Parliament’s Portfolio Committee on Mineral Resources and Energy will continue its deliberations next week on government’s Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), having raised several concerns about the scheme during a Department of Mineral Resources and Energy (DMRE) briefing on Tuesday.
Chairperson Sahlulele Luzipo told Engineering News in a telephone interview that the committee needed to apply its mind to the presentation, as well as how concerns should be addressed.
He said it was clear that the committee members remained “too far from one another” on the issues, but refused to be drawn on whether it might recommend public hearings on the matter, stressing that he did not want to influence the deliberations.
“Next week Wednesday, we will continue with the discussion on the presentation and weigh up whether there should be public participation and, if so, how it should unfold and what the limitations would be on such a process,” Luzipo said during the committee meeting itself.
He also raised concern about a lack of knowledge domestically about the costs and benefits of the three floating gas-fired power stations named as preferred bidders, describing the power ships as a “new phenomenon” about which more information was required.
Ahead of the meeting civil society organisations wrote to Luzipo requesting Parliament to hold public hearings into the RMIPPPP and to investigate, in particular, the decision to award preferred-bidder status to Karpowership, of Turkey, for projects in Richards Bay, Coega and Saldanha Bay.
The letter, together with one by Anglican Bishop Geoff Davies, was read at the start of the committee meeting, but Luzipo stressed that this was done purely for the sake of transparency and should have no bearing on the recommendations that could arise next week.
Karpowership’s floating gas-fired power plants collectively secured 1 220 MW of the 1 850 MW allocated across the eight preferred bidders named by Mineral Resources and Energy Minister Gwede Mantashe in March.
The other projects included various combinations of solar photovoltaic, wind, gas or diesel generators and battery storage systems, while three other eligible bids were currently the subject of “value for money” assessments.
In a presentation to the committee, DMRE deputy director-general Jacob Mbele reiterated that the preferred bidders were required to reach financial close by not later than end July 2021.
The projects that closed would enter into 20-year power purchase agreements (PPAs) with Eskom.
Several committee members questioned whether the timeframe was realistic, given that some of the projects, including the power ships, still required final environmental authorisations and licences from the National Energy Regulator of South Africa (Nersa).
In addition, the power ships required Transnet National Ports Authority and South African Maritime Safety Authority permits, as they would be docked in the ports for two decades.
Mbele said no PPA would be conclude unless all the requirements, as set out in the request for proposal, had been fulfilled, including securing all authorisations and permits.
“The risk is solely with the bidders,” he said, adding that, on accepting ‘preferred-bidder status’, bidders were expected to pay a nonrefundable fee of R25 000/MW that would forfeit should the project fail to proceed. They also had to submit a preferred-bidder guarantee of R200 000/MW.
IPP Office CEO Bernard Magoro reported ongoing engagements with the various regulatory authorities and told the committee that, despite the tight timeframe, none of the authorities had indicated, to date, that approvals would not be forthcoming within that timeframe.
On the controversial issue of fuel costs, Mbele said sellers would be compensated for fuel used in the production of energy output and that the fuel charge rate would be indexed to the movement in the fuel price on a monthly basis.
“The end-user will not see a monthly change in tariffs as Eskom will manage deviations through the Regulatory Clearance Account.”
For each of the RMIPPPP preferred bidders that use gas, Nersa will approve a maximum price after the preferred bidder had lodged its applications for a gas trading licence, as well as for a maximum price for gas in terms of the Gas Act.
Questions were also posed about local content, the exclusion of certain provinces as project hosts and the cost of the electricity to be procured; an issue that had become increasingly controversial since the preferred bidders were named, together with their evaluation prices.
The average tariffs across all the preferred-bidder projects is R1.58/kWh, which is significantly higher than Eskom’s current standard tariff of about R1.34/kWh.
One energy expert has already written to government to highlight the expensive shortcomings of the RMIPPPP, which he says should be replaced by a materially larger, yet more cost-effective, procurement programme based primarily on renewables and storage, rather than power ships.
In the letter, Clyde Mallinson argues that a “systems” response that deploys all the country’s existing electricity assets, rather than the stand-alone RMIPPPP architecture, would be a far cheaper way to respond to the country’s acknowledged electricity emergency.
“This full systems approach allows for 30 TWh per annum (or more) to be procured at an estimated tariff of R0.61/kWh, or 39% of the weighted average tariff (R1.58/kWh) of the winning bids in the RMIPPPP,” he writes.
It would also eliminate fuel-price-volatility risk assumed under the RMIPPPP, owing to gas being treated as a pass-through cost.
“The estimated cost of supplying gas to the projects that use gas, including the power ships, over the 20-year term of the PPAs, exceeds R150-billion in 2021 rand terms, assuming constant gas prices over the period.”
Mbele stressed that the design of the RMIPPPP was in line with technical specification by the System Operator, or Eskom, and aligned with the Integrated Resource Plan of 2019.
The projects were also required to be capable of reaching commercial operation within 12 months to 18 months after financial close, which would see them supplying electricity into the grid between June and December 2022.
During a webinar also on Tuesday, Karpowership SA director Sechaba Moletsane said that the solution had prevailed in what was a rigorous bidding process in a programme that included stringent environmental, technical and socio-economic conditions.
Moletsane said that, while the power ships successfully applied for exemption from government local content rules, they would nevertheless implement local employment, training and local development.
More than 570 permanent jobs would be created across the three power-station sites for the 20-year duration of the PPAs, he reported.
“This was a least-cost, least regret programme that [government] ran and they were looking for the least-cost, least-regret solutions. And all of the eight winning bids are a testament to that, in that we are providing energy for 16 hours a day in the least-cost and least-regret manner and that was the basis of the award of preferred-bidder status on those projects,” Moletsane said.