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File Image:IOL

South Africa sees no hurry for new coal, gas power projects

By Paul Burkhardt Time of article published Sep 20, 2017

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JOHANNESBURG - South African programs to add coal and gas power generation from independent providers should wait until policies are updated and the nation’s future needs are clearer, said Energy Minister Mmamaloko Kubayi.

The government is also seeking a “middle ground” with developers in a program to add renewable-energy projects, she said in a phone interview Tuesday. Kubayi announced earlier this month that the long-delayed contracts must be signed by the end of October, but not before pricing was renegotiated to make the deals more attractive to state-owned power utility Eskom Holdings SOC Ltd. 

South Africa expanded the so-called independent power-producer programs to diversify its energy mix and ease the burden on Eskom, which was forced to implement rolling blackouts in 2015 after seven years of shortages hindered economic growth. However, the country now has surplus capacity after growth in demand stalled and more units from Eskom’s new coal plants came online.

“Let’s look at how much capacity do we need, and when,” Kubayi said. The calculations should include economic growth estimates and determinations of how much generation is required from each technology, she said.

The gas-to-power program included plans for about 3,000 megawatts of capacity from proposed plants on South Africa’s coast, the department said in October last year. Its coal program was designed to add 2,500 megawatts of capacity.

South Africa needs to conclude the revision of its Integrated Energy Plan and Integrated Resource Plan, which set long-term policy, before moving ahead with additional programs to procure electricity from gas and coal, Kubayi said. 

Can’t Proceed

“For those, we can’t proceed right now,” she said. 

While the country’s program to add renewable energy from private developers has drawn more than 200 billion rand ($15 billion) of investment, the most recent bidding rounds have stalled as Eskom refused to sign new power-purchase contracts. While developers welcomed Kubayi’s announcement on Sept. 1 that the deals would be signed by the end of October, industry lobby groups have questioned her comments that pricing must be renegotiated. South Africa’s cabinet and Eskom recommended a maximum price of 0.77 rand per kilowatt-hour.

Bidders will need to consider the legal, financial, and credit-risk implications on their projects if deals are renegotiated, according to the South Africa Photovoltaic Industry Association.

Setting a price ceiling on the renewable projects “actually removes all of the legitimacy of that program,” said Niveshen Govender, program manager for Sapvia. “It’s become actually difficult to understand where we’re moving towards.”

It’s also unclear how the recommended price cap was settled on, said the South African Wind Energy Association. 

“Undertaking negotiation after a duly concluded procurement process goes against South Africa’s procurement rules,” association Chief Executive Officer Brenda Martin said in an emailed statement. “We would hate to think that the extended delay and related job losses are set to continue for much longer, on the basis of an unachievable target.”

Read also: Now is the time for gas as a power generation for SA

About 20 of the projects that the government plans to renegotiate can be completed for below the 0.77 rand level, Kubayi said. She said she isn’t biased for or against any particular type of generation.

While the government “seems to be in its legal rights to stipulate a price cap,” the uncertainty may deter investors in the future, Jason Harlan, CEO of Fieldstone Africa, a Johannesburg-based, energy-focused investment bank, said in an emailed reply to questions.


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