Share

The great gas plan

The department of energy’s latest Independent Power Producer (IPP) procurement programme was unveiled this week, offering the private sector two big natural gas projects that will most likely cost a combined R50 billion to build.

The gas-to-power programme entails a 2 000 megawatt power station at Richards Bay and a 1 000MW station at Coega. Plans for a third 600MW plant at Saldanha have been postponed because the port and the west coast’s power grid cannot accommodate it in the short term.

This new IPP procurement programme follows the internationally acclaimed Renewable Energy IPP procurement programme, as well as the less successful coal IPP procurement programme.

Many details are still sketchy and this week’s announcement during a conference in Cape Town took the form of a preliminary “information memorandum”.

The gas IPP procurement programme is far more complicated than the much-praised Renewable Energy IPP procurement programme. The two planned power plants require imported fuel, and government wants bidders to come forward with integrated projects, where they run import facilities as well as power stations.

However, the basic design backtracks from mistakes made with the coal IPP, where the local ownership rules and maximum tariffs were too stringent, stifling investor interest.

This time, government wants a minimum of 35% local ownership, instead of the 51% imposed with the coal programme. This will include a specified stake owned by state-owned companies – including, most likely, Transnet.

In addition, the projects will require broad-based BEE ownership that will also not work like previous IPPs.

While the Renewable Energy IPP procurement programme emphasised small ownership stakes for the communities where the power plants are built, the gas IPP won’t dictate where the small, black shareholders come from, opening it up to the rest of the country.

A key feature of the gas IPP plan is that it is meant to kick-start the development of a wider gas market in the country.

The winning bidders will be obliged to build extra import capacity and allow third parties access to imported gas. The amount of extra capacity has not yet been decided, something participants at the conference flagged as a big uncertainty.

Ompi Aphane, deputy director-general in the department of energy responsible for policy, planning and clean energy, said: “It is foolhardy to see this as just the provision of energy. So, what we’re doing is catalysing this whole process through imported gas for power generation.”

Depending on the prices at which gas can be brought into South Africa, there is much potential for industries and households to “switch” from electric power, he said.

“It is all contingent on the pricing,” said Aphane. “If you are offering a price more expensive than the alternative, no one is going to be switching.”

We have a sense of what the gas will cost and what the electricity will consequently cost.”

The IPP team is pitching existing diesel-powered generators near the two sites as obvious initial off-takers, but studies are under way to identify other potential markets.

Options available

The design of the gas IPP plan presented to investors this week represents an “optimistic view of the future”, said Aphane.

It is based on imported gas, but keeps the possibility open that South Africa could develop its own gas supplies.

It was decided that both gas complexes should use floating storage regassification units – ships that return the liquefied natural gas to gas form. The alternative is to build more permanent infrastructure onshore.

According to Aphane, analysis had shown that it made logical sense to lease or buy floating units “because it gives you the flexibility in case you have to use that particular point for exports rather than imports”.

That would be the case if South Africa was found to have commercially viable shale gas reserves at some point – or if plans for large-scale coalbed methane production come to fruition.

“This is a no-regret decision ... even if the shale opportunity does not materialise,” said Aphane.

Then there is the possibility of South Africa trading Mozambican gas.

“They have way too much gas,” he said of the neighbouring country.

Mozambique has negotiated a share of the gas extracted from its reserves to stay in the country under its control.

The volume of “royalty gas” is far more than the Mozambican economy will be able to use, said Aphane.

“It creates an opportunity for us. We have the ability to absorb that amount of gas. Shipping gas in is a starting point. We can’t wait for all these questions to be resolved in relation to shale gas.”

The primary energy risk is always passed through to the consumer.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.90
+0.2%
Rand - Pound
23.86
+0.2%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.31
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders