News and announcements from EE Business Intelligence | Issue 133, Oct 2024 |
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Roundup of major energy and electricity news and developments in South Africa: 14 to 27 Oct 2024 |
1. New report paints bleak future for Sasol’s petrochemical facility in Secunda.2. Milestone project wheels first wind power across Eskom grid for green hydrogen.3. Karpowership gas-to-power projects sink after being declared dead in the water.4. IPP Office pulls bid bonds of failed REIPPPP and RMIPPPP projects despite legal action.5. Changes mooted for public procurements of renewable energy in South Africa.6. Surge in registration of new private renewable energy projects in third quarter of 2024. To see an archive of all energy and electricity sector roundups to date, please visit www.eebi.co.za/news |
1. New report paints bleak future for Sasol’s petrochemical facility in Secunda.
A new report authored by researchers affiliated with Trade and Industrial Policy Strategies (TIPS) underscores substantial challenges facing Sasol’s Secunda plant, South Africa’s largest petrochemical facility. The plant, which produces chemicals, liquid fuels and about 30% of the country’s petrochemical needs, contributes approximately 2.6% directly to GDP and employs over 28,000 people. However, a reliance on coal as a feedstock has made it one of the world’s largest single-point CO2 emitters, placing it under mounting environmental and financial scrutiny amid South Africa’s decarbonisation goals. The report reveals that transitioning Secunda to greener feedstocks, such as biomass or green hydrogen, is currently not economically viable. Creating enough green hydrogen alone would require nearly 18 GW of continuous renewable electricity, amounting to a substantial investment that exceeds R1000bn. Further complicating matters, natural gas supplies from Mozambique, which have supplemented Sasol’s needs in Secunda since 2004, are depleting, and Sasol has notified clients that surplus gas which Sasol supplies to industrial gas users will cease by 2027. Tightening local and international regulations, such as a carbon tax increasing to $30 per tonne of CO2 by 2030, and the introduction of carbon border adjustment mechanisms (CBAM) by South Africa’s major trading partners, could further erode Sasol’s viability. The report suggests that South Africa should explore economic alternatives, such as green hydrogen production, manufacturing of green steel, and other sustainable industries to mitigate the potential economic impacts and prepare a “soft landing” as the Secunda facility winds down. As South Africa navigates its energy transition, the future of the Secunda facility underscores the urgent need for forward-looking economic thinking and planning.
2. Milestone project wheels first wind power across Eskom grid for green hydrogen.
The Msenge Emoyeni Wind Farm, a 69 MW facility in South Africa’s Eastern Cape province, has begun wheeling renewable electricity into the national grid under a 20-year power purchase agreement with petrochemical company, Sasol. This milestone makes Msenge Emoyeni the first wind farm from an independent power producer (IPP) to wheel power through the Eskom network to a private industrial off-taker in South Africa, setting a new precedent for renewable energy’s role in supporting major industries. Developed by African Clean Energy Developments (ACED) with investment from African Infrastructure Investment Managers (AIIM) and Reatile Renewables, Msenge Emoyeni comprises 16 wind turbines, each with a 4.5 MW generation capacity. Power from the wind farm is transmitted through the Eskom grid to Sasol’s Free State facility in Sasolburg, where it contributes to the company’s green hydrogen production. This forms part of Sasol’s broader goal to secure 1200 MW of renewable energy by 2030, of which 757 MW has been secured to date. James Cumming, ACED’s general manager, highlighted the challenges faced by IPPs in accessing Eskom’s grid, as grid congestion in key regions remains an obstacle. Following recent regulatory debates, IPPs are advocating for clearer access rules to Eskom’s network, as well as potential involvement in expanding transmission infrastructure. As renewable projects continue to gain traction, wheeling and trading of power from IPPs are poised to help address South Africa’s evolving energy needs, even as stakeholders await critical regulatory frameworks to ensure reliable and equitable access to the grid.
3. Karpowership gas-to-power projects sink after being declared dead in the water.
South Africa’s controversial Karpowership deal has been officially declared “dead in the water” by Energy and Electricity Minister Kgosientsho Ramokgopa. The proposed projects, originally intended as an emergency response to the country’s electricity shortages, involved three gas-powered floating powerships, docked at Richards Bay, Saldanha Bay and Coega, with a combined capacity of 1220 MW. However, persistent opposition and missed financial deadlines halted its progress. Environmental groups like Green Connection and the Organisation Undoing Tax Abuse (OUTA) legally challenged the R218bn, 20-year deals, citing irregular awarding of generation licences by the National Energy Regulator of South Africa (NERSA), high emissions, cost concerns, and potential long-term economic strain. The legal pressures prompted increased transparency around the bidding and contractual terms, with courts ordering NERSA to release supposedly confidential documents. Critics argued that the Karpowership agreement, involving volatile LNG prices, risked burdening South African taxpayers and electricity customers with inflated energy costs while alternative renewable options have since become more affordable. Minister Ramokgopa’s statement aligns with a shift in South Africa’s energy landscape. Eskom’s improved plant performance and a significant increase in renewable energy production has reduced the need for emergency power solutions like Karpowership. The government’s decision to abandon the deals underscores a broader pivot toward sustainable energy, relieving South Africans from potential long-term financial and environmental burdens. Meanwhile, Karpowership aims to expand into other African countries, despite its failure in South Africa.
4. IPP Office pulls bid bonds of failed REIPPPP & RMIPPPP projects despite legal action.
The South African government has initiated a crackdown on power generation projects that failed to reach commercial close under the Renewable Energy IPP Procurement Programme (REIPPPP) and the Risk Mitigation IPP Procurement Programme (RMIPPPP). According to Lena Mangondo, head of legal at the IPP Office of the Department of Energy and Electricity, the IPP Office has terminated the projects of all the preferred bidders that did not achieve commercial close under REIPPP Bid Window 5, and is busy going through the process of calling the associated bid guarantees for these projects. This move is reported to impact 14 projects with a combined capacity of 1400 MW in REIPPPP Bid Window 5, and an additional 5 projects totalling 1600 MW in RMIPPPP. Some of the affected bidders have responded by filing legal challenges, with hearings scheduled for November 2024. Energy Minister Kgosientsho Ramokgopa emphasised that the action is essential for upholding the credibility of public procurement programmes. “These are legally binding documents, and we are going to pull the bid bonds. If we land in court, let’s land in court,” he declared, expressing his stance on enforcing contractual obligations strictly. Analysts have praised the stronger stance taken by Minister Ramokgopa, stating it was long overdue and necessary to prevent underpriced bids that fail to deliver. It is believed that this intervention will compel developers and IPPs to approach bids more responsibly. Ramokgopa also referenced the failure of Karpowership’s gas-to-power projects to secure financial close as a turning point, underscoring the importance of accountability within South Africa’s energy procurement framework.
5. Changes mooted for public procurements of renewable energy in South Africa.
South Africa is set to overhaul its renewable energy procurement framework in the coming weeks to unlock an additional 10 GW of renewable capacity and bolster both grid stability and green industrialisation efforts. These changes come as the country faces grid constraints and challenges in securing renewable energy capacity. Energy Minister Kgosientsho Ramokgopa has outlined interventions to address delays in advancing IPP projects to financial closure, affecting nearly 1200 MW of generation capacity awaiting commercial closure. Proposed measures include establishing renewable energy parks and prioritising regional procurement in grid-ready areas, facilitating faster project connections. The government aims to accelerate grid connection processes by coordinating with Eskom and the National Transmission Company of South Africa (NTCSA) to expedite cost estimates and budget quotes. Furthermore, separate rounds for wind and solar projects, technology-agnostic bid windows, and more frequent but smaller procurement rounds are under consideration to enhance competitiveness and ease pressure on the supply chain. The government is also exploring incentives to attract investment into local renewable energy manufacturing, in collaboration with Trade Minister Parks Tau. However, Ramokgopa notes that certain local components may come at a premium, but he views these as industrial investments rather than costs likely to impact consumers. The revised framework seeks to avoid the “stop-start” procurement pattern that has historically hindered investor confidence and slowed the development of a sustainable local supply chain. The overhaul aims to ensure that future renewable energy procurements are expedited, have grid access and contribute to broader economic and industrial growth, addressing the dual objectives of energy security and job creation.
6. Surge in registration of new private renewable energy projects in third quarter of 2024.
South Africa’s renewable energy market saw a remarkable surge in the third quarter of 2024, with over 2000 MW of new projects registered with the energy regulator, NERSA, bringing the year’s total to more than 3300 MW. This trend, driven by economic factors rather than the country’s former load-shedding woes, highlights a shift in market dynamics as private investment fuels the sector’s growth. A few large-scale projects accounted for much of the third quarter’s growth. Notably, a 475 MW solar PV project in the Free State province marked the largest single registration in South Africa to date. Other significant developments included a 380 MW wind farm in the Western Cape, a 310 MW wind project in Mpumalanga, and a 240 MW wind project in KwaZulu-Natal. Analysts, including Gaylor Montmasson-Clair of TIPS, note the increasing contribution of private wind power projects and Mpumalanga’s role in the renewable transition. This focus supports both energy system stability and the just transition agenda in South Africa’s coal-heavy regions. Energy and Electricity Deputy Minister Samantha Graham-Maré lauded the surge in registrations as a sign of confidence in the renewable energy sector. As indicated previously, the government is also revisiting its public procurement framework to streamline grid connections, reduce red tape, and create a steady pipeline for local industry development. With a private sector pipeline of 22.5 GW and significant projects in development, 2024 is shaping up to be a banner year for renewable energy, reflecting South Africa’s advancing commitment to a sustainable energy future.
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