The 20-year deal will cost as much as 10.9 billion rand annually, according to a presentation by the Council for Scientific and Industrial Research, a state institution. The estimate is based on the Department of Mineral Resources and Energy’s evaluation price of the bids. It didn’t immediately reply to requests for comment.
The award adds a significant amount of generation capacity from fossil fuels for two more decades as South Africa plans a move away from coal that dominates its current power supply and has made it the world’s 12th biggest source of greenhouse gases. Other, smaller, projects chosen use a mix of solar and wind with batteries and LNG.
“Power ships have proven effective at providing fast-response, emergency electricity — hence the maximum 10-year tenor for past contracts,” said Antoine Vagneur-Jones, an analyst at BNEF’s energy transition policy team for Europe, Middle East and Africa. “That the South African government would procure one for 20 years speaks to the depths of the country’s power crisis, and questionable long-term planning in light of dropping renewables costs.”
The agreement also allows for variable charges, including fuel. “Costs are kept low by Karpowership’s reach into the LNG market and an exclusive, long-term deal with Shell,” the company said in reply to questions.
The company started pitching power from vessels to be moored off South Africa’s coast at least six years ago. More recently it has been looking to expand on the continent, including in two West African countries that it declined to identify in a January interview.
South Africa’s Department of Environment, Forestry and Fisheries last year revoked an environmental exemption granted to Karpowership because it failed to fully disclose its reasons for the application.
Prices have varied among Karpowership contracts and may not always include fuel supply. Lebanon paid 5 cents per kilowatt hour on a 3-year contract, which does not include fuel, according to data compiled by BNEF, while South Africa’s evaluation price posted for Karpowership’s Saldanha project is about 11 cents per kilowatt hour for 20 years.
The final cost for the electricity could change due to the makeup of the tariff. “Karpowership South Africa charges a single price covering the fixed costs for the Powerships and variable charges for fuel and operations,” the company said.