A year has gone by since the South African Department of Mineral Resources and Energy (DMRE) announced Karpowership-SA as one of the preferred suppliers of emergency electricity within the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), and while the deal is still stuttering, it is not completely dead.
In fact, its backers have received some favourable news over the past couple of weeks: a positive high court decision, the cancellation of an inquiry by a parliamentary portfolio committee, and the surge in energy prices following Russia’s invasion of Ukraine, which has led some in the industry to call for more gas power.
All in all, this might not bode well for those who are keen to see the tender shelved forever, but there are many reasons why the national government should really be looking somewhere else for electricity, as shown below.
By way of reminder, Karpowership-SA, a subsidiary of the Turkish Karadeniz Powerships energy consortium, was selected to provide 1,220MW of electricity under the RMIPPP Programme — for 20 whole years. The announcement was made on 19 March 2021.
The Turkish group said it would place three power ships along South Africa’s coastline, at Richards Bay, Ngqura and Saldanha, to produce electricity from liquefied natural gas (LNG) that would then be wheeled onto land and into the Eskom grid. The South African government was so keen to see the deal go through that a number of key local content clauses were waived.
Although South Africa needs emergency electricity badly — rolling blackouts have hobbled the economy for more than a decade — the deal left many people baffled.
For one, it is hard to explain how a 20-year solution came to be chosen and categorised as an “emergency” arrangement.
It is also difficult to understand the eagerness to yoke the country to dirty fuels for such a long period at a time when the International Energy Agency has determined that renewables, including solar and wind, are now officially the cheapest source of power.
Third, the Karpowership-SA RMIPPPP deal is worth at least R218-billion. To that, we need to add the fact that prices will fluctuate according to LNG markets and other consumables needed for the power ships. Eskom currently generates electricity at roughly 95c/kWh, and this is sold to the end-user for about 134.3c/kWh. Karpowership-SA would supply electricity at a rate of R1.36/kWh in Coega, R1.39/kWh in Richards Bay, and R1.62/kWh in Saldanha. This means in essence that Eskom or somebody, presumably the state, would have to subsidise Karpowership’s electricity to keep it on par with other suppliers.
That cost does not even include the carbon footprint of the project in a dry, hot, water-stressed country. South Africa has some of the best wind and solar resources on the planet. The Council for Scientific and Industrial Research (CSIR) has determined that “80% of South Africa’s landmass had enough wind resource for economic wind farms with very high yearly load factors greater than 30%”. The region is also well suited for the production of solar energy, according to University of Johannesburg Professor Hartmut Winkler.
Meanwhile, shortly after the Karpowership deal was announced, there were allegations of impropriety. The main loser, DNG Power Holdings, filed court papers with text messages suggesting that Karpowership-SA had colluded with Energy Minister Gwede Mantashe’s wife, Nolwande Mantashe, to rig the bid in its favour, a charge that she denies vehemently.
DNG provided documents to the court which revealed that Karpowership-SA had obtained full local content exemption for all of its ships from the Department of Trade, Industry and Competition (DTIC), which means that the ships could leave after 20 years with little or no skills transfer to local partners. The high court has since dismissed DNG Energy’s application to replace Karpowership in the RMIPPPP with costs.
A number of environmental groups, including the Green Connection, the Centre for Environmental Rights, BirdLife South Africa and SANParks, also approached the Department of Forestry, Fisheries and the Environment (DFFE) to raise concerns about the manner in which the environmental impact assessment (EIA) had been done. The Karpowership consultants had spent very little time consulting local communities that were expected to host the power ships. The data on water use and damage to marine and bird life was shoddy, and little was done to show the impact of high noise levels on endemic species.
The many challenges to the deal, its inability to reach financial close, and the lack of a power purchase agreement with Eskom have stalled it and it is hard to see how it goes forward. Furthermore, the EIA remains another hurdle.
However, with a powerful ally like energy minister Gwede Mantashe, and recent developments in South Africa (favourable high court decision, scrapping of parliamentary portfolio committee hearings) and Europe (the Russian invasion of Ukraine, the EU’s classification of gas as green energy) the Karadeniz group will have a sense that the deal is merely postponed, not scrapped.
However, the South African government is better served taking the offramps that present themselves right now.
How do you explain investing over $14-billion on just 1.2GW of 20-year capacity just when you are getting $8.5-billion to upgrade coal-fired power station Komati for keeps and save thousands of jobs in the process? Does that send a good message to the countries that may be interested in investing in just transition initiatives in Grootvlei, Hendrina, and Camden?
It would make more sense, for example, for the government to redirect the R218-billion towards creating a large base of “prosumers” — or households and businesses that both consume and produce electricity. This would significantly increase household spending and boost the South African energy market. It would free up some Eskom capacity and give them the buffer that they need to do more regular maintenance.
More importantly, too, it would democratise energy ownership and kickstart a great era of green energy in southern Africa. DM