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Recent Energy Developments in the Republic of South Africa

South Africa's move towards gas and away from a heavy reliance on burning diesel

South African power utility Eskom is moving ahead with its plans for the conversion of their open cycle gas turbines (OCGTs) to duel fuel facilities (with the contracts for this already in place). This conversion of the OCGTs will enable the 14 units in question to run on both diesel and gas, with the aim of the program being that all units be converted and able to run on both fuels by the end of 2016.

Notwithstanding the fact that Eskom have yet to secure the gas that these converted units will be able to utilise, the wheels of the program are already in motion. Once the OCGTs have been converted, Eskom will have the option to start consuming gas immediately and as soon as a suitable source of gas becomes available and is secured. Presently, South Africa is a net importer of gas and has neither meaningful gas reserves of its own nor suitable gas-transportation infrastructure. The Independent Power Producer (IPP) office has indicated the likelihood of a tender being released in the first half of 2016 for the procurement of South Africa's first floating gas import terminal and regasification unit, as well as the launch of a gas-fired IPP procurement programme.

These programmes have set their sights and are dependent on importing liquefied natural gas into South Africa by 2018/19. South Africa has still to enter into contractual arrangements for a regular and sizeable supply of LNG.

In recent years, state owned company Eskom has been heavily criticised for its excessive and expensive burning of diesel fuel in efforts to overcome the present short comings in its increasingly unreliable production and distribution networks. The OCGT plants that are earmarked for conversion to duel fuel were intended and designed as peaking plants and the deployment of such plants in recent years on a regular and consistent basis has also attracted much criticism. For close to a decade, Eskom's spending on diesel has been greater than forecast and is consistently over budget, placing ever increasing pressure on the power utility to provide supply to the national grid via alternate and more efficient methods.

The coal baseload independent power producer programme

The coal baseload IPP (Independent Power Producer) procurement programme is an initiative by the South African government aimed at the procurement of approximately 2500MW of electricity from coal-fired power stations (individual bids are capped at 600MW per project).

This procurement programme marks the first time in South Africa that IPPs have been encouraged to participate in the generation of baseload energy to supply the national grid. This follows the recent award of the public tender for an IPP in respect of the Morupule Power Station B Units 5 and 6 tender in South Africa's neighbour Botswana to a joint venture led by the Japan-based Marubeni Corporation.

In terms of South African Legislation the refurbishment of existing coal-fired power generation units will not be considered as providing new generation capacity for the purposes of this procurement program. The plant must be a new one and both the plant and its equipment must be installed on either a greenfield site or a brownfield site that has been previously cleared. The power generated from this programme must be new generation capacity, as defined in the New Generation Regulations.

Therefore, bidders who wish to use existing coal-fired power plants for the purposes of their projects must ensure that the existing equipment and machinery used for the generation of electricity on the proposed project sites are completely decommissioned and that a completely new facility is built on the existing site in order to participate in this programme.

Cogeneration independent power producer programme in South Africa

Midway through 2015 the South African Department of Energy (DoE) issued a notice requesting bids under the recently announced cogeneration (CoGen) IPP procurement programme. The goal of this programme is to procure approximately 800MW of new generation capacity from industrial processes that can facilitate cogeneration.

The CoGen process focuses primarily on the industrial sector with the aim being that the process of generation of power is intrinsically linked to an underlying base industrial process or feeding required steam into the underlying industrial process or the industrial process proving both a fuel source and off-taking steam produced by the process of power generation. This CoGen procurement considers processes such as combined heat and power generation projects as well as waste-to-energy developments. Although different technologies that fall within this CoGen process will be considered, that shared denominator is that the cogeneration is integrated with the industrial processes of the host plants involved in the programme.

The request for bid (RFB) that has been issued does not indicate any particular allocation between the various CoGen technologies available to bidders. For the waste-to-energy element of the programme (unlike the combined heat and power generation aspects) waste and/or discard coal will not be considered, and it is essential that these waste-to-energy programmes should be based on waste heat, the processing of furnace off-gas or any other non-renewable energy was that is emitted as a result of the underlying industrial processes. Unlike the other 2 IPP procurement programmes, this IPP procurement programme permits and seeks to encourage certain existing power generation facilities to participate in the programme and the facilities do not have to be new build or greenfield facilities. As at January 2016, 2 bid submission windows have been held.

South African nuclear energy programme

On the 21st of December 2015, a determination was issued by the Department of Energy in respect of the South African nuclear energy programme, a programme aimed at providing the national grid with some 9600MW of power. This marks the start of a procurement programme which will take the form of an open tender. All procurements will be done in accordance with the applicable public procurement legislation. On the 26th of December 2016, and following the issuing of the determination, a statement was released by the Director-General that a RFP will be issued inviting proposals and that the funding model will be informed and shaped by the responses received from the bidders and the final funding model will be shaped by the bidders' responses will be taken to Cabinet for their approval.