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Projects and Energy Weekly Snippets

17 October 2014

A bright future for Africa
On Monday 13 October, the International Energy Agency said that power generation capacity in Africa will quadruple from 2020 to 2040, giving nearly a billion people access to electricity. Much of the expansion in electricity is said to come from renewable energy.

"Reform programmes are starting to improve efficiency and to bring in new capital, including from private investors, and grid-based generation capacity quadruples in our main scenario to 2040, albeit from a very low base of 90 GW today (half of which is in South Africa)," said the report.

14 October 2014 – Engineering News

Eskom warns on IPP connections as it defers some transmission capex
On 10 October, state-owned power utility Eskom advised of significant changes it had made to its transmission infrastructure expansion plan for the coming ten years, owing to financial constraints that made its previous plan “no longer realistic”. The latest Transmission Development Plan (TDP), covering the period from 2015 to 2024, has been revised to align with available funding. The outcome, which is to be published on Eskom’s website by the end of November, is a reprioritisation and rephrasing of a number of network strengthening and expansion projects.

Eskom also confirmed that the lack of capital posed a risk to the integration of future renewables and baseload independent power producers (IPPs), especially where such projects required “deep” grid strengthening. Furthermore, it confirmed that the revision would result in a delay to the migration of the network to full redundancy as stipulated by the South African Grid Code. The compliance schedule had been shifted out from 2016 to 2022. The overall budge initially estimated at ZAR163 billion, remained more or less as it was in previous versions of the TDP, with ZAR146 billion required for capacity expansions and the balance split between refurbishments, spares, servitude acquisitions and environmental and corporate costs. The latest version also delayed or deferred much of the actual investment into the fourth multi-year price determination period (MYPD4).

The new TDP also took account of delays associated with securing land, servitudes and environmental approvals for transmission-line and substation projects. The rephrased plan still envisaged the building of 13 396 km of new transmission lines and the introduction of 81 385 MVA of additional transformation capacity by 2024. Over 8 100 km of new lines and 51 895 MVA of transformer capacity would now only be rolled out after 2020. Eskom's grid planning GM confirmed that it was becoming increasingly difficult and expensive to integrate IPPs, with the easy-to-connect projects having been selected during the first two bid windows under the REIPPPP.

Eskom has connected a total of 32 bid window one and two projects with a combined capacity of over 1 600 MW. The GM further indicated concerns about finding a viable financial model to deal with the connection costs of projects arising from bid window three onwards. The financial close for the third bid window had been delayed, largely as a result of connection issues, but the DoE was still hoping that the preferred bidders would be in a position to close before the end of November. The DoE is planning to issue tenders soon for baseload coal, gas and cogeneration IPP programmes. There was particular concern over connection capacity in the Northern Cape where many of the current and future REIPPPP projects were located. Eskom's Infrastructure Investment Senior Manager indicated that a budget of higher than ZAR163 billion would probably be required to deal with the integration of new IPPs.

10 October 2014 – Engineering News

Operation Phakisa
Yesterday, in Durban, President Jacob Zuma announced that South Africa has a plan to search for oil and gas offshore and to drill up 30 exploration wells by 2030. Shell advised that it will cost approximately $200 million per well.  Preliminary research has shown that South African waters may contain about nine billion barrels of oil, estimated to contribute ZAR20 billion to the GDP.  On the other hand, South Africa is said to have 11 billion barrels of oil equivalent of natural gas, which is equal to 375 years of our country's gas consumption.

The launch of this ambitious programme is casting doubt over many heads in light of the Mineral and Petroleum Resources and Development Bill, however, Mineral Resources Minister Ngoako Ramathlodi has withdrawn the proposed amendments to the Act, which seeks to hand over to the government a 20% stake in any new projects free of charge, while also giving it the right to buy up to 80% of projects once they reach production stage.

16 October 2014 – Business Day

Desperate times for Eskom as financial crises worsens
Eskom has requested the South African government to consider selling off its ZAR26 billion stake in Vodacom and to consider selling other listed holdings such as Telkom. The investments that may be disposed of include listed holdings under the management of the Industrial Development Corporation (IDC). According to the IDC's 2014 annual report, the state would be able to raise more than ZAR100 billion.

Pan African Investment and Research Services said that "they (government) are taking money out of a good asset and putting it into one that could destroy value, because they are desperate. It's a start because things are going to get tighter … and as their options become fewer and fewer, anything that is noncore will become an option".

16 October 2014 – Business Day 

Africa set to switch on gas-to-power potential
A recent estimation by the World Bank indicated that electricity outages, on average, cost African countries around 2.1% of GDP with the current output only meeting half of the demand. Also, 70% of the continent's population is currently living without power. While Sub-Saharan Africa is home to some of the most rapidly developing economies in the world, electricity shortages have resulted in the deterrence of investment, pushing up business costs and sustaining poverty and inequality.

With the exception of South Africa, which uses coal almost exclusively to generate electricity, the rest of Africa is reliant on diesel imports. Gas has been presented as a cheaper and cleaner alternative. Sub-Saharan gas reserves have more than doubled in the last 20 years, with Mozambique having had the world's largest natural gas discoveries in a decade. However, due to various factors (US shale gas boom and other LNG expansions creating an oversupply, while slow global economic growth has reduced demand) the global gas market is running into a glut. Accordingly, LNG projects in Angola, Mozambique and Nigeria are reported to be hitting stumbling blocks.
 
This has prompted a fresh look at utilising gas in alternative ways, including gas-to-power. African-focused oil and gas companies could benefit from this by developing ways to foster domestic use for their gas output. The International Energy Agency (EIA) expects the continent's electricity generation to quadruple by 2040 with gas-to-power growing its share to 25% from the current 17%.
 
There have been several challenges faced by companies thus far, primarily on the commercial side. This is evidenced by AZURA, a company which has recently expended $750 million to build a 450 MW gas-to-power plant, and which stated that "the price of gas was a tenth of the commercially viable price". While progress has been slow to date, countries such as Tanzania, Nigeria and Mozambique are beginning to prioritise gas use for power generation over LNG. Additionally, Africa Oil is also talking with Kenyan government about fast-tracking a gas-to-power project in the north.
 
16 October 2014 - Engineering News

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