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Projects and Energy Weekly Snippets

30 April 2015

DNV GL says DOE’s IPP bids show strong commitment

The announcement from the Department of Energy (DoE) that it has approved 13 new renewable IPP bids “signals the strong commitment of the South African government to continue renewable energy deployment. We encourage the whole sector to anticipate these developments and continue helping South Africa to stabilise its energy sector and solve the load shedding problems”. This is according to Sliman Abu Amara, Area Manager Africa, DNV GL – Energy, a global testing, certification and advisory services company that has been working on large wind and solar energy projects in Africa, including South Africa, Egypt, Kenya and Morocco.

The continent has abundant sunshine, so solar is its most logical choice. There are several projects starting, with South Africa again leading the market. Amara notes that “for African utilities to continue attracting investments in solar, they have to solve issues related to grid integration".
According to Amara, DNV GL is very selective about the markets in which it operates. “We see a lot of potential in many countries but we are more interested in their governments and the utilities that have to implement the commitments… There has to be political will to do something and improve the situation in their countries."

During the upcoming African Utility Week, DNV GL wants to demonstrate its commitment to the development of the power sector in Africa. “We have noticed a lot of things happening in the African market, in South Africa, in sub-Saharan Africa and in Northern Africa,” says Amara. “The African market is ready for the penetration of larger scale renewable energy on the continent.”

At the upcoming African Utility Week, the continent’s leading renewable energy project managers, investors and technology providers will gather in Cape Town as part of the largest utility conference and expo in Africa. DNV GL is the exclusive diamond sponsor at the event.

ESI - Africa, 24 April 2015
African Utility Week and Clean Power Africa will be held at the CTICC in Cape Town from 12 – 14 May 2015. Visit www.african-utility-week.com for more information.

Demand will secure coal assets, says Glencore

Glencore, the top exporter of coal used in power stations, expects efforts to curb climate change by keeping its fossil-fuel reserves in the ground to fail in the face of world energy demand. Shareholders will not be "prevented from realising the full value of Glencore’s fossil fuel assets", Glencore CEO Ivan Glasenberg said on 28 April.

His comments are a snub to a growing campaign that wants investors to shun fossil fuels that cause climate change. Exxon Mobil, Chevron and Royal Dutch Shell are among those defending their interests with the argument that the only way the world can feed its appetite for cheap, reliable energy is by burning fossil fuels. Coal supplies the world with about 30% of its main energy needs and more than 40% of its electricity, according to the World Coal Association. Global coal output reached a record 7.8 billion tonnes in 2013. Glencore owns 4.3 billion tonnes of reserves of coal used for energy and to make steel in Australia, SA and Colombia. It produced 146 million tonnes last year.

Two-thirds of the world’s fossil-fuel reserves must remain unburnt to hold temperature increases below dangerous levels, according to researchers at University College London (UCL). Half the world’s known gas reserves, one-third of its oil and 80% of its coal should stay in the ground and unused before 2050 to limit temperature increases to 2°C, the maximum scientists say is safe, according to a January report from the UCL Institute for Sustainable Resources in the journal Nature.

Business Day, 29 April 2015

CEL could start shale gas programme by mid-year

If the required legislative framework is in place by mid-year, ASX-listed shale gas developer Challenger Energy Limited (CEL) could potentially be awarded a licence and start its work programme for shale-gas exploration in the Karoo, through its subsidiary Bundu, in the third quarter of this year, UK-based investment intelligence firm Edison Investment Research said on 29 April.

“Regular load shedding by state-owned Eskom is hurting South Africa’s economy, notably the mining sector, to the tune of 0.5% to 1.8% of gross domestic product a month, depending on the [severity of the] blackouts,” Edison said, citing estimates by the Department of Public Enterprises that the power cuts cost the country ZAR20 billion to ZAR80 billion a month.

“The country does not have easy or cheap options to solve its near-term power crisis, as gas imports from neighbouring Mozambique would require an expensive new pipeline, estimated at $6-billion, and liquefied natural gas imports would be technically difficult. If shale gas exploration is successful, indigenous gas supply could help meet the country’s dire need for more power,” Edison said.

In accordance with a request from the Petroleum Agency of South Africa, the scope of CEL’s proposed work programme has been altered to remove hydraulic fracturing, or fracking. Challenger’s updated work programme was largely unchanged with respect to the first two phases, while phase 3, scheduled to start 12 months to 18 months after a permit award, would entail the drilling of up to three coreholes to gather fresh geological samples, logging and testing of the coreholes, but no fracking. This would assist the company in assessing the characteristics of the target shale layers. If the wells only found gas shows that did not flow naturally, no fracking and no flow test would be conducted.

Engineering News, 29 April 2015

Power supply will slow growth, says IMF

SA’s unstable power supply and the government’s decision to slow down growth in spending will limit the country’s economic growth, the International Monetary Fund (IMF) says. The Washington-based body expects SA to grow 2% this year and 2.1% next year. The 2% growth is much lower than the 5% SA needs to reduce high unemployment. "Even this growth is slower than previously expected, with the net terms-of-trade improvement offset by fiscal consolidation and continuing problems in the electricity sector," the IMF said in its sub-Saharan Africa regional economic outlook, which was released on 28 April.

Despite the fiscal consolidation’s negative effect on economic growth, the government should continue with it, as adopting more fiscal expansion would channel needed funding away from growth-enhancing fixed investment projects to current spending, IHS senior economist in SA Thea Fourie said.

The benefits of fiscal consolidation include less borrowing, a stable credit rating and less dependence on foreign funding as the government is able to raise necessary resources internally, Capital Economics Africa economist John Asbourne said.

Sub-Saharan Africa is expected to grow 4.5% this year and 5.1% next, supported by improving global economy and infrastructure investments. However, this expansion would be lower than the region had registered in recent years, mainly reflecting the adverse effect of the sharp decline in oil and other commodity prices. A "bright spot" in the region was the increase in regional trade. Southern African Development Community (SADC), along with the Common Market for Eastern and Southern Africa (Comesa) and the East African Community (EAC), are set to launch a tripartite free trade area, which would allow for the easier movement of goods and services and improve trade. Despite work done by authorities to improve trade, the IMF said the sub-Saharan African region still had enormous potential to integrate into global value chains.

Business Day, 29 April 2015

EU-private sector fund to invest $60m in off-grid sub-Saharan Africa

The European Union has announced that it will partner with Paris-based private equity firm Astor Capital Partners to invest in small energy companies across sub-Saharan Africa. The EU-backed Electricity Access Ventures Fund, which will be directed by Astor Capital Partners, will invest an estimated $60 million in 20 small businesses over a five-year period, the EU Observer reported.

The fund, which is sponsored by Schneider Electric, will make equity investments in small and medium-sized businesses focused on supplying power and related services through power generation systems such as solar home devices and micro-generation infrastructures - generally off-grid, energy distribution, the newspaper explained.

The Luxembourg-based European Investment Bank, which relies on capital paid in by the EU’s 28 governments, will boost the fund’s capital by $10.87 million for projects aimed at providing electricity access to one million people.

According to the EU Observer, the project is the latest example of the EU “blending” development grants with finance from private sector investors to pay for large-scale investments. This approach is being employed in East Africa to finance renewable energy and energy efficiency projects for geothermal energy installations and the 310 MW Lake Turkana Wind Project. “But blending has its critics, particularly among non-governmental organisations which have warned the EU about the dangers of being 'charmed' by the private sector and argue that blending projects can lead to developing countries being lumbered with expensive and risky public-private projects," the newspaper reported.

ESI - Africa, 29 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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