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Projects and Energy Weekly Snippets

2 April 2015

Joemat-Pettersson misses power deadlines

Energy Minister Tina Joemat-Pettersson has missed critical deadlines to commission new electricity generating capacity, despite a firm commitment to the government’s energy "war room" that she would do so as a matter of urgency. The government’s five-point plan to deal with the energy shortage says additional renewable and coal-fired energy will be commissioned from independent power producers, and opportunities to commission energy from co-generators in the private sector will be expedited.

But the commissioning process, which must be initiated and signed off by the energy minister, has been stalled. Ms Joemat-Pettersson undertook to sign off on the fourth bid window of the renewable energy independent power producers procurement programme (REIPPPP) by the end of March. This was after it had already been delayed from the end of November last year.

The delay of the fourth window of the REIPPPP is puzzling as it is widely believed that the adjudication process of evaluating bids and prices has long since been completed and all that is required is the signoff by Ms Joemat-Pettersson. The delay in the announcement means that the latest round of renewable projects will not achieve financial close by midyear as expected.

On 30 March, instead of issuing a statement on the renewable energy fourth window as promised, the Department of Energy published a statement updating progress on the nuclear procurement, giving a commitment that the first unit will be commissioned by 2023.

Business Day, 2 April 2015

Industry needs pool of professionals to assist with carbon tax

Considering the National Treasury’s confirmation last month that carbon tax would be introduced in 2016, with a draft Carbon Tax Bill to be introduced later this year to allow for more public comment, industry needs carbon tax experts to assist it in managing carbon tax, says carbon emission reduction auditing company Carbon Check.

CEO of Carbon Check, Adam Simcock, stated that “Carbon Check is embarking on training programmes to qualify and certify energy and carbon professionals…[and] in this manner, when carbon tax comes into effect, companies will be able to access a pool of carbon tax experts, similar to accessing standard financial tax experts”.

Simcock highlights these services as essential, considering government’s plans to implement tax breaks to reward energy efficient behaviour. In accordance with Finance Minister Nhlanhla Nene’s 2015 Budget speech, this year will see an increase in the energy efficiency savings incentive from 45c/kWh to 95c/kWh. Simcock explains that section 12L of the Income Tax Act makes provision for individuals and companies to receive tax reductions in terms of energy efficiency, while carbon tax focuses on the amount of carbon emissions – which will be taxed at ZAR120/t – from companies.

Despite the industry remaining hampered by several challenges including inadequate funding and a lack of understanding of carbon in relation to energy and how it can be reduced and offset, Simcock stresses that energy efficiencies and carbon tax are vital in assisting South Africa in achieving its goals regarding climate change mitigation.

Engineering News, 27 March 2015

DEA requests additional info on proposed Kipower IPP

The Department of Environmental Affairs (DEA) has requested additional information to the final environmental-impact assessment (EIA) report submitted to it for the proposed construction of the 600 MW coal-fired independent power producer (IPP) plant and associated infrastructure for Kuyasa Mining subsidiary KiPower.

The proposed $1.7 billion coal-fired plant, to be located near Delmas, Mpumalanga, could use coal from the nearby Delmas mine to meet a portion of South Africa’s power needs and had the potential to be expanded to produce up to 2 000 MW in the long-term.

KiPower expected construction on the power plant to begin this year, with the first of the plant’s three units to be operational by 2018. However, the DEA was now seeking additional information regarding the cumulative impacts of the proposed power line connection, as well as the terms of a proposed agreement with state-owned power utility Eskom on the connection options for the plant. The DEA further requested that an assessment of the option of not implementing the proposed IPP and associated infrastructure be included.

Following the additional information being included in the EIA report, the DEA would further consider the EIA report on receipt of all the outstanding requested information.

Engineering News, 30 March 2015

Turkish company floats power ship idea to buoy Eskom's capacity

The Department of Energy (DoE) is poring over plans to source electricity from energy ships and power barges that could save Eskom millions. The department’s deputy director-general for policy, planning and clean energy, Ompi Aphane, said Turkish power firm Karpowership had submitted the energy ship proposal in the past few weeks.

The private operator, which has a fleet of seven power ships, estimated it would be able to save Eskom "hundreds of millions" a year. This would be achieved by weaning Eskom off its reliance on inefficient and expensive open-cycle gas turbines, which burn diesel, and supplying it with electricity generated from four 500 MW power ships. This could save the utility between $400m and $500m, says Karpowership sales director Patrick O’Driscoll.

Power is generated on the ships by burning heavy fuel oil. The power costs less than half of that produced by the gas turbines, Mr O’Driscoll said. The Integrated Resource Plan for Electricity 2010 did not preclude heavy fuel oil as it was a hydrocarbon and was similar to diesel, said Mr Aphane.

SA’s urgent work to shift the fuel being used at the Ankerlig and Gourikwa open-cycle gas turbines from diesel to gas would take time, Mr Aphane said. The speed of the conversion would depend on the availability of vessels able to carry fuel and regasification units, as well as on the gas that would be required. It could take between 18 months and two years.

Ports that have been identified as suitable for berthing or anchoring power ships and barges include Saldanha, Coega, Cape Town, Richards Bay and Port Elizabeth.

Business Day, 1 April 2015

Is LNG the answer to cleaner, more sustainable power generation?

In an article published by The Guardian it was reported that global CO2 emissions for 2014 stand at a record high of 40 billion tonnes, a 2.5% increase on 2013. With legislation in place in many parts of the world to reduce the global carbon footprint, South Africa is joining the global effort with the proposed implementation of a carbon tax set to come into effect in January 2016. As SA continues to develop more generation capacity, along with the impetus to be more carbon conscious, there is a need to explore options other than coal for base-load generation. And this is where liquefied natural gas (LNG) may well fill a critical gap.

Southern Africa's gas market was in the spotlight recently when the discovery of what is termed the "the world's largest natural-gas" deposit off the coast of Mozambique has led to increased interest in the country. The discovery of a "local" LNG market could significantly change perceptions and costs for LNG as a fuel source for power generation in Southern Africa and South Africa in particular. Natural gas availability in South Africa has been estimated at 40 trillion cubic feet in the Karoo basin and 140 trillion cubic feet off the coast of Mozambique.

Currently the South African gas market contributes a tiny 3% to the energy mix, but this amount needs to be increased in pursuit of the long term goal of a balance between resources. LNG works out significantly less expensive than diesel and it is also the cleanest burning fossil fuel available.

When the overall costs of all generation resources are considered, the most feasible is to have a varied approach to the energy mix and use a mix of power generation solutions to ensure energy security in the long term. Striking a balance between the use of fossil fuels and renewables will work in favour of the environment while still maintaining an economically viable balance of base-load and intermittent power.

ESI Africa, 1 April 2015

Brown insists Eskom is on "solid ground", as 827 MW in short-term purchases are renewed

State-owned power utility Eskom and Public Enterprises Minister Lynne Brown confirmed on 1 April that contracts under the so-called short-term power purchase programme (STPPP) had been renewed ahead of the 31 March 2015 expiry date. Eskom stated that the renewal followed the National Energy Regulator of South Africa’s (Nersa’s) recent approval of the agreements.

In a statement, Brown said the STPPP contracts would supply “at least 827 MW to the system”, while it was understood that Nersa approved Eskom’s contracting of more than 1 350 MW during 2015/16.

Brown added that the renewal had been facilitated by Deputy President Cyril Ramaphosa, with support from Energy Minister Tina Joemat-Pettersson, and that government regarded the contracts as “essential” in light of the country’s tight electricity supply.

Ahead of the announcement, concerns had been raised about whether Eskom’s liquidity problems might prevent it from renewing the contracts. It is understood, though, that Nersa’s approval would enable the utility to apply to recover the costs through a future tariff increase.

The utility confirmed recently that it intended pursuing a “selective reopener” of the third multiyear price determination, most probably covering the remaining three years of the five-year control period, which began on 1 April 2013, and which would continue until 31 March 2018. Reports suggested that it could seek a hike of 25.3% from as early as 1 July this year. However, Eskom refused to comment on either the size or timing of its application, stating only that it was still consulting the National Treasury and the South African Local Government Association regarding the matter.

Engineering News, 1 April 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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