Projects and Energy Weekly Snippets

Government to break ground on Saldanha IDZ in August

Preparatory site work at the Saldanha Bay Industrial Development Zone (IDZ) continues to advance in preparation for the start of construction of the pivotal oil and gas hub in August, the Western Cape government advised in a project update on 4 May. Western Cape Economic Opportunities Minister Alan Winde outlined that, once the preparatory work had been completed, site clearance and earthworks would begin, after which construction activities would advance. Construction of the zone, which was one of several being driven jointly by the Saldanha Bay IDZ Licensing Company, the Transnet National Ports Authority and investors, would likely continue until September next year.

“The IDZ will become a significant catalyst for growth and jobs and will play a major role in boosting foreign direct investment into the country,” said Winde, adding that the progress, to date, was the result of partnerships between all spheres of government. Underpinned by the designation of the IDZ by the DTI, an earlier feasibility study had indicated that the development zone had the potential to generate ZAR10 billion for the region’s economy over the longer term.

Moreover, Winde asserted that upstream and midstream services to the oil and gas industry in the region, such as rig repairs, had already provided 35 000 formal job opportunities in the province. “We have the aspirational goal of adding up to a further 60 000 formal jobs to this sector and increasing its economic contribution up to ZAR3 billion, from its current ZAR1 billion. We seek to grow this sector by transforming Saldanha Bay into a world-class rig repair hub and by equipping local residents with the skills they need to take advantage of the opportunities that will arise,” he averred.

Engineering News, 4 May 2015

SA boasts world’s ninth-largest recoverable coal reserves – US report

Validating the South African government’s policy decision to retain coal as a central bastion of its diversified energy mix, a recent report by the US Energy Information Administration (EIA) has affirmed the extent of the country’s coal deposits, noting that the Southern African country holds the world’s ninth-largest volume of recoverable coal reserves and 95% of Africa’s total coal assets.

“[While] environmental groups continue to target the industry [owing to] air, land and water pollution…coal consumption in South Africa is expected to continue to increase as new coal-fired power stations come on line to meet rising demand for electricity,” the report read.

Noting that the South African economy remained “heavily” dependent on coal, which accounted for about 72% of the country’s primary energy consumption, the EIA outlined that increasing production would depend on the country’s ability to expand its railway and export capacity. “One of the main bottlenecks to increasing coal exports is the lack of railway infrastructure to transport coal from the mines to the ports. Transnet, South Africa's railway operator, plans to invest billions of dollars to expand railway infrastructure; however, South Africa's major export projects are experiencing delays,” the agency noted.

According to the EIA, although South Africa had a number of mining projects under way, it was unclear how much future coal production would be allocated to domestic electricity generation rather than exported. The country currently exported 25% of its production, with Asia receiving over half of total coal exports.

Engineering News, 4 May 2015

Eskom pushes for IPPs to “self-build” grid substations

Acknowledging the shortage of access points to connect renewable-energy projects developed under government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to the national grid, Eskom system operator Bernard Magoro encouraged independent power producers (IPPs) to “self-build” electrical substations that would provide connection points to the national transmission network.

“We are seeing renewable projects that are funding connections themselves, because they can do it cheaper and quicker than we can,” he told delegates at the Renewable Energy Forum South Africa in Johannesburg on Tuesday. He further encouraged IPPs to incorporate grid code requirements in the early planning stages of projects, adding that these codes were a “major” requirement of renewable-energy project development.

Eskom senior manager of planning and power delivery engineering Mfundi Songo added that grid access emerged as a challenge following the first round of the REIPPPP. Moreover, the mushrooming of new renewable projects had introduced additional challenges in terms of grid connectivity and system management. “The network is no longer as easy to access as it was three or four years ago and so the strengthening of the network is not as easy as it was…But now it means we may have to establish a completely new substation and new lines,” he commented, adding that the bidirectional flow of electricity also had to be factored in.

Engineering News, 5 May 2015

Forum bares bullish opinion of SA renewable-energy sector

Comment emerging from the Renewable Energy Forum in South Africa has suggested a largely bullish view of the local renewable-energy sector by investors and project developers, with several applauding the progress of government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), despite delays and criticism of unsupportive or convoluted energy policy.  Noting that the South African renewable-energy market continued to mature, Arup senior engineer Auret Basson told delegates that successes under the REIPPPP had seen feed-in tariffs narrow by over 25% since the first bidding window, with the average price of photovoltaic energy now at ZAR0.79/kWh and wind at ZAR0.62/kWh.

Scatec Solar country manager Andrzej Golebiowski attributed the strategic overhaul of his company to South Africa’s renewables programme. “The South African programme has transformed our company completely and we have a long-term view of the assets in South Africa. While there have been programme delays, we take comfort in the strong intent by government."

Project developer ACWA Power business director Chris Ehlers, whose company had been involved in the development of a 50 MW concentrated solar power plant in the Northern Cape, added that he had been “impressed” with the country’s renewable-energy programme. Sonnedix country manager Olivier Renon, meanwhile, described the South African renewable-energy market as becoming “increasingly tight” for developers owing to a surge in international interest.

Comments from renewable-energy project developers and investors came shortly after Energy Minister Tina Joemat-Pettersson recently unveiled a “roadmap” for an upscaled and accelerated deployment of independent power producer capacity. The Minister proposed the addition of 6 300 MW of renewable-energy allocation, over and above what had already been secured over the past four years.

Engineering News, 5 May 2015

RioZim to build 1 400 MW coal-fired power plant

Power utility Eskom would be willing to buy electricity from coal-fired power stations being planned in Zimbabwe, as and when the utility had a shortfall, but it would not provide assistance to finance those projects, spokesman Khulu Phasiwe said on 5 May. Zimbabwe Stock Exchange-listed mining company RioZim this week became the second owner of large coal deposits in Zimbabwe to announce plans to build a power station, to help alleviate the acute shortage of electricity in Southern Africa. RioZim was considering a $2.1 bilion investment in a 1 400 MW plant using its deposit at Sengwa to supply its own needs and to sell to Eskom and Namibia Power Corporation, Reuters reports.

Shaun Nel, an adviser to SA’s Energy Intensive Users Group (EIUG), said building power stations to supply the region could be an opportunity for private-sector companies if they could finance them using their own balance sheets. However, most needed an offtake agreement with a utility such as Eskom to raise financing. A number of South African companies had investigated building power plants to hedge against both supply interruptions and rising prices but the issue, particularly for mining companies, was that the cost of capital exceeded the returns from such projects.

Another hurdle for Zimbabwean power companies was the state of the transmission infrastructure in Zimbabwe, which was not designed for higher loads, Mr Nel said. Someone would have to pay to upgrade the transmission network if Zimbabwe were to sell power to SA.

Mr Phasiwe said Eskom had not signed any formal agreement with RioZim and price would obviously be a consideration. Eskom would not be willing to pay more for power from Zimbabwe than its own cost of generation, or more than it had agreed to pay independent power producers in SA.

Business Day, 6 May 2015

Eskom has huge power grip over SA

The sombre mood of economic growth won’t improve in South Africa while Eskom’s energy constraints continue, according to economist JP Landman. Landman was speaking at the Association for Savings and Investment South Africa (Asisa) conference on 6 May at the Sandton Convention Centre. He explained that until the electricity issues and load shedding were resolved, South Africans would not share in government’s glossy vision of a prosperous nation.

In a panel discussion, Alexander Forbes CE Edward Kieswetter said the real crisis would occur when distribution fell. “It is under maintained and underinvested,” he said. “It’s like not having the trucks to deliver the goods from your factories.” In 1998, Kieswetter learnt that China was building an “Eskom every year”, or 40 000 MW a year. "What we’re settling for [in terms of new power generation] is just not good enough,” he added.

Liberty Group CEO Thabo Dloti said during the panel discussion that one of the biggest liabilities to the sovereign balance sheet was the cost of doing business in South Africa. “Load shedding costs money,” he said. “There is declining productivity and it is partly due to protracted labour strikes and load shedding.”

JSE CEO Nicky Newton-King told delegates that she can see the effect that load shedding is having on the “national psyche”. “Parastatals need to be reliable,” she said. “There is a role of business to work with government on other parastatals, as well as with Eskom.”

Engineering News, 6 May 2015

Gas draws attention in private sector

Considerable interest is likely to be shown by the private sector when SA’s DoE releases its request for information in advance of inviting tenders to supply up to 3 126 megawatts of gas-fired power, said Norton Rose Fulbright director Gary Rademeyer.

In an interview before the annual Powering Africa conference starting on 7 May in Maputo, Mr Rademeyer said gas power plants would be big offtakers. To meet their needs in the short term, the quickest option would be shipping liquefied natural gas and building terminals in Richards Bay and/or Saldanha. But in the long term, SA’s requirements would justify a pipeline from Mozambique’s recently discovered gas deposits.

In 2013, Sasol completed SA’s largest gas-engine power plant at Sasolburg at 140 MW. At the time, it said gas powered plants required only 20 to 30 months to build and install, compared with 40 to 50 months for a coal plant and 60 to 80 months for a nuclear plant. Sasol has built a gas plant at Ressano Garcia in Mozambique in partnership with Mozambique’s electricity utility, EDM, to help meet Mozambique’s energy needs.

Mr Rademeyer said after their experience with SA’s successful independent power producers renewable energy programme, he had no doubt local banks would be interested in financing gas projects. Standard Bank’s global head of oil and gas, Simon Ashby-Rudd, said at the Offshore Technology Conference in Houston on 6 May there was considerable scope for Mozambique’s deposits to foster gas-based industrial development in the region.

Business Day, 7 May 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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