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South African power generation – update

26 September 2014

In her July 2014 budget speech, the Minister of Energy, Ms Tina Joemat-Pettersson, reaffirmed her Department’s plans to introduce a diversified energy mix into South Africa. Indeed, such wheels of change are already in motion, with 600MW of clean power installed and construction commencing on a 1000MW open cycle gas plant. Accordingly, we set out below a brief overview of the sector, touching on current and anticipated programmes, as well as other developments:

1. Base-load Procurement Programme
The Department has recently introduced a framework programme for the procurement of base-load energy from coal, natural gas or hydro power generation sources.

1.1 Coal
The Coal IPP Procurement Programme (Coal Programme) is unofficially under way, with prospective bidders having being requested to register their projects by 25 July 2014. While a total of 2500MW have been allocated to the Coal Programme, bidders will be limited to a contracted capacity of 600MW. The procurement documents are expected to be released during this calendar year, with the first round of procurement expected to be as early as the first quarter of 2015.

1.2 Gas
The generation of electricity from gas based technology is closely linked to the finalisation of the Gas Utilisation Master Plan, which is anticipated to be tabled in Parliament shortly. The plan will set out the infrastructure that is necessary to open up the gas market within South Africa, as well as provide for the general strategy regarding the utilisation of South Africa’s gas resources. The exploitation of shale gas, through hydraulic fracturing in the Karoo, will form a key component of the plan. The Minister has confirmed that her Department will pursue this form of technology as a primary energy source in South Africa.

2. Renewable Energy
The Renewable Energy IPP Procurement Programme (REIPPP Programme) entered into the fourth stage of bidding in August 2014. The REIPPP Programme has received widespread support from various role-players and is largely regarded as an extremely well run programme. There is one additional round of bidding scheduled, which is anticipated for May 2015, and will have an allocation of approximately 1505MW.

As the South African renewable energy market has gained traction over the last three years, large-scale energy consumers have developed their own appetite for private off-take as the clean energy market swiftly moves to a point of grid-parity. The evolution of this private market is closely linked to the introduction of the Independent Systems and Market Operator (ISMO), discussed below.

3. Nuclear
The Minister has reiterated that South Africa’s energy mix will include an (additional) nuclear component by 2030. Approximately R850million / $85million (11% of the Department’s budget) has been allocated to continued research and development regarding this technology. While it is generally acknowledged that the country does not have the financial capacity to undertake the construction and commissioning of a new nuclear plant, Deputy President, Cyril Ramaphosa, has recently challenged financial institutions to develop innovative and reliable funding structures that will realise this mega project.

4. Policies and Legislation
Through the ISMO, South Africa will have an independent system operator of power, as opposed to the current market structure where Eskom, as a vertically integrated utility, acts as generator, seller and distributor. The introduction of the ISMO is aimed at encouraging IPP participation in power generation in South Africa so as to relieve the country of its current electricity crisis. The ISMO will be introduced through legislation that is currently under revision.

As mentioned above, we await publication of the Gas Utilisation Master Plan. The Minister will also be publishing a revised Integrated Energy Plan.

The team

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