme (EMP) with the Petroleum Agency South Africa (PASA) on 27 February. This followed a process that included a further round of public consultation in respect of its application for a shale gas exploration right, for which it had applied in 2010. Challenger MD Robert Willes said in a statement that South Africa's Mineral Resources Minister, Advocate Ngoako Ramatlhodi, had 120 days to consider whether to approve Bundu's EMP.

The company also drew attention to the announcement in South African Finance Minister Nhlanhla Nene's 2015 Budget Speech last week that ZAR108 million would be allocated to "research and regulatory requirements for licensing shale gas exploration and hydraulic fracturing". Challenger believed that the statement reinforced government's commitment to moving forward with shale gas exploration.

Bundu was one of three companies to apply for exploration rights ahead of the institution of a moratorium on shale-gas exploration and development activities – the other companies are Shell and Falcon Oil & Gas. In October 2014, PASA notified the applicants that it would proceed with the processing of applications received prior to 1 February 2011 while maintaining the moratorium on new applications.

Engineering News, 2 March 2015

Medupi finally produces first power

Jacob Maroga turned the first sod in August 2007 at the then ZAR80 billion power station outside Lephalale in Limpopo. Mr Maroga, the then CEO of Eskom, had assured that the first power would start flowing from the plant "in four to five years" with the last unit expected to be commissioned in 2015. Instead, only the first generating unit starting producing electricity on 2 March 2015 – about four years after the scheduled date.

Seven-and-a-half years after the start of construction, at an estimated cost of ZAR120 billion, the first generating unit at Medupi will ramp up to the full 794 MW of its capacity in three months, Eskom said. Together the six coal-fired generating units at the power station will produce 4 800 MW when completed in about 2019. 

The synchronisation of the first unit to the grid gives welcome relief to industry and a nation weary of power rationing as Eskom fails to meet electricity demand. Any small breakdown in its infrastructure brings the risk of blackouts, as the utility has run out of spare generating capacity.

For Eskom to supply constant and reliable electricity it must add at least 3 600 MW of capacity to its 42 000 MW. It may take another year for the second 794 MW of power from Medupi to be connected to the national grid. Eskom also said it would start producing power from its 4 800 MW Kusile project, under construction outside Emalahleni in Mpumalanga, by the middle of 2016.

Eskom CEO Tshediso Matona has described the Medupi milestone as a turning point in its fortunes stating that "the electricity flowing into the grid marks a new beginning" for Eskom. The company has appointed a power station manager and another 350 people are to start work there.

Business Day, 3 March 2015

TFR confident of settling take-or-pay deals with 36 coal exporters

South Africa's state-owned railways utility Transnet Freight Rail (TFR) says it remains confident of concluding take-or-pay contracts with 36 coal-line customers before the end of the financial year, which concludes on 31 March.

Spokesperson Sandile Simelane stated that TFR is close to concluding contracts "with the entire industry" although he refused to divulge how many contracts have been signed indicating only that the majority of coal miners have signed deals with the utility. The only deal to be publicised to date has been a ten-year, ZAR24 billion deal with BHP Billiton Energy Coal South Africa (BECSA), signed in September 2014.

Simelane has also refused to comment on concerns raised by Glencore about the take-or-pay model, with CEO Ivan Glasenberg warning that such agreements could have serious unintended consequences, including undermining security of coal supply to TFR's fellow state-owned company, Eskom. Eskom is facing what is termed a "coal cliff", which could arise owing to the fact that many of its coal contracts are either set to expire, or are associated with mines that require recapitalisation, or face closure.

Although currently in discussions with Transnet, Glencore says it has not signed an agreement with TFR. It is nevertheless looking to discuss its anxieties with government, which Glasenberg argues, should be concerned, because take-or-pay penalties could be triggered should a mine seek to divert volumes away from the export marker towards Eskom.

Simelane says TFR is transitioning from a "collective agreement" with the coal industry to individual customer contracts in a bid to ensure that it can recover costs associated with the ZAR37 billion project to expand the coal line capacity to 81 million tons by June 2018. "TFR is also not willing to be drawn on whether Eskom's security of coal supply could be affected by the expansion of its export infrastructure and the take-or-pay model."

The rise in international demand for Eskom-grade coal, primarily from Indian power plants, could exacerbate the coal-cliff concerns, with the utility having warned that it could face yearly shortfalls of up to 40 million tons from 2018 onwards.

Engineering News, 4 March 2015  

The above reflects a summary of certain news articles published during the preceding week. It is not an expression of opinion in respect of each matter, nor may it be considered as a disclosure of advice by any employee of Hogan Lovells.


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