Projects and Energy Weekly Snippets

The National Energy Regulator of South Africa (NERSA) invites the public and all stakeholders to attend a public hearing as part of the consultation process for the Small Scale Embedded Generation Regulatory Rules designed to finalise new rules for small-scale solar photovoltaic (PV) generators wanting to supply electricity from their homes or businesses to the grid. The hearing will take place on 10 April 2015 at the Premier Hotel, 187 Third Road, Halfway Gardens, Midrand 1685 from 09:00 – 16:00.


Zuma appeals for energy efficiency during launch of energy campaign

On 13 March, President Jacob Zuma officially launched the Presidency and Government Energy Saving Campaign, but apart from reflecting on energy-savings gains made during his administration and appealing for energy use austerity, he remained vague on the campaign's planned interventions or deliverables.

Zuma told a gathering at the Union Buildings in Pretoria that government had prioritised energy security as the single most important challenge to effectively "jump-start" the economy.

Outlining recent government interventions, Zuma referred to the recent establishment of a Cabinet war room under deputy president, Cyril Ramaphosa aimed at improving the maintenance of Eskom power stations and finalising the country's long-term energy security master plan. Zuma added that, as part of the DoE's Renewable Energy Independent Power Producer Procurement Programme, 32 renewable power facilities were currently in operation and delivering more than 1 500 MW into the national grid. Zuma further outlined that the Department of Public Works had been tasked with ensuring that all government buildings became energy-efficient spaces while the DoE had recently concluded the Energy and Climate Change Strategy for the Public Buildings Sector, which was to be tabled for Cabinet's consideration. Zuma added that "our energy power further delays".

He further appealed to citizens to be vigilant when consuming energy and urged the private sector to also engage in energy saving drives which will be encouraged by increasing the energy efficiency incentives on offer such as extending the current tax rebate scheme.

Engineering News, 13 March 2015


Shell gets cold feet on SA shale

Multinational oil and gas company Royal Dutch Shell is pulling its top shale-gas man out of South Africa, an indication that companies are growing increasingly frustrated with government delays over shale-gas legislation. Jan-Willem Eggink, whom Shell sent to SA from Libya to monitor SA's shale gas opportunity, would be pulled out of the country in coming weeks. Other highly skilled staff would follow him.

On 13 March the company said it needed clarity on legislation and technical regulations in the country before making any further decisions. Shell stated that it would continue ongoing consultation with government and industry about the opportunities of shale gas exploration and regulation. A Parliamentary source, however, said "Shell [has] given up on the government getting it together any time soon to fix the position of oil and gas companies in the Mineral and Petroleum Resources Development Act (MPRDA) or to release fracking [hydraulic fracturing] regulations".

The biggest hiccup in terms of legislation for upstream oil and gas exploration is the stake that the SA government wants to take in terms of black economic empowerment and the terms that the state demands, which include a 20% free stake in exploration projects before companies have recouped their costs. For the most part, oil and gas companies are happy to hand over the 20%, but only after they have recovered drilling and exploration costs that run into the billions. This has been included in the amendments to the MPRDA that were sent back to Parliament in December.  

Without the legislation in place, Shell and other companies are unable to acquire a licence, and even if the legislation were pushed through today, the companies interested in shale gas development would still need to do an environmental impact assessment that would take another two years.

Business Day, 15 March 2015


Eskom seals 35-year gas deal with Sunbird for Ankerlig power station

ASX-listed gas developer Sunbird Energy on 18 March announced the execution of a gas sales agreement with South African power utility Eskom, over its planned Ibhubesi development, off the country's West Coast. Under the term sheet executed with Eskom, the planned Ibhubesi project would deliver up to 30-billion cubic feet a year of gas to the Ankerlig power station, near Cape Town, for a period of up to 15 years.

Sunbird executive director Andrew Leibovitch said that the Eskom offtake would account for 100% of the planned production from Ibhubesi, with first delivery scheduled for late 2018. The development of the Ibhubesi project was expected to provide the critical first gas production and pipeline infrastructure on South Africa's West Coast, establishing new industries in upstream petroleum exploration and development, and a new energy supply for downstream power generation, major industry and domestic uses.  

The initial phase of Ibhubesi could involve an investment of between ZAR12 billion and ZAR14 billion to produce 28.3 billion cubic feet of gas yearly over an initial six-to-eight-year horizon. Eskom's tight power system has resulted in the above-budgeted use of Ankerlig and Gourikwa open-cycle gas turbine (OCGT) power stations, spending ZAR10.5 billion on diesel in 2013/14 to fuel these power stations. To help save on the cost of burning expensive diesel, Cabinet has ordered Eskom to fast-track its programme of substituting diesel with gas at the OCGTs.

Engineering News, 18 March 2015


Renewables Group homes in on South Africa's embedded solar market

Renewable energy project specialist juwi Renewable Energies, which has participated in five South African utility-scale solar photovoltaic (PV) projects with a combined capacity of more than 120 MW, reports that it is gearing up to aggressively pursue embedded solar generation opportunities that are set to arise in the country's commercial and industrial sectors.

MD Greg Austin stresses that it will continue to pursue utility-scale solar and wind prospects under the Renewable Energy Independent Power Producer Procurement Programme, but that the Germany domiciled group plans to diversify into the commercial and industrial sectors where it expects to be in a position to develop more than 20 MW of embedded solar PV capacity over the coming two years.

Business development manager Matthew Turner reports that it is already in advanced negotiations with a mining group for a 1 MW free-field plant, as well as with a government department for a single-axis-tracker installation. It is also targeting rooftop solar opportunities of between 0.3 and 1 MW with a range of commercial and industrial customers.

The initial approach will be to align the installations to a company's internal demand, owing to the current uncertainties with either seeking a licence or securing an appropriate tariff to feed electricity into the grid. However, Turner indicates that it could in the future, pursue larger grid-connected solutions, particularly should the National Energy Regulator of South Africa's (Nersa) framework for embedded solar generators improve the prospects for such projects.

Engineering News, 18 March 2015 


Tolling of the national roads essential for maintenance

Tolling of South Africa's national roads was essential to ensure the upkeep and maintenance of the popular trade and holiday routes, special purpose vehicle Bakwena Platinum Corridor Concessionaire said on 18 March. Bakwena, which was responsible for 385 km of roads on the N1 and N4, was required to toll the roads to fund its responsibility under a 30-year concession with the South African National Roads Agency Limited (Sanral).

This emerged as Bakwena faced a Congress of South African Trade Unions (Cosatu)-led protest against the high costs of toll fees at the Bakwena-managed Swartruggens Plaza, with Transport Minister Dipuo Peters expected to announce possible solutions in mid-April emerging from years-long discussions over what were deemed the most expensive national toll fees in South Africa. While Sanral, the Department of Transport and the North West Province were currently in discussions over reducing the N4 toll gate fees, Bakwena noted that, without the tolls, the N1N4 route condition would not be maintained to its current standards and would likely deteriorate.

Bakwena commercial manager Liam Clarke explained that it cost around ZAR6-10 million to rehabilitate 1 km of road, while building it from scratch could cost around ZAR40 million a kilometre. Clarke believed Cosatu's opposition to the Swartruggens toll fees was, in part, a stand against the principle of tolling after Sanral implemented the user-pays model on some of Gauteng's highways.

Engineering News, 18 March 2015


PIC puts ZAR5 billion into Northern Cape renewable energy projects

Renewable energy projects received a boost with the announcement on 18 March of two new solar power plants to be built in the Northern Cape. The Public Investment Corporation (PIC) will invest ZAR4.4 billion, buying a 20% stake in each plant and providing debt funding for both totalling ZAR600 million. Worth ZAR22 billion, the Ilangalethu and Xina power stations are expected to contribute a combined 200 MW to the national electricity grid.

This is the largest single investment in SA's solar power infrastructure. Since the government started inviting private investors to build renewable projects to provide electricity, 21 deals with a total capacity of just more than 1 000 MW have been signed. The government has set a target of producing 3 625 MW of power from renewable sources by 2030. 

The PIC described the investment as one of the ways in which it could contribute to the expansion of the national grid and electricity provision. The company that manages the pensions of state employees said it had already contributed funding to seven other renewable projects in the past, which would contribute 554 MW when completed. It would continue to invest in renewable energy projects based on the pillars of the PIC mandate, one of which is investment in projects that are focused on environmentally friendly and sustainable projects.

Business Day, 19 March 2015


Eskom, Alstom agree to terminate Kusile contract

Eskom has agreed to terminate French multinational company Alstom’s contract for the control and instrumentation works for the Kusile power station, which has been delayed by at least four years. “With the support of both organisations, a consensual termination has been reached on a co-operative walk-away basis,” said Eskom in a short statement released on Friday.

Alstom had won the same contract for both the Medupi and Kusile power stations when Eskom started building the stations. At Medupi, however, Alstom failed to satisfactorily complete the work on time, delaying the station and prompting Eskom to appoint Siemens, the German industrial company, to assist in completing the work in December 2013. It was contracted to deliver on the contract in 2012, but the now joint contractors were only able to complete the work in about September last year.

While Eskom said on Friday that the parties would simply “walk away,” Eskom chairman Zola Tsotsi said in 2013 that the company would be able to “seek remedies for non-performance” from Alstom. The termination of the contract for the Types_PopulateLog" --------fect a similar deal for the four remaining generating units of the Medupi station, “which Alstom shall continue to execute in accordance with the terms of that contract,” said Eskom.

Eskom has now appointed ABB South Africa to replace Alstom to design and implement the control and instrumentation contract for the Kusile power station.

Business Day, 20 March 2015


DTI task team to tackle "bottlenecks" in Saldanha Bay oil, gas industry

Trade and Industry Minister Dr Rob Davies has announced the formation of a Ministerial task team – comprising representatives from the community, the business fraternity, labour and government – charged with addressing challenges in the oil and gas industry, specifically those related to the offshore oil rig industry in the Saldanha Bay industrial development zone, in the Western Cape.

The Minister said that the team would conduct a full four-week audit to identify service bottlenecks in the industry. These bottlenecks and challenges include the limited number of companies providing oil rig maintenance and repair, inadequate skills development, and a limited supply chain for locals.

Davies said that these issues had to be addressed in order to ensure that the community benefits from the offshore oil industry. "Saldanha Bay has the potential [to become] an employment hub…[and] paying attention to getting local businesses accredited to be able to service the oil rigs and becoming proper players [in the industry] is instrumental to growing the economy and creating employment."

Transnet had earlier announced a ZAR13 billion project to transform Saldanha Bay into the oil and gas hub of South Africa within four years.

Engineering News, 24 March 2015


Eskom's cash flow problem jeopardising renewal of contracts for 704 MW of capacity

The immediate cash flow constraints facing struggling South African power utility Eskom are threatening to jeopardise the renewal of several short-term power purchase agreements, which currently collectively contribute 704 MW to the supply-stressed grid.

The Cabinet-backed war room has urged the utility to roll over the contracts, which are set to expire on 31 March. However, with that deadline looming, the cash flow issues had not yet been resolved, outgoing Eskom executive Steve Lennon revealed on 25 March.

Responding to questions posed at a Fossil Fuel Foundation conference, Lennon said it was not yet clear whether the cash flow issue could be resolved in the coming few days. He stressed that, while the funding for the short-term power purchases would form part of a tariff reopener that would be made to the National Energy Regulator of South Africa, the immediate problem was Eskom's immediate shortage of cash to buy the power from generators in the industrial and agricultural sectors.

Engineering News, 25 March 2015


US energy company sees opportunity in SA's power crisis

American-listed company NRG Energy announced its entry into the South African energy market, headed by executive chairman Grant Pattison to seek out opportunity amid the country’s power crisis. Pattison said NRG will offer hybrid solutions, including a variation of wind or solar photovoltaic power generation. In addition the energy company will supply micro-grid solutions, involving the construction of generation plants for companies and to operate a mini-grid.

Pattison said NRG had already had interaction with the local South African market and he estimates that the first kilowatt of power from NRG systems will come online this year. The company will focus on the manufacturing industry and multinational companies, which have been negatively affected by the recent power problems and have the physical surface space for the installation of renewable solutions.

South Africa’s power crisis has opened up a window of opportunity for renewable solutions and NRG aims to develop the market for independent power purchase agreements in South Africa by driving NRG Renew's technical, operational and financial skills and resources.
NRG has three generation strategies that will also assist with acquiring more power for the national grid. These are licensing of power generators, metering which involves selling excess capacity back to Eskom, and wheeling where a larger plant sells surplus power to another utility’s jurisdiction.

ESI Africa, 26 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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