1. Climate Change Act – signed into
law, but not yet operational
On 23 July 2024,
President Ramaphosa signed the much anticipated Climate Change Act
into law. The Act is however not yet operational and awaits a
further proclamation by the president in order for this to happen.
The Act is intended to enable and manage an effective climate change
response and a long-term, just transition to a low-carbon and
climate-resilient economy and society. One of the ways in which it
seeks to achieve this is by setting out key institutional
arrangements that mainstream climate change response across sectors
and tiers of government. Provinces and municipalities are assigned
obligations to establish climate change forums, map risks and
vulnerabilities, and formulate response plans. Sector departments are
also roped in and are directed to oversee and implement measures in
accordance with the Act’s mechanisms on adaptation and mitigation.
Importantly, the Act prescribes that it will take precedence over any
other legislation that relates to climate change, and all organs of
state must align their policies, measures, laws and decisions to
align with the principles and objects of the Act. Adaptation is
managed via the establishment of a national adaptation strategy and
plan, which in turn inform sector adaptation strategies and plans.
All plans and measures must be informed by the best available
science. Mitigation is managed via the allocation of carbon budgets
to emitters whose greenhouse gas emissions exceed certain thresholds
still to be determined. Enforcement is intended to be exercised by
levying a higher carbon tax rate on emissions that exceed the carbon
budget, but no other penalties apply, and the exceedance of carbon
budgets is not made an offence. Sectoral emissions targets (SETs) are
also still to be determined, and these will compel sectors such as
energy to adhere to progressively stricter limits on emissions for
the sector.
2. Regulator
rejects preferential grid access for public sector renewable energy
projects.
At a meeting of the
board of the National Energy Regulator of South Africa (NERSA) on 30
July 2024, the board approved the unanimous recommendation of the
regulator’s Electricity Subcommittee to reject Eskom’s application to
reserve and provide preferential grid access to IPPs providing energy
into the grid through public procurement processes such as the Bid
Window 7. The application by Eskom stands in stark contrast with
Eskom’s long-stated policy of providing non-discriminatory access to
its transmission and distribution grids to both public and private
sector procurements of new generation capacity, a principle also
enshrined in the Grid Code, which was developed largely by Eskom and
municipal network operators and is administered by NERSA. Some
suggest that Eskom’s application may also have been motivated by a
desire by the national electricity utility to secure preferential grid
access for its own renewable energy projects after Eskom’s head of
generation, Bheki Khumalo, announced plans to build, own and
operation a fleet of renewable energy generation plants. In
announcing its decision, NERSA said Eskom had not identified the specific
customers or classes of customers it intends to discriminate against,
or the term of the intended discrimination. NERSA also said Eskom did
not present objectively justifiable and identifiable differences
regarding such customers. Energy and Electricity Minister Kgosientsho
Ramokgopa appeared to support NERSA’s decision, indicating in a media
briefing that he leans to the principle of “first ready, first
served” in order to bring power to the grid quickly and resolve the
energy crisis without restricting the market, while ensuring fair
rules for everyone.
3. Sasol to
appeal judgement declaring NERSA’s gas pricing methodology unlawful.
On 24 July 2024, Sasol
indicated its intention to appeal a judgement by the North Gauteng
High Court, Pretoria, that ruled in favour of the Industrial Gas
Users Association – Southern Africa (IGUA-SA) in an action
challenging the methodology used by National Energy Regulator of
South Africa (NERSA) in setting the maximum regulated gas price that
Sasol charges traders and industrial users in Gauteng, Mpumalanga and
KwaZulu-Natal. This follows a temporary restraining order by the
Competition Tribunal preventing Sasol from increasing its gas prices
above R133.34 per GJ for six months from May 2023 in an earlier
action brought by IGUA-SA before the Competition Commission. In the
latest judgement, the Gauteng North High Court ordered that NERSA’s
methodology and decision dated 31 March 2021 to approve Sasol’s
maximum gas prices for the period from March 2014 to June 2023 was unlawful
and set aside, and the matter was sent back to NERSA to for a new
lawful decision. The court found that NERSA’s use of international
benchmarking as a method to determine Sasol’s gas price was not
reasonable in the context of South African gas, where Sasol’s
monopoly gas price to users is totally disconnected from its costs.
Gas users contend that a proper pricing methodology should consider
the marginal costs that Sasol incurs for the gas molecules, plus a
fair use-of-system cost and a fair return on assets employed. After
an earlier judgement reversing NERSA’s 2013 and 2017 price
determinations, Sasol was ordered to refund customers about R1.7bn.
The company said said retrospective adjustments of the previous
decisions caused great prejudice to its business operations.
4. Scandal
involving refurbishment of PetroSA’s offshore gas assets for Mossel
Bay.
Following a contract of
R3.7bn billion controversially awarded to Russia’s Gazprombank Africa
for the refurbishment and return to service of PetroSA’s shuttered
onshore gas-to-liquids facility in Mossel Bay, Petro SA awarded a
much bigger contract in December 2023, estimated at R21.6bn, to an
unknown entity, Equator Holdings (Pty) Ltd, to finance and refurbish
PetroSA’s offshore gas infrastructure. A startling exposé
by investigative journalist Susan Comrie of amaBhungane has revealed
that the deals involving Equator fell apart after the company was
unable to show PetroSA that it had secured sufficient financial
resources for the refurbishment project. There were also concerns
about the dodgy company Equator had contracted as its technical
partner, after the contracted company was placed in final liquidation
some weeks after having been appointed. It now transpires that
Equator Holdings too has been ordered by the Johannesburg High Court
to be wound up after failing to come up with the money for one of its
operations, the third division Limpopo soccer team trading as
Tshakhuma Tsha Madzivhandila (TTM) Football Club, to pay its players.
This let alone the billions of rands needed for the PetroSA job. The
saga reveals a surprising degree of negligence and/or incompetence in
the vetting processes of PetroSA in the awarding of such large
contracts. An informed senior corporate investment bank executive
observed, however, that when things look like sheer incompetence, a
slightly deeper dive may reveal a layer of corruption.
5. Gas
condensate discoveries off southern Cape coast abandoned by
TotalEnergies.
Hot on the heels of the
scandal involving the refurbishment of PetroSA’s offshore gas wells
feeding its shuttered gas-to-liquid fuel facility in Mossel Bay, a
formal media release from French oil and gas giant Total Energies
announced that it was exiting the consortium formed to develop the
11B/12B (Brulpadda and Luiperd) gas fields off the southern Cape
Coast in which it had a 45% interest. TotalEnergies also indicated
its withdrawal from offshore exploration in Blocks 5/6/7 where it
held a 40% interest. The reasons have been variously attributed to
technical difficulties in developing the gas fields in the
treacherous deep waters off the southern Cape coast, and to the
development of the gas fields not being commercially viable. There
are also suggestions of South African energy policy uncertainty, and
the apparent inability or unwillingness of PetroSA and/or government
to conclude a long-term gas offtake agreement on mutually acceptable
terms. The exit of TotalEnergies follows exits by CNR International
(a subsidiary of Canadian Natural Resources Limited) with a 20%
interest, and Qatar Petroleum with a 25% interest, leaving only Main
Street 1549, a South African consortium with a 10% interest. The
withdrawals deal a significant blow to PetroSA’s ambitions to restart
its Mossel Bay gas-to-liquids plant in Mossel Bay, to the DMRE’s
ambitions for PetroSA to become the core of a new South African
National Petroleum Company (SANPC), and for Eskom to transition its
Gourikwa diesel-driven open-cycle gas turbine (OCGT) power plant near
Mossel Bay to a combined-cycle gas turbine (CCGT) plant fuelled by
natural gas.
6. Eskom had
sufficient generation reserve capacity to place 2000 MW in “cold
reserve”.
Eskom data monitored
by EE Business Intelligence has confirmed a further
stunning reduction in unplanned outages (UCLF) within Eskom’s fleet
of coal-fired power stations for Week 30, ending Sunday 28 July 2024
that has exceeded all expectations. This resulted in a corresponding
dramatic increase in Eskom’s energy availability factor (EAF), which
for the first time in 3.5 years has seen the EAF for the week at just
above 70%. At a media briefing on Monday 29 July 2024, Energy and
Electricity Minister Kgosientsho Ramokgopa, gave effusive praise to
Eskom’s head of generation, Bheki Nxumalo and his team. The minister
advised that Eskom now had about 4000 MW of generation reserve
capacity, a far cry from the shortage of about 6000 MW during the
Stage 6 load shedding for much of 2023. Khumalo further indicated
that about 2000 MW of coal-fired generation plant had since been
placed in “cold reserve”. This means that the capacity from the
relevant coal-fired generators was not immediately needed, and had
been shut down for the time being, but in a condition that allows the
generators to be fired-up and brought back online again within a few
days, if needed. If this improvement can be sustained, there is every
reason to believe that there may be no further load shedding this
year, although Minister Ramokgopa and President Ramaphosa have both
cautioned that there is no room for complacency, and that “we are not
out of the woods yet”.
7. Energy
poverty and inequality prompts major review of tariffs, pricing and
subsidies.
Massive electricity
price increases by Eskom and municipal electricity distributors at
multiple times the inflation rate for a number of years, together
with the application of fixed components for prepaid electricity
customers (most notably the recent R230 per month fixed charge by the
City of Johannesburg), are having a devastating impact on poor and
indigent households. This prompted Energy and Electricity Minister Kgosientsho
Ramokgopa to announce, at a media briefing on 29 July 2024, that he
would be initiating a major review of the electricity pricing
methodology, electricity tariffs, cross subsidies and government
poverty relief measures to ensure appropriate access to and
affordability of electricity by the poor. Minister Ramokgopa made
particular reference to funds disbursed by National Treasury to
municipalities to provide a minimum of 50 kWh of free basic
electricity (FBE) to the 10-million indigent households in South
Africa, only 2-million of whom actually receive any FBE, while 80% of
the FBE funds are misappropriated by municipalities and used for
purposes never intended. He indicated that this review would be done
in consultation with the relevant role-players including National
Treasury, COGTA, NERSA, SALGA, Eskom and municipalities. Minister
Ramokgopa also mentioned that care must be taken to ensure that new
entrants engaging in trading of electrical energy do not threaten the
sustainability of Eskom and municipal network operators who have
significant service delivery obligations to the poor.
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