south africa · unlocking the potential of the oil and gas industry in africa interview, sabine...
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SOUTHAFRICAINVEST IN THE ENERGY SECTOROF SOUTH AFRICA
2019
Africa Energy Series
MISSION VALUES
The mission of the CEF Group of Companies (CEF), through the holding company CEF (SOC) Ltd and supported by its subsidiaries, is to provide and enable sustainable energy security solutions for South Africa in order to contribute to economic development and alleviate poverty in an environmentally responsible manner.
Batho Pele
Integrity
Respect
Continuous Improvement
Stewardship
11111111
Tel: 010 201 4700 Fax: 010 201 4820 www.cefgroup.co.za
CEF (SOC) Ltd is the holding company of the CEF Group of companies. It is a state-owned national energy utility entity, reporting to the Department of Energy as its shareholder. CEF Group contributes to national security of energy supply through the acquisition, generation, manufacture, marketing or distribution of oil, gas, coal, renewables and alternative primary energy resources, as part of South Africa’s energy mix.
CEF Groupof Companies
SustainabilityGrowing Towards
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Africa Energy Series: South Africa 2019
With thanks officials at the South African Department of Energy.
Published by Africa Oil & Power in Septmeber 2019. Launched at Africa Oil & Power, 9-11 October
Production Team
Chief Executive OfficerGuillaume Doane
Creative DirectorGiovanni Trevisson
Managing EditorJames Chester
VP Business Development Declan Byrne
Commercial Director Kelly Mealia
Head of PublicationsAnine Kilian
Editor and Production CoordinatorMandisa Nduli
Contributing EditorsThomas Hedley Hayley Grammar Daiyaan HalimGerard PeterGareth CoetzeeSihle Qekeleshe
Design TeamAhmet SagirPaul Cheeseman
Sales Co-ordinatorsDineo ChochoeBongiwe Mtsweni
www.africaoilandpower.com
We have the opportunity to be at the forefront of green growth, of low-carbon indus-
trialisa on, of pioneering new technolo-gies and of taking quantum leaps towards the economy of the future. We must in-crease the contribu on of renewable and clean energy to our na onal energy mix and explore the poten al of the hydro-gen economy. Faster economic growth also requires accelerated land reform in rural and urban areas and a clear property rights regime.
Cyril RamaphosaPresident
June 2019 , State of the na on address.Parliament - Cape Town, South Africa
Since energy is a cri cal com-ponent of economic growth, we need to create a stable,
predictable policy and regulatory frame-work that will lead to investment and growth in the sector. Improvement of legisla on should also enable security of energy supply in the country...the debate should be about the eff ec ve use of all the energy sources at our disposal, to achieve security of supply.
Gwede MantasheMinister of Mineral Resources and Energy
Budget Vote Debate, July. Old Assembly Chamber in parliament Cape Town, South Africa
CONTENTS
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POWERING THE PROVINCESResource, Economic drivers in the country’s nine provinces
NEW DAWN: A SNAPSHOT OF SOUTH AFRICAAr cle
SOEs IN THE ENERGY SECTORTimeline, South Africa’s energy relat-ed state-owned en es
MILESTONES IN SOUTH AFRICA’S ENERGY SECTORTimeline from 1994 to 2019
SOUTH AFRICA’S ROAD TO ENERGY DIVERSIFICATIONAr cle
SOUTH AFRICA’S ENERGY STRATEGYAr cle
NEW APPROACH FOR ENERGYSECURITYInterview, Kholly Zono, Ac ng CEO, CEF Group
SECURITY OF CRUDE OIL SUPPLY STRATEGYProfi le, SFF
ENERGY SECTOR OVERVIEWResource, main players in South Africa
DEVELOPING THE GAS ECONOMYProfi le, iGas
PETROSA: A CENTER OF EXCELLENCEProfi le, PetroSA
PETROLEUM PIONEERSProfi le, PASA
SETTING FOUNDATIONS FOR GROWTH Profi le, AEMFC
STREAMLINING RENEWABLE ENERGY IN SOUTH AFRICAProfi le EPD
AMBITIONS RISE WITH MORE LNG Ar cle, NJ Ayuk, Execu ve Chairman of the African Energy Chamber, CEO of Centurion Law Group
ENGINE OF THE PROVINCIAL ECONOMYInterview, Nigel Ward, President, Durban Chamber of Commerce and Industry
RESTRUCTURING MODELSInterview, Kieran Whyte, Baker McKenzie
STATEOF THE NATION
IN PARTNERSHIPWITH
STATEOF THE INDUSTRY
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ContentsAfrica Energy Series | South Africa
THE REIPPP PROGRAM: TRANSFORMING SOUTH AFRICA’S ENERGY LANDSCAPEAr cle, Renewble Energy in South Africa
REIPPP-ING THE REWARDS Interview, Sandra Coetzee, Ac ng Head, IPPO
RENEWABLE ENERGY INDEPENDENT POWER PRODUCER PROCUREMENT PROGRAM Timeline, South Africa’s renewable energy program
MAPPING RENEWABLES AND ENERGY OPPORTUNITYInterview, Thembakazi Mali, Interim CEO, SANEDI
RESTORING INVESTOR CONFIDENCE Interview, Dr. Kilian Hagemann, G7 Renewable Energies
A BRIGHT FUTURE FOR SOLAR Interview, Dominic Wells, CEO, Sola Future
INVESTING IN RENEWABLE ENERGY Ar cle, Cuma Dube, Managing Director, SIG Energy Investments SOUTH AFRICA’S RENEWABLE ENERGY PROJECTS Map focusing in renewable projects in the country
EXPLORATION AND PRODUCTION IN SOUTH AFRICA Ar cle, oil explora on and discoveries
EXPLORATION OPPORTUNITES Map, oil and gas basins
PETROSA FOCUSED ON ACHIEVING ITS 2020 VISION Ar cle
UNCONVENTIONAL GAS: AN ECONOMIC AND ENVIRONMENTAL CHALLENGE Ar cla, gas that requires advanced produc on
LOGISTICS AND OPERATIONS Ar cle, energy, transport and logis cs
PAN-AFRICAN LOGISTICS AND PROCUREMENT Interview, Nazir Akoob, Managing Director, Petromarine
SOUTH AFRICA SPECIAL ECONOMIC ZONES Map, SEZ loca ons
REACHING NEW HEIGHTS Profi le, SGB Cape
SPECIAL ECONOMIC ZONES DRIVING ECONOMIC GROWTH IN AFRICA Ar cle, South African SEZs
OIL FINANCE AND INVESTMENT: SOUTH AFRICA’S OIL AND GAS POTENTIAL Khwezi Tiya, Head of Oil and Gas South Africa, Standard Bank Corproate and Investment Banking
GAS FOCUSED PROJECTS:A POTENTIAL GAME CHANGER FOR SA’S ENERGY MIXAr cle
AT THE TIPPING POINTInterview, Niall Kramer, Director, SAOGA
OIL AND GAS, WHERE SOUTH AFRICA’S FORTUNES LIEAr cle, upstream, midstream and downstream oil and gas poten al
GAS-TO-POWER PLANS CHANGE AFRICA’S FORTUNES Ar cle, gas-to-power genera on
INVESTING IN ENERGYAr cle, Inves ng in South Africa’s Energy Economy
REGULATING ENERGYAr cle, Rules and Regula ons
FINANCING TRANSFORMATIONInterview, Gqi Raoleka, Managing Director, Pele Green Energy HEDGING INVESTMENTS IN RENEWABLES Interview, Ren a van Tonder, Head of Power, Standard Bank
JSE LISTED INFRASTRUCTURE INVESTMENT Interview, Prudence Lebina, CEO, GAIA Infrastructure Capital
MERGING ASSETS TO BRING POWER TO AFRICAInterview, Sipho Makhubela, Managing Director, Harith Investments
GIBB POWER TO PROVIDE SOLUTIONS TO SOUTH AFRICA’S ENERGY TRANSITION Interview, Kiren Maharaj, Managing Director, Gibb Power
A QUESTION OF RISK AND RETURN Interview, Charles Marais, Counsel, Hogan Lovells (South Africa)
AT A GLACE: SOUTH AFRICA’S ENERGY INFRASTRUCTURE Ar cle, energy infrastructure
INVESTING IN INFRASTRUCTURE Interview, Jurie Swart, CEO, AIIM
UNLOCKING THE POTENTIAL OF THE OIL AND GAS INDUSTRY IN AFRICAInterview, Sabine Dall’Omo, Siemens South Africa
PROVIDING A BETTER SERVICE Profi le, Worley Parsons, RSA
KUSILE: A TRAILBLAZER IN POWER GENERATION Profi le, Kusile Power Sta on
ESKOM POWER STATIONS Resource, Eskom power sta ons loca ons
SOUTH AFRICA’S POWER STRATEGY Ar cle, electrifying the na on
COAL STILL DOMINATES ENERGY SECTOR Ar cle, coal in the country
ELECTRICITY REFORM Ar cle, changing the electricity landscape
DECENTRALIZED AND DECARBONIZED Interview, Dr. Clinton Carter Brown, CSIR
RESTRUCTURING THE ENERGY MIX AND MARKET Interview, Hein Reyneke, General Manager for Africe, Mainstream
FOCUSED ON POWER Interview, Jonathan Berman, Managing Director, Fieldstone
POWERING SOUTH AFRICA: MEGA COAL PLANTS KEY FOR FUTURE ELECTRIFICATION Ar cle, coal-fi red plants
PEAKING POWER PROVISION Interview, Tebogo More, CEO, Avon and Dedisa Peaking Power
FIRING UP SOUTH AFRICA’S PEAKERS Interview, Stefano Borsarelli, Vice President of Sales, New Units, Africa, Ansaldo Energia
MID AND DOWNSTREAM IN SOUTH AFRICA Ar cle, mid and downstream
INVESTING IN REFINERIES Interview, Priscillah Mabalene, CEO, BP South Africa
RETICULATING GAS FOR SOUTH AFRICA’S LARGEST CITY Monde Tysuha, Managing Director, Egoli Gas
FUELING THE FUTURE OF OIL AND GAS INFRASTRUCUTURE Profi le, MOGS Oil & Gas Services
INVESTING INENERGY
ENERGYINFRASTRUCTURE
RENEWABLE ENERGY
EXPLORATION AND
PRODUCTION
LOGISTICS AND
OPERATIONS
GAS TO POWER
POWER STRATEGYMIDSTREAM AND DOWNSTREAM
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STATE OF THE NATION
The Republic of South Africa is home to the conti nent’s second largest economy.
The country – which has the most developed economy on the African conti nent – is a key choice for investors looking to enter the African market.
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Africa Energy Series | South Africa
POWERING THEPROVINCES
Resource
EASTERN CAPE
The Eastern Cape is abundantly rich in nat-ural resources, from grazing land to forests, marine life, rich farming soil , an ocean econ-omy and wilderness.
The province’s climate allows for great pro-duc on of a wide range of crops. The East-ern Cape also has more ‘sunshine’ days than any other South African province, more than 300 out of 365 days are sunny.
The province has 16 wind farms and 1 solar farm, with a total installed capacity of over 1,500 megawa s. 13 facili es have been commissioned while the remaining 4 are un-der construc on.
The province has two special econom-ic zones (SEZs) in the ports of Port Elizabeth and East London. These SEZs have lowered the cost of doing business in the province, making room for more investment in the Eastern Cape. Consump on of electricity used in the East-ern Cape is 3.97 percent of the na onal total (as of April 2019).
The Eastern Cape’s advantage is that it is endowed with the possibility of both on-shore and off shore gas, gas-driven power genera on, and gas importa on, handling, trans-shipment infrastructure, as well as in-dustrializa on. Poten al recoverable quan- es of indigenous natural gas are in the
order of 20 trillion cubic feet onshore (shale gas), and 26 trillion cubic feet off shore.
GAUTENG
South Africa is rich in a variety of mineral resources spread throughout the country’s nine provinces. In addition to diamonds and gold, the country also contains reserves of iron ore, platinum, manganese, chromium, copper, uranium, silver, beryllium, and titanium. Each province possesses an abundance of natural resources, making the country attractive to foreign investors.
Gauteng means ‘Place of Gold’ in the Sotho. It is the smallest province in South Africa, but also the richest and most desnsly populated. Gauteng’s climate is mostly consistent, with the country’s capital city, Pretoria, usually two degrees warmer than Johannesburg–the country’s fi nancial hub. .Gauteng contains enormous concentra ons of gold, mainly in the Witwatersrand, where Johannesburg is located. There are also large reserves of pla num, chromite, iron ore, and uranium in the Bushveld Basin to the north.
The varied mining, industrial, commercial, and fi nancial ac vi es arising from this vast mineral wealth have made Gauteng the eco-nomic hub of South Africa
Over the next fi ve years, the province will introduce special economic zones (SEZs) to add momentum to turning the Gauteng City Region into a an in grated metropolis.
The consump on of electricity in Gauteng is 25.07 percent of the na onal total (as of April 2019).
The Northern Cape is South Africa’s larg-est province at 372 889km2.
The province has the highest number of solar farms in the country. Consump on of electricity used in the Northern Cape is 2.69 percent of the na onal total (as of April 2019).
Diamond mining, historically concentrat-ed around Kimberley, is prevelant throgh-out the rgely controlled by De Beers Con-solidated Mines, Ltd.
Located about 60km from the small Northern Cape town of Pofadder, the Gamsberg zinc project has a racted $400-million in investment so far.
Orion Minerals is developing a fl agship zinc copper project at Copperton, an An-glovaal mine that produced 1Mt of zinc and 430,000t of copper before it closed in 1991.
A new Special Economic Zone (SEZ), the Upington SEZ, will be opened soon. The planned SEZ (linked to Upington Inter-na onal Airport), is intended as a site for solar-related informa on manufacturing.
The Northern Cape produces more than 84 percent of South Africa’s iron ore.
NORTHERN CAPE
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Resource
The Free State has sizable deposits of di-amonds, coal, and bentonite. Much of the coal is transformed into oil and other pe-troleum products at Sasol, in Sasolburg.
Surveys suggest that the Free State has 23 billion cubic feet of gas underground.
The Petroleum, Oil and Gas Corpora on of South Africa (PetroSA) awarded natural gas explora on permits in the Free State.
Malu -A-Phofong SEZ was established in terms of the SEZs Act 16 of 2014. It was designed to deepen industrial de-velopment and improve manufacturing compe veness in the Malu -A-Phofong region. The SEZ focuses is on the follow-ing sectors; automo ve, agro-processing, logis cs, general processing, Informa on and Communica ons Technology (ICT), and pharmaceu cals.
Petra Diamonds’ Koffi efontein mine is on the western edge of the province, about 80km away from Kimberley. The mine is regarded as a low-grade deposit, but the diamonds produced are of high value.
The consump on of electricity used in the Free State is 4.29 percent of the na onal average (as of April 2019).
FREE STATE
Temperatures in Mpumalanga vary with the eleva on, ranging from 16°C in the Highveld to 23 °C in the subtropical Lowveld.
The province has deposits of asbestos, copper, iron ore, pla num, chromium, and coal.
Most electric power is generated by Es-kom at huge sta ons in Mpumalanga. The consump on of electricity in Mpumalanga 15.63 percent og the na onal average (as of April 2019).
The world’s largest underground coal-mining complex is in Secunda, making Mpumalanga South Africa’s powerhouse.
The Nkomazi SEZ in Mpumalanga is ex-pected to boost the industrial develop-ment of the province.
The Kusile power sta on project near eMalahleni in Mpumalanga is described as one of the largest power plants of its kind in the world, and one of the largest industrial point sources of greenhouse gas emissions
MPUMALANGA
Kwazulu-Natal is the second biggest con-tributor (16 percent) to the na onal gross domes c product (GDP) a er Gauteng, it is also a major manufacturer and exporter of goods.
The Port of Durban serves most of Kwa-Zulu-Natal, Mpumalanga, and the north-ern Free State.
The Richards bay Industrial Develop-ment Zone (RBIDZ) is a prime industrial business and trade hub that a racts ex-port-orientated investments in what is one of the country’s leading SEZs.
The RBIDZ is involved in the following sectors; agro-processing, Informa on and Communica on Technology and Tech-no-Parks, metals benefi cia on, marine industry development and renewable en-ergy.
PetroSA awarded coalbed-methane-gas explora on rights in KZN.
Consump on of electricity used in Kwa-Zulu-Natal is 18.75 percent of the na on-al average (as of April 2019).
KWAZULU NATAL
The North West is known as the Pla num Province due to the wealth of the minerals underground.
There are nearly 300 ac ve mines in the North West and the sector contributes 31,3% of regional gross domes c product (GDP).
South Africa is the world’s largest produc-er of pla num and chromium, which are mined at centers such as Rustenburg and Steelpoort and are becoming increasingly benefi cial to the economy.
Chromite is another mineral that is mined throughout the province, and there are several ferrochrome smelters and other processing plants.
The consump on of electricity in the North West is 12.92 percent of the na- onal average (as of April 2019).
A new SEZ is planned for North West province. The Bojanala SEZ will focus largely on mineral benefi cia on, especial-ly for pla num group metals; as well as manufacturing, including mining capital equipment supply, agro-processing and renewable energy.
NORTH WEST
With almost all year-round sunshine, it can get rather hot in the summer with temperatures in the lowveld known to reach 45ºC.
Limpopo has a wealth of mineral resourc-es, including n, pla num, copper, chro-mite, iron ore and coal.
The Musina-Makhado SEZ is a very at-trac ve investment area and it has the poten al to transform the provincial and regional economy.
The Musina-Makhado SEZ is aimed at servicing economies in its region including Botswana, Zimbabwe, and Mozambique. The SEZ is expected to create more than 20 000 jobs in the minerals, minerals ben-efi cia on, energy and logis cs sectors.
The SEZ is surrounded by areas of great mineral wealth and lies along major trans-port routes such as the N1 that connects South Africa to Zimbabwe through Beit Bridge.
Consump on of electricity used in Lim-popo 6.68 percent of the na onal average (as of April 2019).
LIMPOPO
Western Cape’s climate is Mediterranean, with warm, dry summers and mild, wet winters and low summer rainfal.
Total has made a signifi cant natural gas discovery off the southern Cape coast. The French oil giant has been drilling about 180km off the coast in Mossel Bay.
The province has an excellent natural har-bor in Saldanha Bay north of Cape Town, from which iron ore is exported.
Cape Town, Africa’s green economy hub, is the ideal loca on to tap into South Af-rica’s energy services market. The market is es mated to be worth R110.5 billion (US$7.8 billion) by 2035.
Consump on of electricity used in the Western Cape is 10.00 percent (as of April 2019).
The Western Cape government allocat-ed R83.987 million towards enabling the promo on and s mula on of a greener economy and water secure province.
The Western Cape government con nues the roll-out of priority ini a ves linked to energy security, through diversifying the energy mix.
WESTERN CAPE
Africa Energy Series | South Africa
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Africa Energy Series | South Africa
concentra on of investment to drive up the country’s power output, with large scale infrastructure projects available to enhance regional energy connec vity.
Outlook
Certainty around the opera on of SOEs and key policies such as land reform are paramount in a rac ng further invest-ment. Simultaneously, eff orts at improving opera onal effi ciency and improving com-pe veness of SOEs are likely to reduce reliance on the state fi scus to service debt.
A new dawn for the country has meant rebuilding strong ins tu ons. South Africa relies on it’s strong fi nancial ins tu ons, judiciary, and democracy, which are being used to rebuild the economy. With more certainty and stability on off er, South Af-rica is expected to en ce private sector investment into Africa’s most developed economy.
Arti cle
become a knowledge-based economy with technology, e-commerce and fi nan-cial sectors the most important contribu-tors to the growing GDP.
Financial services lead South Africa’s economy as a top contributor to the GDP. Government spending, trade, man-ufacturing, transport and communica- on, and mining, respec vely follow as
key contributors.
Total exports in 2018 stood at $94.4 billion with a posi ve balance of trade recorded at $235 million. The mining sector accounts for the largest por on of exports with gems and precious metals at 17.5 percent and mineral fuels at 10.6 percent in 2018. Vehicles (11.4 percent), machinery (6.2 percent), and plas cs (1.4 percent) are also important exports for the country, with mul na onal South Af-rican service companies trading in tele-communica ons, broadcas ng, pharma-ceu cals, furniture and chemicals.
Economic Structure
The economy is market-driven, while the state ac vely par cipates through reg-ulatory bodies and several state-owned en es (SOEs).
Fiscal policy is determined by the Min-istry of Finance. Tito Mboweni was ap-pointed Minister of Finance on 9 Oc-tober, 2018 and the 2019 budget put South Africa on a stronger path towards growth.
The Reserve Bank of South Africa op-
erates with full autonomy from govern-ment. Its offi cial policy is to achieve and maintain price stability in the interest of sustainable and balanced economic de-velopment and growth.
The banking and fi nancial systems are among the most advanced in the world, and the best in Africa, backed by sound regulatory and legal frameworks that provide for strict capital requirements and governance controls. The fi nancial system ranks 18 in the world out of 140 countries, scoring 82 percent on the World Economic Forum’s Global Com-pe veness Report 2018, above coun-tries such as South Korea, Germany and China.
Growth
Overall economic growth, recorded by quarter-on-quarter increases in GDP, av-eraged 2.77 percent between 1993 and 2018, peaking at 7.6 percent growth in the fourth quarter of 1994 following the country’s smooth transi on into a dem-ocra c government. Annual real GDP growth was recorded at 0.6 percent in 2018, exceeding government’s predic- ons of one percent.
Following the appointment of President Cyril Ramaphosa in March 2018, eco-nomic growth shows early signs of im-provement. South Africa’s economy has been bolstered by 2.2 percent growth in the third quarter, led by 7.5 percent growth in manufacturing, 6.5% in agricul-ture and 5.7% in transporta on.
According to the Interna onal Monetary Fund (IMF), annual real GDP growth is an cipated at a rate of 1.2 percent for 2019, and 1.5 percent in 2020. Credit ra ngs agency Standard&Poors similarly projects growth at 1.8 percent in 2019.
Insti tuti ons
South Africa’s ins tu ons are generally compared favorably to those in sub-Sa-haran Africa. According to the World Economic Forum’s Global Compe ve-ness index for 2018, South Africa’s in-s tu ons rank 67 out of 140 countries, with a score of 60.8 percent.
President Ramaphosa has remained res-olute that the country is going through a cathar c moment which will end in re-demp on and responsibility.
The country is supported by a strong
judiciary, independent Chapter 9 ins tu- ons such as the Public Protector’s Of-fi ce, and op mism in the Na onal Pros-ecu ng Authority that are expected to improve the country’s compe veness.
Infrastructure
Ranking second highest in Africa for in-frastructure development a er Egypt, South Africa off ers well developed roads, railways, ports, and ci es. Compara vely, it fairs be er than high and upper-middle income countries such as Argen na, Jor-dan and Brazil. The country’s transporta- on infrastructure, and road networks in
par cular, are notably well developed.
With expansive telecommunica ons in-frastructure, including the private sector roll out of fi ber and Wi-Fi networks in major ci es, the country is well connect-ed and posi oned within the global mar-ket. In the power industry, there is a large
Economy
With a popula on of just over 58 million es mated in July 2019, buying power is among the con nent’s highest, with gross domes c product (GDP) per capita at $13,661.372 in 2018.
Ini ally built upon vast mineral resources, the country’s economic growth has pri-marily been driven by the ter ary sector since the early 1990s, through wholesale and retail trade, tourism and communi-ca ons. Mining con nues to play a ma-jor role, with the country es mated to have the fi h largest mining sector in the world. More recently, the country has
NEW DAWN: A SNAPSHOT OF SOUTH AFRICA
The Republic of South Africa is home to the continent’s second largest, most diversified economy, after Nigeria. Strong legal and financial institutions, well developed infrastructure, coupled with a thriving and maturing democracy, have made the country a key choice for investors looking to enter the African market.
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SOEs INTHE ENERGY SECTOR
Timeline
The South African state owned electrical company, Eskom generates 95% of the country’s electricity.Its main businesses are electricity genera on, transmission, trading and distribu on. It buys and sells electricity within the SADC grid. Its mandate is to provide electricity in an effi cient and sustainable manner.
Manages strategic crude oil infrastructure, strategic crude oil stocks and pro-vides oil pollu on control services in Saldanha Bay.
The Department of Energy (DoE) is responsible for the supervision and u liza on of the country’s energy sources. It has six key programs: Administra on, Energy Policy and Planning, Petroleum and Petroleum Products Regula on, Electrifi ca on and Energy Program and Project Management, Nuclear Energy and Clean Energy. The DoE is associated with two regu-lators, the Na onal Nuclear Regulator and the Na onal Energy Regulator, as well as fi ve major state owned enterprises (SOEs) for research and development, as well as the Nuclear Energy Corpora on of South Africa, the Na onal Radioac ve Waste Disposal Ins tute, the Central Energy Fund, PetroSA and Sanedi. In addi on, various public enterprise SOEs relate to the Energy Sector, most notably Eskom, Transnet, and the Na onal Ports Authority. A few other minor SOEs have been included in the table due to their rela on to the energy sector.
State owned na onal ener-gy u lity en ty focused on oil, gas, coal and renew-able and clean energy op- ons. The CEF Group must
contribute to the na onal security of energy supply through commercial opera- ons and projects, as well as
inves ng in developmental projects, while opera ng in a highly compe ve and capital intensive environ-ment with the need to be a profi table en ty through its subsidiaries and associates.
Oversees opera on of nuclear power reactors, research reactors, nuclear technology applica ons, radioac ve waste man-agement. It also supervises mining and processing of radioac ve ores, users of small quan es of radioac- ve material, the transport
of radioac ve materials, vessels propelled by nuclear power or having radioac ve material on board and to any other ac ons capable of causing nuclear damage to which the Na onal Nuclear Regulator Act applies.
Administers skills devel-opment programs for the mining and minerals sector in South Africa
Custodian of ports, railways and pipelines in South Afri-ca. Comprised of Transnet Freight Rail, Transnet Rail REngineering, Transnet Na onal Ports Authority, Transnet Port Terminals and Transnet Pipelines. Transnet Pipelines currently services two key industries –fuel and gas – and handles an annual average through-put of some 16 billion litres of liquid fuel and more than 450 million cubic meters of gases.
Works toward the goal of eradica ng poverty, unemployment and in-equality. Provides registra- on, training and fi nancial
support systems for Civil Society Organiza ons, with special focus on sustainabil-ity-related projects.
The corpora on undertakes and promotes research and development in the fi eld of nuclear energy and radia on sciences and technology. The compa-ny is also responsible for processing source material, special nuclear material and restricted material and to reprocess and enrich these.
1923
Eskom
1964
Strategic Fuel Fund (SFF)
1996
Mining Qualifi cation Authority
1999
National Nuclear Regulator
1977
Central Energy Fund
1999
National Development Agency (NDA)
1990
Transnet
1999
Nuclear Energy Corporation of South Africa (NECSA)
Energy Energy Department of Public Enterprises
Mineral Resources Energy EnergySocial Development Subsidiary of the CEF
Africa Energy Series | South Africa
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Timeline
2000
iGAS
2002
PetroSA
2008
National Radioactive Waste Disposal Institute
2004
Petroleum Agency (PASA)
2011
African Exploration Mining and Finance Corporation
(AEMFC)
2005
National Energy Regulator (NERSA)
2005
Transnet National Ports Authority (TNPA)
2011
The South African National Energy Development Institute (SANEDI)
The offi cial state agency for the development of the hydrocarbon gas industry in southern Africa, as such iGas is the mandated SOE for the development of gas and gas infrastruc-ture in southern Africa. A shareholder in the Mozam-bique-to-South Africa gas pipeline and is involved in the development of other gas delivery projects.
The na onal petroleum and gas promo on and licensing agency.
Develops radioac ve waste acceptance and dis-posal criteria in compliance with applicable regulatory health and safety environ-mental requirements and any other technical and opera onal requirements.
It also assess and inspects the acceptability of radio-ac ve waste for disposal and manages opera onal radioac ve waste disposal facili es.
The South African na onal oil company.
Its responsibili es include the explora on and pro-duc on of oil and natural gas, the par cipa on in, and acquisi on of, local and interna onal upstream petroleum ventures, the produc on of synthe c fuels from off shore gas at one of the world’s largest Gas-to-Liquid refi neries in Mossel Bay, South Africa.
Regulates the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regula on Act, 2006, Gas Act, 2001 and Petroleum Pipelines Act, 2003
. The structure of the En-ergy Regulator consists of nine members, fi ve of whom are part- me and four are full- me.
A division of Transnet. Owns, operates and con-trols the eight commercial ports of Richards Bay, Durban, East London, Ngqura, Port Elizabeth, Mossel Bay, Cape Town and Saldanha on behalf of the state.
Supervises the following key basic infrastructure: 19 container berths; 36 dry-bulk berths; 29 break-bulk berths; 13 liquid-bulk berths; and 8 entrance channels with suppor ng breakwaters, turning basins, networks and u li es. “
The state owned mining company established to se-cure South Africa’s energy supply primarily through the mining and supply of coal for the genera on of electricity, as well as securing other resources that will provide energy for the future, including key minerals for benefi cia on in the energy and steel value chain. Mines coal in Mpum-alanga for supply to Eskom.
State owned company related to renewable energy research. Directs, moni-tors and conducts energy research and development, promotes energy research and technology innova on as well as undertakes mea-sures to promote energy effi ciency throughout the economy. Oversees the two programs of Applied Energy Research, development and innova on and Energy Effi ciency, and six sub-pro-grams of Renewable Energy, Cleaner Fossil Fuels,Data and Knowledge Manage-ment, Cleaner Mobility, Smart Grids and Working for Energy.
Subsidiary of the CEF Subsidiary of the CEF Subsidiary of the CEF Subsidiary of the CEFEnergy EnergyEnergyTransnet
Africa Energy Series | South Africa
13 14
Timeline
MILESTONES IN SOUTH AFRICA’S ENERGY SECTOR
South Africa transi ons to democracyANC’s Reconstruction and Development Program introduced
The Oribi oil fi eld comes on-stream, beginning South Africa’s oil production
December: Clean Development Mechanism (CDM) developed by UNFCCC
White Paper on the Energy Policy of the Republic of South Africa published,
separating the commercial, strategic and regulatory functions of the Central
Energy Fund group of companies
Nuclear Energy Act
National Nuclear Regulator (NNR) established
National Development Agency (NDA) established
The E-M fi eld begins gas production
iGAS established
The Oryx fi eld begins oil production
The Gas Act established
DoE begins Integrated National Electrifi cation program
PetroSA launched
July 1: Eskom converted from a statutory body into a public company
Sable oil fi eld begins production
PetroSA acquires Brass Exploration Unlimited
The 2003 White Paper on Renewable Energy lays the foundation for the promo-
tion of renewable energy technologies such as solar, hydro, biomass and wind
Petroleum Products Amendment Act
Camden, Grootvlei and Komati power stations decommissioned
Cabinet approves private sector participation in electricity industry, divides the
industry between Eskom (70%) and Independent Power Producers (30%)
Minerals and Petroleum Resources Development Act (MPRDA) established
National Energy Regulator established
December 24: National Environmental Management Act establishes the Des-
ignated National Authority (DNA)
Free Basic Electricity (FBE) Introduced, providing 50kWh/month to poorer
households
First licensing of liquid fuels industry
February 16: Kyoto Protocol
Gas supply quadruples from 2004 levels due to imports
1994
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2019
Oil Gas Renewables Coal Nuclear General Legisla on Electricity Other
South Coast gas fi elds begin produc onThe Department of Minerals and Energy’s Energy Security Master Plan (ESMP) is developedBiofuels Industry Strategy introduced
Sable fi eld stops oil produc on to begin gas produc onPetroSA launches 2020 visionNa onal Energy Act established Nuclear Energy Policy established Na onal Radioac ve Waste Disposal Ins tute Act establishedElectricity crisis results in blackouts throughout the country
Feasibility studies on Project Mthombo are fi nalized10 May: Department of Energy and Minerals reorganized into the Department of EnergyEnergy Act 2008 signed into law ensuring that diverse energy resources are available, in sustainable quan es and at aff ordable prices in support of econom-ic growth and poverty allevia on.DoE launches solar water heater program, aiming to equip 1 million homes by 2015
F-O gas project is ini atedSeptember 1: Carbon Emissions tax implemented
Integrated Resource Plan (IRP) 2010-30 fi rst promulgatedAfrican Explora on Mining and Finance Corpora on (AEMFC) establishedElectricity Regula ons on New Genera on Capacity gaze edSouth Africa Hosts 17th formal mee ng of the UNFCCC (United Na ons Framework Conven on on Climate Change)South Africa approves Na onal Climate Change response White PaperSANEDI established
Feed-in tariff scheme replaced by Renewable Energy Independent Power Pro-ducer Procurement (REIPPP) program, which uses bidding rounds to secure capital for renewables.
Na onal Development Plan (NDP) Implemented, aiming to eliminate poverty and reduce inequality by 2030Electric vehicle road map introduced
November: Dra Integrated Energy Planning Report approved
June: 3 162MW of electricity genera on capacity from 57 Independent Power Producer projects connected to the na onal electricity grid SA government endorses shale gas explora on and extrac on in the Karoo re-gion
IRP dra releasedApril: Eskom signs 27 agreements worth $4.7bn for renewable energy projects
Successful exploratory drilling by Total SA in the Outeniqua Basin gas fi eldsFebruary: Carbon tax bill approved
Africa Energy Series | South Africa
15
STATE OF THE INDUSTRY
Several initi ati ves have been put in place to galvanize South Africa’s oil and gas industry, as the government aims to att ract investment and provide an enabling environment for the sector to grow. A comprehensive Nati onal Development Plan 2030, together with the Department of Energy’s Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP), are driving investment into the industry.
17 18
Arti cle Arti cleAfrica Energy Series | South Africa
country’s proac ve stance translates across the energy sector as it is seeing a simultaneous push from the government to increase investment across the hydro-carbon sector.
Oil and Gas Strategy
Several ini a ves have been put in place to galvanize South Africa’s oil and gas in-dustry, as the government aims to a ract investment and provide an enabling en-vironment for the sector to grow.
In 2013, the country made a commit-ment to separate the oil and gas indus-try from the Mineral and Petroleum Re-sources Act, and provide the sector with separate legisla on.
This, government hopes, will ease the li-censing applica on process and li the moratorium that is currently in place, which restricts the gran ng of applica- ons for technical coopera on permits,
explora on rights and produc on rights.
“An economy of our size cannot con- nue to operate without signifi cant in-
vestment in oil and gas,” South Africa’s former Energy Minister Jeff Radebe said while addressing Parliament in October last year. The Minister added that tak-ing into account the current reality of unproven reserves in South Africa, the country needs to invest in blocks pro-ducing crude oil, par cularly on the Af-rican con nent.
It is a strategy that has been fast-tracked since the appointment of President Cyril Ramaphosa in February 2018. Already, the government has made signifi cant in-roads in engaging with key oil-producing countries in Africa.
South Africa signed an outline agree-ment that could see the country invest around $1 billion in South Sudan’s oil industry. The investment will go into building a refi nery and pipelines as well as explora on and training of workers and engineers.
Former Minister Radebe had said that the investment will ensure that South Sudan has the capacity to produce 60,000 bar-rels per day. The investment is a major boost in a country where the oil indus-try funds about 98 percent of its bud-get. However, not only does this benefi t South Sudan, but the investment also al-lows South Africa access more crude oil resources in Africa.
Meaningful Engagement
In June 2018, former Minister Radebe announced that he had ini ated bilat-eral discussions with Mozambique re-garding the further development of the cross-border gas infrastructure linking South Africa’s energy and chemical sec-tors to Mozambique’s vast natural gas resources. More than 100-trillion cubic feet of natural gas has been discovered in Mozambique and there is a possibility that further explora on and develop-ment will increase this amount.
The two countries already share an im-portant partnership through the Romp-co pipeline – a joint venture between Sasol, Companhia Mocambiçana de Ga-soduto and the South African Gas De-velopment Company. The 865Km pipe-line carries gas produced at the Pande and Temane fi elds, in southern Mozam-bique, to South Africa, where Sasol uses most of the gas to produce fuel, elec-tricity and chemicals. Discussions will hopefully result in South Africa exploit-ing resources in northern Mozambique, where there have been large discover-ies of gas in the Rovuma basin.
While the South African government hopes to strengthen es between South Africa and Mozambique, it is also keen to unlock poten al oil resources in other parts of the con nent. Already, Minister Radebe had held discussions with his Namibian counterpart on ways to exploit that country’s Kudu gas re-serves. In the last few months of his tenure, he also intensifi ed discussions with Nigeria and Equatorial Guinea with
the same purpose.
South Africa’s legwork to access more crude oil resources in Africa will bear fruit in the long-term.
And it is not just the Department of En-ergy that is ac vely engaging with Afri-can oil suppliers. In July 2018, President Ramaphosa urged his Nigerian counter-part, President Muhammadu Buhari, to sign Africa’s free trade agreement.
According to President Ramaphosa, the agreement, which will allow the free movement of goods and increase intra-African trade, represents a new dawn for the con nent. However, Nige-ria is yet to buy into the idea and has embarked on countrywide consulta- ons.
Nigeria is a key supplier to South Afri-ca, accoun ng for 33 percent of all the country’s fuel imports. Should Nigeria agree, it could be of great benefi t to both countries as South Africa looks to increase its importa on of petroleum products from Nigeria.
Prioriti zing Explorati on
In the mean me, however, South Afri-ca must look into explora on in Africa. President Ramaphosa admits that ex-plora on is quite costly but that it is a necessary exercise. In addi on to the groundwork that was done in 2018, Total South Africa’s Brulpadda gas dis-covery in 2019 has sparked investor appe te for South Africa’s poten al off -shore reserves. Thanks to a proac ve governmental stance in the oil and gas upstream sector, including a new petro-leum Bill to be dra ed in the next few weeks, the country’s is hoping to a ract explora on investment. While Total SA is yet to prove the commercial viability of its fi nd, South Africa’s extensive es -mated reserves of gas, both onshore and off shore, conjugated with a strong ins -tu onal and regulatory framework should make of hydrocarbons a solid growth component in the years to come.
from around 50 percent in 1994.
In an eff ort to meet the United Na on’s Sustainable Development Goals, South Africa has commi ed to moving away from coal fi red energy and is focused on renewable energy power genera on. As part of the Renewable Energy Inde-pendent Power Producer Procurement (REIPPP) program – one of the most advanced renewable energy programs in the world, the government has stat-ed its goal to produce 7,000 MW from these sources by 2020 and 17,800 MW by 2030.
According to the IRP 2010-30, which is currently being updated, a number of power sta ons across a range of tech-nologies will be built in the next few years. As outlined in the plan, new en-ergy infrastructure must meet several criteria such as op mize power costs; promote job crea on and mi gate ad-verse climate change.
Despite a steep increase in capacity, South Africa is in crucial need of in-vestment in transmission infrastructure. Outlined in the Transmission Devel-opment Plan which runs from 2019 to 2028, South Africa’s power u lity Eskom has announced its plan to build around 6,500Km of high-voltage transmission lines, equivalent to 64 000 megavolts ampere (MVA). According to the plan, independent power producers (IPPs) will be included in the transmission network project. Furthermore, regional synergies
will be increased due to cross-border projects with Namibia, Botswana, Zim-babwe, Mozambique, Swaziland and Le-sotho.
Currently genera ng over 52 gigawa s (GW) of power, Eskom hopes to reach 74GW by 2028. Ninety percent of to-day’s electricity comes from conven- onal sources such as coal (73 percent);
renewables (7 percent) and imports. By 2028, Eskom’s es ma ons state the stake of renewable energy in power genera on will jump to 23 percent while coal will reduce to 56 percent. The stake of power generated by unconven onal sources will also jump to 26 percent, from 10 percent today.
Together with the South African Devel-opment Community, South Africa will move forward with regional integra on. Created in August 1995, the Southern African Power Pool (SAPP) is aimed at crea ng a unifi ed regional power mar-ket. To date, member countries can trade electricity on a day-ahead market. Increased connec ons and transmis-sions are on the SAPP’s agenda. The ex-is ng system needs strengthening and connec ons must be built to integrate other countries such as Angola, Malawi and Tanzania.
South Africa’s DoE has implemented a well-rounded strategy to increase ca-pacity while reaching environmental goals and provide suffi cient infrastruc-ture to give power access to all. The
Boasting one of Africa’s most advanced economies, South Africa is invested in growing its energy-hungry population and providing reliable access to power so that its private sector remains com-petitive.
Sizeable investments made in the 1980s to increase power genera on allowed demand to be met for decades. The country now fi nds itself in a key tran-si on period where energy must drive economic growth.
The Department of Energy (DoE’s) man-date is to formulate energy policies, reg-ulatory frameworks and legisla on and oversee their implementa on to ensure energy security, promo on of environ-mentally-friendly energy carriers and access to aff ordable and reliable energy for all South Africans.
In order to reach na onal objec ves included in the Na onal Development Plan 2030, the DoE has implemented a framework for the energy sector. The Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) are the government’s instruments to drive in-vestment in energy.
In less than two decades, the govern-ment has provided access to power to almost six million households across the country. Thanks to the DoE’s Electrifi ca- on Program, implemented by Eskom,
the rate of households without access to power dropped to 14 percent today
SOUTH AFRICA’S ROAD TO ENERGY DIVERSIFICATION
20
country’s proac ve stance translates across the energy sector as it is seeing a simultaneous push from the government to increase investment across the hydro-carbons sector.
Oil and Gas Strategy
Several ini a ves have been put in place to galvanize South Africa’s oil and gas in-dustry, as the government aims to a ract investment and provide an enabling envi-ronment for the sector to grow.
In 2013, the country made a commit-ment to separate the oil and gas indus-try from the Mineral and Petroleum Re-sources Act, and provide the sector with separate legisla on.
This, government hopes, will ease the licensing applica on process and li the moratorium that is currently in place, which restricts the gran ng of applica- ons for technical coopera on permits,
explora on rights and produc on rights.
“An economy of our size cannot con- nue to operate without signifi cant in-
vestment in oil and gas,” South Africa’s former Energy Minister Jeff Radebe said while addressing Parliament in October last year. He added that, taking into account the current reality of unprov-en reserves in South Africa, the coun-try needs to invest in blocks producing crude oil, par cularly on the African con nent.
It is a strategy that has been fast-tracked since the appointment of President Cyril Ramaphosa in February 2018. Already, the government has made signifi cant inroads in engaging with key oil-produc-ing countries in Africa.
South Africa signed an outline agreement that has seen the country invest around $1 billion in South Sudan’s oil industry. The investment will go into building a re-fi nery and pipelines, as well as explora on and training of workers and engineers.
Former Minister Radebe had said that the investment will ensure that South Sudan has the capacity to produce 60,000 bar-rels per day. The investment is a major boost in a country where the oil indus-try funds about 98 percent of its bud-get. However, not only does this benefi t South Sudan, but the investment also al-lows South Africa access more crude oil resources in Africa.
Meaningful Engagement
In June 2018, former Minister Radebe an-nounced that he had ini ated bilateral dis-cussions with Mozambique regarding the further development of the cross-border gas infrastructure linking South Africa’s energy and chemical sectors to Mozam-bique’s vast natural gas resources. More than 100-trillion cubic feet of natural gas has been discovered in Mozambique and there is a possibility that further explora- on and development will increase this
amount.
The two countries already share an im-portant partnership through the Rompco pipeline – a joint venture between Sasol, Companhia Mocambiçana de Gasoduto and the South African Gas Development Company. The 865Km pipeline carries gas produced at the Pande and Temane fi elds, in southern Mozambique, to South Africa, where Sasol uses most of the gas to produce fuel, electricity and chemicals. Discussions will hopefully result in South Africa exploi ng resources in northern Mozambique, where there have been large discoveries of gas in the Rovuma basin.
While the South African government hopes to strengthen es between South Africa and Mozambique, it is also keen to unlock poten al oil resources in other parts of the con nent. The DoE has held discussions with his Namibian counter-part on ways to exploit that country’s Kudu gas reserves. In the last few months of his tenure, the DoE also intensifi ed discussions with Nigeria and Equatorial
Guinea with the same purpose.
No doubt, South Africa’s legwork to ac-cess more crude oil resources in Africa will bear fruit in the long-term.
And it is not just the DoE that is ac ve-ly engaging with African oil suppliers. In July 2018, President Ramaphosa urged his Nigerian counterpart, President Mu-hammadu Buhari, to sign Africa’s free trade agreement.
According to President Ramaphosa, the agreement, which will allow the free movement of goods and increase in-tra-African trade, represents a new dawn for the con nent. However, Nigeria is yet to buy into the idea and has embarked on countrywide consulta ons.Nigeria is a key supplier to South Afri-ca, accoun ng for 33 percent of all the country’s fuel imports. Should Nigeria agree, it could be of great benefi t to both countries as South Africa looks to increase its importa on of petroleum products from Nigeria.
Prioriti sing Explorati on
In the mean me, however, South Africa must look into explora on in Africa. Pres-ident Ramaphosa admits that explora on is quite costly but that it is a necessary exercise. In addi on to the groundwork that was done in 2018, Total South Afri-ca’s Brulpadda gas discovery in 2019 has sparked investor appe te for South Afri-ca’s poten al off shore reserves. Thanks to a proac ve governmental stance in the oil and gas upstream sector, includ-ing a new petroleum Bill to be dra ed in the next few weeks, the country’s is hoping to a ract explora on investment. While Total SA is yet to prove the com-mercial viability of its fi nd, South Africa’s extensive es mated reserves of gas, both onshore and off shore, conjugated with a strong ins tu onal and regulatory framework should make of hydrocarbons a solid growth component in the years to come.
Africa Energy Series | South Africa
19
today from around 50 percent in 1994.
In an eff ort to meet the United Na on’s Sustainable Development Goals, South Africa has commi ed to moving away from coal fi red energy and is focused on renewable energy power genera- on. As part of the Renewable Ener-
gy Independent Power Producer Pro-curement (REIPPP) program – one of the most advanced renewable energy programs in the world, the government has stated its goal to produce 7,000 MW from these sources by 2020 and 17,800 MW by 2030.
According to the IRP 2010-30, which is currently being updated, a number of power sta ons across a range of tech-nologies will be built in the next few years. As outlined in the plan, new en-ergy infrastructure must meet several criteria such as op mizing power costs; promo ng job crea on and mi ga ng adverse climate change.
Despite a steep increase in capacity, South Africa is in crucial need of invest-ment in transmission infrastructure. Outlined in the Transmission Devel-opment Plan which runs from 2019 to 2028, South Africa’s power u lity Eskom has announced its plan to build around 6,500Km of high-voltage transmission lines, equivalent to 64 000 megavolts ampere (MVA). According to the plan, independent power producers (IPPs) will be included in the transmission network project. Furthermore, regional synergies
will be increased due to cross-border projects with Namibia, Botswana, Zim-babwe, Mozambique, Swaziland and Le-sotho.
Currently genera ng over 52 gigawa s (GW) of power, Eskom hopes to reach 74GW by 2028. Ninety percent of to-day’s electricity comes from conven- onal sources such as coal (73 percent);
renewables (7 percent) and imports. By 2028, Eskom’s es ma ons state the stake of renewable energy in power genera on will jump to 23 percent while coal will reduce to 56 percent. The stake of power generated by unconven on-al sources will also jump to 26 percent, from 10 percent today.
Together with the Southern African De-velopment Community, South Africa will move forward with regional integra on. Created in August 1995, the Southern African Power Pool (SAPP) is aimed at crea ng a unifi ed regional power mar-ket. To date, member countries can trade electricity on a day-ahead market. Increased connec ons and transmis-sions are on the SAPP’s agenda. The ex-is ng system needs strengthening and connec ons must be built to integrate other countries such as Angola, Malawi and Tanzania.
South Africa’s DoE has implemented a well-rounded strategy to increase ca-pacity while reaching environmental goals and provide suffi cient infrastruc-ture to give power access to all. The
Boasting one of Africa’s most advanced economies, South Africa is invested in growing its energy-hungry population and providing reliable access to power so that its private sector remains competitive.
Sizeable investments made in the 1980s to increase power genera on allowed demand to be met for decades. The country now fi nds itself in a key transi on period when energy must drive economic growth.
The Department of Energy (DoE’s) man-date is to formulate energy policies, reg-ulatory frameworks and legisla on and oversee their implementa on to ensure energy security, promo on of environ-mentally-friendly energy carriers and access to aff ordable and reliable energy for all South Africans.
In order to reach na onal objec ves included in the Na onal Development Plan 2030, the DoE has implemented a framework for the energy sector. The Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) are the government’s instruments to drive in-vestment in energy.
In less than two decades, the govern-ment has provided access to power to almost six million households across the country. Thanks to the DoE’s Elec-trifi ca on Program, implemented by Eskom, the rate of households without access to power dropped to 14 percent
Arti cle
SOUTH AFRICA’SENERGY STRATEGY
21 22
How does the CEF plan to stay competi ti ve within an ever-changing energy market while supporti ng government in reigniti ng the South African economy?
We are living in a world of increasing interconnectedness through digitaliza on and globaliza on, cri cal environmental changes that require our immediate interven on, severe global and economic challenges, uneven distribu on of wealth, and geopoli cal crises. The energy industry which is characterized by high capital costs intensity, inherent risks as well as high degrees of vola lity, uncertainty, complexity, ambiguity is being constantly disrupted by a number of key factors
Emerging technologies such as AI, ba ery storage and renewable energy systems add to the complexity of our business opera ons requiring a diff erent approach to how we currently conduct our business if we are to con nue being relevant and providing security of energy supply. Conven onal business models are no longer adequate to deal with the margin changes in the energy landscape.
Over the years, the Central Energy Fund (CEF) has successfully implemented numerous energy strategies within South Africa, but industry disrup ons have necessitated strategic reposi oning and confi gura on to maintain a substan al footprint within the energy sector. Internally, we felt that we were not
op mally structured to take advantage of what was beginning to emerge in the market, so we had to fi gure out how to reposi on ourselves.
We have linked some of our ini a ves to the Na onal Development Plan, meaning our approach is very much aligned with the broader South Africa intent, which aims to eliminate poverty and reduce inequality by 2030. Further, our approach takes into considera on the African Union’s Agenda 2063 which is a strategic framework for the socio-economic transforma on of the con nent over the next 50 years. Agenda 2063 seeks to accelerate the implementa on of past and exis ng con nental ini a ves for growth and sustainable development and the CEF Group aims to be a catalyst for a number of these ini a ves. This is further supported by our overall approach; which is a deliberate economically driven strategy with a focus on diversifying our energy por olio, improving our value proposi on, strengthening commercial viability, increasing our presence across the energy value chain and driving the transforma on agenda through targeted growth in support of security of energy supply impera ves. Execu on of this approach will ensure that the CEF Group becomes a signifi cant player locally, regionally and across the con nent and will be supported through strategic partnerships, opera onal excellence and innova on.
Our mandate, which is derived from the CEF Act of 1977, is anchored around providing security of energy supply. This entails crea ng jobs and ensuring that energy supports industrializa on and commerce. The CEF Act is broad and encourages explora on in order to iden fy addi onal energy sources to improve the country’s energy security. Our vision is simple; to be a leading, diversifi ed energy company that provides sustainable energy solu ons for southern Africa and the con nent and a thought leader whilst suppor ng the government’s myriad developmental objec ves. Our key strategic goal is to have an integrated and diversifi ed por olio where our respec ve companies are able to exploit synergies and create sustainable value across the en re energy value chain for our shareholder.
What are some of the major challenges associated with the CEF’s turnaround strategy, and what initi ati ves will be implemented in order to address these challenges?
The CEF Group operates in a sector that is characterized by long lead mes, capital intensity of projects, inherent risks and exposure to global forces such as geopoli cs, climate change and impact of government policies. There is an urgent need to diversify our energy por olio, remain relevant, strengthen our value proposi on and ensure that we
Interview
Africa Energy Series | South Africa
have a viable and sustainable business model. For sustained long term growth, it is impera ve that we have a balanced por olio that is not dependent on a single en ty or commodity. One of our subsidiaries makes up the largest por on of the CEF por olio and when there are adverse shi s in oil prices, exchange rate vola lity and the added burden of opera onal challenges, diversifi ca on and agility is thus a must. This requires a diff erent approach to how we have been dealing with growth.
The CEF Group strategic ini a ves are broad and holis c with a focus on diff erent aspects of the value chain. These ini a ves are geared towards growth, stabiliza on, opera onal effi ciency, capacita on, op miza on and skills development in an cipa on of key changes in the energy sector. To minimize the eff ects of challenges associated with implementa on, we are embarking on a change management journey approach to all our ini a ves so as to make adop on and transi on much more seamless.
To this end, our short-term focus is improving the profi tability and sustainability of some our en es and fi nding sustainable solu ons to their strategic challenges. Substan al is already being with regards to execu on of these solu ons. Long-term, we are focused on growth through strategic partnerships, delivering on large scale projects, transi oning to cleaner energy alterna ves by embracing new technologies and energy storage, development of an exponen al organiza on to drive the objec ves of the business of tomorrow whilst being a catalyst for transforma on as we strive towards fi nancial stability and increased social impact. This will be about crea ng new and exci ng energy possibili es and going beyond security of energy supply.
As a Group we have a number key social developmental initi ati ves, which are spread over key following focus areas:
YouthEmpowering the youth through a number of social programs that are geared towards skills development, as well the crea on of meaningful job opportuni es. Our Centre of Excellence in Mossel Bay is leading facility that trains the is a youth on key technical skills such as welding, boiler making and other engineering work. These youths o en get absorbed in the organiza on a er a successful internship program.
WomenThrough our Enterprise Supplier Development Program we have mentored and nurtured a number of women-run business in the energy sector and created tangible business opportuni es for them.
Educa onOur educa on ini a ves entail the building of schools, provision of school shoes and other learning material to pupils from impoverished backgrounds across all our nine provinces.
HealthAs the CEF Group we have supported with the building of new clinics in communi es where we operate.
Transforma onThis is about the Group’s role in spearheading the transforma on agenda in the sector such as policy, and other meaningful sector par cipa on ini a ves.
In support of our Shareholder the DoE, we will be implemen ng about 70 000 (seventy thousand) solar water heaters on people’s roo ops so that they can have access to hot water. This ini a ve assists in making energy aff ordable whilst helping reduce the load on Eskom and minimize illegal electricity connec ons.
NEW APPROACH FOR ENERGYSECURITY Kholly ZonoActing CEOCEF Group
We need to diversify
our energy sources and income streams, remain relevant, strengthen our value propositi on and ensure that we have a viable and sustainable business model
23 24
Profi le
MandateSFF Associa on is the strategic oil reserve agency of the Republic of South Africa with crude oil storage terminals in Milnerton and Saldanha. It operates not for gain but solely in the interests of the Republic of South Africa.
SFF’s mandate is derived from Ministerial direc ves issued in terms of the:
CEF Act Central Energy Act, No. 38 of 1977, Sec on 3A(c) Sale of crude and purchase of crude oil, sale and purchase of petroleum products, and sale and purchase of other products as determined by the Minister of Energy in terms of Sec on 1D.
Na onal Energy Act 34 of 2008 that states in s17(1) that the Minister may, in a prescribed manner, for the purposes of ensuring security of supply direct any state-owned en ty to acquire, maintain, monitor and manage na onal strategic energy feed-stocks and carriers.
It has main opera ons in Saldanha and Milnerton in the Western Cape as well as in Ogies in the Mpumalanga province of South Africa.
Business ModelThe business model of the company is to lease out spare storage capacity to oil traders and companies in order to fi nance the opera onal cost of managing the strategic stock and terminal infrastructure. In addi on to income generated from leasing out tanks commercially, SFF earns interest income from cash invested in money market instruments.
The Saldanha terminal provides infrastructure for crude oil movements in and out of the Saldanha Bay harbour. Primarily,
Saldanha stores strategic stocks and secondarily leases out crude tanks on commercial basis to fund the company opera ons. Due to its proximity to the Astron refi nery, the Saldanha terminal assists in providing security of supply for the Eastern and Western Cape provinces.
The Saldanha terminal has a design capacity of 45 million barrels of crude oil storage and combined with the Milnerton tank farm aff ords SFF a crude oil storage capacity of more than 50 million barrels of crude oil.
The Milnerton tank farm has the poten al to provide infrastructure for crude oil movements in and out of the Cape Town harbour provided that the access to the pipeline is improved. The tank farm has 39 tanks with a total capacity of 7.5 million barrels with two tanks currently in use. The en ty aims to refurbish the tank farm, which can then be used to store addi onal strategic stocks as per Ministerial direc ves on the management of strategic stocks.
The Ogies facility comprises a number of worked-out coal mines that were converted to hold strategic crude stock. These containers have now been emp ed. Opera ons are mainly to manage the on-going environmental liability through recovering residue oil from the disused mine and assessing possible income genera ng projects at the facility.
Saldanha to South SudanThe business model as alluded to above is predicated upon oil prices being so low that they en ce oil traders to acquire crude oil and store it in SFF tanks in Saldanha (contango market forma on) with an inten on to re-sell when oil prices improve.
However with an ins tu on like OPEC that exists to control oil prices in the interest of its members, which are oil producing countries, oil prices are rarely in favour of the above stated market forma on and that has adverse impact on the business model of Strategic Fuel Fund. Hence the company has been looking at diversifying
its revenue sources by pursuing fi nished product storage infrastructure projects.
As further response to the weaknesses of the current business model, the company is applying the ver cal integra on strategy by moving backward in the value chain by conduc ng pre-feasibility and technical feasibility studies that may see the company inves ng in the oil explora on and produc on sector (oil explora on, refi nery and pipelines) of the Republic of South Sudan.
The South Sudan project is of outmost importance not only to the Strategic Fuel Fund but to the CEF Group of companies in ensuring that the mandate of security of energy supply for the country is fulfi lled.
SECURITY OF CRUDE OIL SUPPLY STRATEGY IN SOUTH AFRICAGodfrey MoagiActing CEOSFF
SFF’s mandate is to serve the
communal interests of the general public of South Africa, by investi ng in the crude oil and petroleum products infrastructure that will be required to ti meously respond to crude oil supply chain disrupti ons.
Also SFF is seeking to intensify eff orts to invest in and acquire key oil and gas assets across Africa, all in an eff ort to fulfi l the mandate of security of energy.”
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ENERGY SECTOROVERVIEW
ENERGY RESOURCES 60% of fuel demand met by imports
ACCESS TO ELECTRICITY
MAIN ROLE PLAYERS
MAIN INITIATIVES IN THE ENERGY SECTOR
54%1994 2018
84,7%
Resource
STRUCTURE Governing Body
Sectorial plan
2019/2020 budget
Regula ng body
Department of Energy
Integrated Energy Plan
TBD
Na onal Energy Regulator of South Africa
Africa Energy Series | South Africa
Fuel produc on feedstock
Gas 5%
Coal to Liquid Fuels 35%
Crude refi ning 50%
Imports of refi ned products 10%
NATIONALDEVELOPMENT PLAN KEYENERGY GOALS BY 2030
Promote economic development through energy infrastructure investment Stable power supply95% of the popula on with access to electricity29 000MW addi onalOf which 20 000MW are provided by gas and renewablesDiversifying power sources and ownershipSuppor ng cleaner coal technologiesinvestment in human and physical capital in the 12 largest electricity distributorsSubstan al reduc ons in carbon dioxide emissions by 2025
Interna onal inte-grated chemicals and energy compa-ny opera ng in 33 countries
Generates, trans-mits and distributes electricity to about fi ve million customers across sectors
Allows free trading of electricity between members of the Southern African De-velopment Community
Government-owned oil and gas company
Researches, fi nances, develops and exploits appropriate energy solu ons
NAME OF THE INITIATIVE
INTEGRATED RESOURCE PLAN
RENEWABLE ENERGY INDEPENDENT POWER PRODUCER PROCUREMENT REIPPP PROGRAM
NATIONAL STRATEGIC FUEL STOCKS POLICY
NATIONAL LIQUID PETROLEUM GAS LPG STRATEGY
CONTENT
Maps out the country’s energy strategy un l 2030
Strategy to achieve the transi on to a greener economy
Framework for the storage of fuel stocks by both government and oil companies
Strategy to develop a strong LPG indus-try in South Africa
GOAL
Reach access to electricty goals with a reliable, clean and cheap supply
Addi onnal 13,225 MW IPPs in 2025
Ensure uninterrupted supply of petro-leum products throughout South Africa
Provide safe, clean and effi cient thermal fuel for all households
SASOL ESKOM SOUTHERN AFRICAN POWER POOL PetroSA CENTRAL ENERGY FUND
Boas ng half of Africa’s electricity genera on, South Africa has also designed one of the most ad-vanced ins tu onal frameworks to govern its ener-gy sector. While coal s ll dominates, the Integrated Resource Plan aims for ambi ous renewable energy goals and a more effi cient energy management poli-cy. As part of governmnet’s key goals, South Africa’s energy sector is set to become key to the country’s economic growth and social inclusion.
Since South Africa became a democracy in 1994, access to electricity has increased greatly – 24 per-cent in total. with 8 out of 10 houses connected to electricity today, universal electrifi ca on is a tangi-ble possibility for South Africa’s future.
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As the mandated state-owned company for the development of Southern Africa’s gas market and gas infrastructure, iGas sup-ports the growth of the South African economy through ac ve investments for the provision of gas molecules and gas infra-structure. iGas is invested in the largest cross border gas trans-mission pipeline in Southern Africa, namely the Republic of Mozambique Pipeline Company (ROMPCO) pipe-line.
iGas also has fl agship projects which highlight its role in growing the South African gas market, these are: The Phased Gas Pipeline Network (PGPN); Liquefi ed Natural-Gas (LNG) Importa on Program and down-stream market entry.
ROMPCO is a joint venture between Sasol, the Mozambican state-owned company - Companhia Moçambicana de Gasoduto S.A. and iGas. It is an 865km gas pipeline constructed between 2001 and 2004 and runs from Vilanculos in Mozambique to Secunda in South Africa. It currently ships 190PJ per annum, which is the vast majority of natural gas currently consumed in both Mozambique (27PJ) and South Africa (164PJ).
iGas has a 25% equity stake in ROMPCO and ac vely par ci-pates at governance and engineering levels. The Phased Gas Pipeline Network (PGPN) is a na onal project aimed at developing the future gas transmission grid of South
leaded petrol, diesel, kerosene, fuel oil, propane, LPG, ex-port distillates and alcohols, both locally and international-ly. PetroSA sells most of its fuel and fuel-related products to major oil companies in South Africa.
PetroSA refinery was commissioned as the world’s first GTL refinery and recognized as a centre of excellence, due to specialist teams producing some of the cleanest fuels on the market.
PetroSA uses Fischer Tropsch technology to produce award-winning ultra-clean, low-sulfur, low-aromatic syn-thetic fuels and high-value products converted from natu-ral methane-rich gas and condensate. The Mossel Bay re-finery is also the third largest GTL refinery among the five now operating worldwide.
Capable of producing a crude oil equivalent of 45,000 bar-rels per day, the refinery sources its feedstock from Pe-troSA’s FA-EM and South Coast gas fields, as well as the Oribi and Oryx oil fields in Block 9, offshore South Africa. The refinery holds the National Occupational Safety As-sociation of South Africa five-star grading, ISO1400 for environmental management systems and SABS/ISO 9002 accreditation, making quality management one of the cor-nerstones of its operations.
Africa connec ng the current explora on of onshore and off -shore gas reserves with the local market.
Its vision is that South Africa should create an environment that promotes explora on to ensure the drilling of 30 off shore wells
within the next ten years, while si-multaneously maximizing benefi ts for South Africa. The project is viewed as a key to unlocking gas explora on by crea ng a path to market for possible gas fi nds.
iGas leads the technical development of the project, facilita ng strategic alignment, as well as colla ng pipeline routes where available, developing routes where none exist, and evalu-a ng the length, size and costs of the proposed seven phases of a future countrywide network.
The LNG importa on program is an ini a ve which iGas is pursuing in collabora on with some of its government and state owned counterparts. iGas will co-develop and take an equity posi on in a future LNG importa on terminal and associated pipeline infrastructure which is being targeted for opera on by 2026.
iGas is also seeking to build a presence in the downstream gas mar-ket through partnering with exis ng players where appropriate and thereby support the con nued expansion of the downstream in concert with the aforemen oned up and midstream developments.
Profi le
DEVELOPINGTHE GAS ECONOMY
The South African Gas Development Company (iGas), a subsidiary of CEF SOC LTD, operates as the designated state agency to develop the gas industry in Southern Africa.
Mohsin SeedatInterim Chief Operating OfficeriGas
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PetroSA was established in 2002 upon the merger of Soekor E and P (Pty) Limited, Mossgas (Pty) Limited.
The company holds a por olio of assets that spans the petro-leum value chain, with all opera ons run according to world-class safety and environmental standards. As South Africa’s Na onal Oil Company, wholly owned by the CEF (SOC) Ltd, PetroSA is mandated to operate as a commercial en ty and create value for its shareholders and all its stakeholders.
Delivering on the mandate extends beyond contribu ng to the na onal economy through tax and dividend payments, and includes making a signifi cant contribu on towards ad-vancing the broader na onal objec ves of the South African petroleum industry for the ul mate benefi t of all the coun-try’s ci zens.
Through our core strategic functions, PetroSA is striving to make it possible for the Government of South Africa to:
• Improve the supply of fuel, oil and gas to the en re country• Mi gate the impact of oil price varia ons and foreign curren-
cy fl uctua ons• Drive transforma on ini a ves in the South African oil,
gas, fuels and petrochemicals value chain• Champion, support and entrench the growth of Black Eco-
nomic Empowerment (BEE) in the SA petrochemicals sector• Manage the con ngency crude oil reserves and the strategic
petroleum assets of South Africa• Access upstream petroleum assets for the benefi t of all the
ci zens of South Africa
PetroSA is responsible for the marketing and trading of oil and petroleum products, as well as the exploration and production of oil and natural gas resources, including un-
PETROSAA CENTRE OFEXCELLENCE
Profi le
Africa Energy Series | South Africa
3029
Petroleum Agency of South Africa (PASA), a subsidiary of the Central Energy Fund, promotes and regulates oil and gas ex-plora on and produc on in South Africa. It is responsible for evalua ng our oil and gas resources, a rac ng explorers in the oil and gas sector, monitoring their explora on and produc on ac vi es, and archiving data produced from these ac vi es.
Its ac vi es are prescribed through the Mineral and Petroleum Resources Development Act and include regulatory respon-sibili es such as receiving applica ons for rights and permits, approving environmental programs, monitoring technical pro-grams and managing contracts.
PASA’s promo onal responsibili es include appraising of po-ten al, promo ng explora on and development and raising awareness of petroleum resources at a na onal level. The agency is also the na onal archive for off shore and onshore oil and gas explora on data, including rock samples, electronic logs and reports.
It is based in Cape Town and employs over 80 people who range from draughtsmen through petroleum geologists and en-vironmental specialists to contract lawyers.
South Africa is an a rac ve prospect for explora on companies willing to take on the risks of searching for oil and gas, with an equitable distribu on of benefi ts to the risk takers and the holder of the assets – South Africa. This situa on, coupled with risk reduc on and value add through our own geological and geophysical work, has enabled PASA to a ract a record number of explorers to search for oil and gas in our country.
Opera ons are underway both onshore and off shore, under produc on rights, explora on rights and a number of techni-cal coopera on permits. The Mineral and Petroleum Resources Development Act, together with the Royal es Act, have creat-ed an equitable investment environment for explora on and produc on companies, while ensuring that the interests of the
state are protected.
As a result, there is now a renewed interest from interna onal explora on companies capable of taking on the enormous fi -nancial risk in explora on for conven onal oil and gas in South Africa’s off shore basins.
PASA Empowering Young Minds
PASA is commi ed to develop the requisite skills to meet the demands of upstream industry in South Africa. Since 2003 PASA has rolled out an internship program which is now MQA accredited. Young graduates entering the program are support-ed through a combina on of further study and prac cal expe-rience that equips them to enter the industry as capable and confi dent contributors.
It con nuously supports many students at South African uni-versi es through data supply for research as well as technical input and assistance. As part of the licensing requirements, Oil and gas explorers entering South Africa market are required to contribute to the Upstream Training Trust which is administered by the Agency. Funds from this trust are deployed in the devel-opment of specialist skills in natural sciences, engineering and technology.
The United Na ons Conven on on the Law of the Sea (the Conven on) contains provisions for governing, inter alia, lim-its of na onal jurisdic on over ocean space, access to seas, naviga on, protec on and preserva on of the marine environ-ment, exploita on of living and non-living resources, scien fi c research, sea bed mining and the se lement of any disputes concerning applica on and interpreta on of the Conven on.
South Africa signed the Conven on on 5 December 1984 and ra fi ed the Conven on on 23 December 1997. South Africa’s Mari me Zones Act (Act 15 of 1994) complies with the Con-ven on as far as it relates to the limits of the territorial sea, con-
guous zone, exclusive economic zone and con nental shelf. The poten al of this opportunity was ini ally recognised as being of na onal importance during the 1980s. The SA Navy Hydrographic Offi ce with the assistance of the Ins tute for Mari me Technology carried out the ini al inves ga ons and lobbied for the establishment of a dedicated na onal project. This successfully resulted in a Cabinet decision to allocate re-sponsibility of the project to the then Minister of Minerals and Energy, who directed the Petroleum Agency SA to manage the project.
The project was offi cially started in April 2003 and the tech-nical study took six years to complete. These ini al studies included the search for and acquisi on of exis ng and new data. This phase of the project was followed by the applica- on of the scien fi c and
legal principles and the compila on of the submission documents and appendices. These documents were subse-quently lodged with the United Na ons in May 2009.
In 2009, the Agency made two submissions to the Commission; one in rela on to the South African Mainland and a joint second submis-sion with the French Government, in rela- on to the Marion and Crozet Islands. From 2014, the Agen-
cy has been defending both submissions. The claims amount to approximately 1.87 million square kilometres, which ranks amongst the 10th largest claims in the world and if endorsed by the United Na ons will more than double South Africa’s current mari me territory.
The examina on of the RSA Mainland Submission is at an ad-vanced stage and that resulted in the SA delega on and the United Na ons Subcommission establishing an agreement concerning the loca on of Foot of Slope points for the en re western and eastern margins at the 40th Session of the United Na ons Commission which was held in March 2016. However, the challenge encountered in these area of examina on in the Saddle region and as a result, it is frozen due to the fact that there was not enough bathymetric data to support South Afri-ca’s claim in proving the connec on between the Mozambique Ridge and the Agulhas Plateau. This aff ects an area of approxi-mately 450 000km² in extent. To demonstrate such a connec- on, South Africa needs to conduct a bathymetric survey across
the area in ques on. Demonstra on of such a connec on could add an extra 450 000 square kilometres to the South African territory. If this is not done the implica on of this will mean a loss of an exclusion of area indicated on Annexure B of approxi-mately 450 000 square kilometres from the Mainland claim.
In respect of the Joint Submission with the French, the inter-ac ons with the Subcommission since the start of the defence were very challenging. The ma er of concern is that the Sub-commission does not view the South West Indian Ridge (SWIR) and Discovery II Ridge (DIIR) as part of the con nental margin of South Africa. This would mean a loss of approximately 600 000 square kilometres from the Island claim.
The South African team together with the French has thor-oughly gone through the comments and views made by the Subcom-mission and as such the delega on has prepared a full technical and legal response to the Subcom-mission for considera on at the next session of the Commission which is taking place in August 2016. The response will address the legal and in-terpreta on elements of the submission incorpo-ra ng the guidelines of the Commission on the Limits of the Con nental
Shelf (CLCS) and recommenda ons that have been made to oth-er coastal states with similar geological se ngs such as Iceland and Denmark.
The Subcommission remains to sa sfy themselves of whether the technical and legal response and arguments pertaining to the SWIR and DIIR are in fact part of the con nental shelf of the two coastal states and whether the said coastal states are en tlement to that in terms of the Conven on.
These two claim projects have many benefi ts for South Africa. These include: the poten al for mineral resources including oil and gas, manganese nodules and crusts possibly enriched with precious metals, exploi ng the pharmaceu cal and medical ben-efi ts of microbes associated with the inhospitable ultra-deep ocean fl oor and toxic hot water geysers. Many of these benefi ts are not immediately quan fi able with the current knowledge and technology but through the success of the project, access to these could be assured for the coming genera ons of South Africans.
Profi le
PETROLEUMPIONEERS
Lindiwe MekweActing CEOPetroleum Agency South Africa
Africa Energy Series | South Africa
32
Established in 2004, the EPD focuses on a number of niche areas including solar, wind, hydro, biomass, biogas, low-smoke fuels and other clean alterna ve energy forms. The division supports the devel-opment of an energy econ-omy in which modern clean and renewable energy tech-nologies provides aff ordable access to energy, contrib-u ng to sustainable devel-opment and environmental conservation.
The EPD’s focus includes energy market sectors with insufficient private sector activity and areas where there is a need for state investment to promote sector growth. The division is expected to grow into a fully-fledged CEF subsid-iary within the planning horizon to 2022. In the long-term,
this will facilitate meaningful par cipa on of the state in the clean and renewable energy space and thereby promote im-proved security of supply and enhanced social and environ-mental benefi ts.The Division is mandated to develop, fi nance and invest in clean and renewable energy technologies on behalf of the
CEF Group; these projects may be solely developed by the CEF and/or in partner-ship with credible local and international partners. The division’s mandate is derived from the authority and ob-ligations set out in the CEF Act, and the 2003 High-level CEF Business Strategy. The Minister of Energy mandat-ed CEF, through a Ministeri-al Directive, to establish the Energy Development Cor-poration, which is now re-¬named the EPD.In the recent past, CEF/EPD in partnership with the De-velopment Bank of South Africa and private partners commissioned the first wind farm in South Africa. Other key interventions of CEF/EPD was the establish-ment of Solar Water Heat-ing manufacturing testing unit currently being used by the South Africa Bureau of
Standards to test locally manufactured Solar Water Heating systems. As part of its growth trajectory, EPD is geared to growth its renewable energy capabilities by partnering with Independent Power Producers and Eskom.
Profi le
Africa Energy Series | South Africa
STREAMLININGRENEWABLE ENERGY IN SOUTH AFRICA
Forming part of the CEF is the Energy Projects Division (EPD), which was established to pursue commercially viable investments in the clean and renewable energy space focusing on projects that catalyze the clean (renewable) energy sector, including developmental and/or social projects that benefit previously disadvantaged commu-nities by promoting en-ergy access and energy poverty alleviation among other govern-ment objectives.
Phindile MasanganeGeneral ManagerEnergy Projects Division
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As per its mandate, the AEMFC strives to be one of the leading self-sustainable suppliers of current and future energy in South Africa through the op mal explora on, acquisi on and mining of strategic resources for the sustainability of the compa-ny without compromising quality and safety. The AEM-FC also endeavours to pre-serve the environment and enhance customer and other key stakeholder sa sfac on.
The AEMFC owns the Vlak-fontein Coal Mine, which is located in Ogies, Mpumalan-ga. The mine con nues to produce supply for the state-owned Eskom’s Kendal pow-er sta on and other power sta ons as required, as per a contractual agreement. The Vlakfontein Mine Extension is being commissioned and is aimed at doubling the mine’s coal produc on. Further blocks are set to follow in the ensuing fi nancial years.
Other projects underway by the AEMFC include the Klippoortjie Mine, situated approximately 40km from the exis ng opera ons and covering an area of 593 hectares, which is to be commissioned in the third quarter of 2019. and the T Project coal mine, situated 12km north of the town of Kinross, Mpumalanga Province, covering
an area of 6,500 hectares. Coal produc on from Seam 4 of the T Project has been successfully tested by Eskom. All the above projects are at an advanced stage of securing coal contracts with ESKOM which is expected to be fi nalised by June 2019.
The company’s overall growth strategy consists of a drive to ac-quire exis ng private opera ng assets, as well as partnering with other mining en es with a similar outlook and mutual interest. Furthermore, AEMFC aims to diversify its customer and mineral re-sources base to include minerals like Rare Earth Elements, Iron Ore, Chrome, Copper, Zinc, Silica sands and other benefi cial minerals.
This is to support Africa’s benefi -cia on strategy.
AEMFC currently employs 500 people, of which 300 are em-ployed permanently and 200 indirectly as contractors. The staff complement is made up of young people and contrac-tors from the local community. Programs directed towards sharing the value of our busi-ness include dona ons to local schools (computers, uniforms etc).
In pursuit of its social uplift-ment program, AEMFC re-
mains committed to address the social ills of communities within which it operates. Key among its interventions in-clude the following:
• Contracting local youth to provide business services• Providing housing with the necessary infrastructure• Providing bursaries in various engineering and mining
fields• Improving roads and related infrastructure.
Profi le
AEMFC:SETTING FOUNDATIONSFOR GROWTH IN THEMINING SECTOR
The state-owned African Exploration Mining and Finance Corporation (AEMFC) was established to secure South Africa’s energy supply through the mining and supply of coal for the generation of electricity. The AEMFC is also responsible for securing other resources such as key minerals for beneficiation in the energy and steel value chain.
Sizwe MadondoCEOAEMFC
36
Africa Energy Series | South Africa
35
development structures are make-or-break factors for LNG-to-power projects. That’s one reason South Africa (and others) have included fl oa ng storage and regasifi ca on facili es (FSRF) in their plans. At USD300-USD500 million to build, these vessels cost about half as much as an onshore import terminal. In addi on to reducing CAPEX, FSRF take only about two years to bring on-line, which means they shorten the overall project meline considerably.
Elsewhere, Morocco is also considering the development of LNG import infrastructure, while Egypt has chartered two fl oa ng ves-sels for LNG storage. Investors in Ghana are considering funding a 1,300 MW LNG-to-power plant, which would lessen that coun-try’s dependence on the o en-unreliable West African Gas Pipeline.
Maybe most exci ng of all is that the ad-vancements aren’t just localized to na ons with huge reserves.
In recent years, as LNG supply has increased and prices have fallen, LNG-to-power has been more broadly considered as an alter-na ve solu on for power genera on. Since 2015, developments in LNG-to-power technologies have been a boon to African countries that lack their own supply of nat-ural gas or don’t have an import pipeline in place. Among them is Mozambique, which has plans in place to develop 10 LNG trains that would consume about 70 percent of the current discovered resource base, ac-cording to the World Bank.
I’m encouraged by the outlook for LNG on our con nent: Industry consultant Doug-las-Westwood predicted that global spend-ing on LNG facili es would rise by 88 per-cent by 2019, with USD193 billion spent on liquefac on and shipping.
Such industry growth represents great op-portunity for African countries with natural gas reserves, benefi ts that could easily ex-tend to those countries’ people.
Gabriel Mbaga Obiang Lima agrees: “Invest-ing in domes c gas use industrializes the
country: it creates new industriesdiversifi es the economy, and creates much-needed jobs.” Or, as the authors of “East Africa—Opportuni es and Challenges for LNG in a New Fron er Region,” noted, the income that deepwater LNG developments can generate for govment—from job crea on and taxes paid by employees to increased spending within local economies—could, in turn, drive even more employment and taxa on.
“During the construc on phase of an LNG project there could be 3,500 to 5,000 peo-ple directly engaged in building the plant; of these, some 80 percent would be skilled technicians to professional staff ,” they wrote.
Such benefi ts could be compounded if sev-eral important stakeholders would lead the charge in promo ng intra-African trading. It is vital for governments, indigenous com-panies, and con nental consor a to band together. And we absolutely need African oil and gas traders, power producers, and industrialists to get on board.
Back in South Africa, one of the most excit-ing announcements for the country’s natu-ral gas industry has been by French mul -na onal oil and gas company, Total, which announced in February 2019 a massive nat-ural gas discovery off the southern coast of South Africa: roughly 1 billion bbl equivalent in gas and condensate resources.
This is the fi rst major deepwater discov-ery off South Africa’s coast. Not only does it represent a tremendous opportunity to meet domes c natural gas needs, it also will be a huge driver of the kinds of economic ac vity I’ve been talking about: domes c job and business opportuni es, natural gas mone za on, and further diversifi ca on.
As I said a er the announcement, we can only hope that this discovery will be a cata-lyst for policymakers to work on crea ng an enabling business environment for explo-ra on and drilling ac vi es in South Africa. And we have every reason to be op mis c: South Africa is already working on new leg-isla on on oil and gas explora on.
As South Africa’s natural gas industry is on the eve of a new era, Execu ve Chairman of the African Energy Chamber and CEO of the Centurion Law Group NJ Ayuk shares an exclusive extract of his new book, Billions at Play: The Future of African Energy and Doing Deals, where he discusses the impact of LNG and natural gas on African economies.
Would you believe that Africa is actually the site of the world’s fi rst commercial LNG liq-uefac on plant? It might be hard to imagine, given that the con nent is behind much of the producing world when it comes to LNG, but a plant in Arzew, Algeria, came online in 1964.Unfortunately, the resource didn’t quite take off in the beginning. But that’s changing.
LNG is becoming a priority for Africa’s emerging natural gas sector. This odour-less, colourless, non-toxic, non-corrosive natural gas (predominantly methane with some por on of ethane) has been cooled to liquid form for ease of storage or trans-port—o en by barge—to loca ons where pipelines are not prac cal or economical to build. Once LNG arrives at its des na- on, it is re-gasifi ed and distributed, typi-
cally via pipeline.
As part of its goal of reducing the carbon intensity of its economy, South Africa is also undertaking an ambi ous LNG-to-power project. The na on is currently in the bidding process to develop, fi nance, construct, and operate a 3,000 MW LNG-to-power plant. Regulatory delays and technical diffi cul es have caused a lag, but South Africa plans to use vessels off shore to receive, convert, and store the LNG it imports. Eskom, South Af-rica’s power u lity, agreed to purchase the electricity generated by the plant.
Africa Oil & Power says that fi nancing and
Arti cleAfrica Energy Series | South Africa
AMBITIONS RISE WITH MORE LNG
NJ AyukExecutive ChairmanAfrican Energy Chamber CEOCenturion Law Group
37 38
What key economic drivers allow the KwaZulu-Natal province to be one of South Africa’s leading local economies?
KwaZulu-Natal is a well-diversified regional economy and South Africa’s second-largest provincial economy, contributing on average a fifth of South Africa’s gross domestic prod-uct (GDP) with the second-highest level of industrialization in the coun-try. Additionally, KwaZulu-Natal has the third-highest export propensity and is strategically positioned, being home to two of Africa’s busiest and most important ports in the South-ern hemisphere, Durban and Richards Bay. KwaZulu-Natal has the support-ing infrastructure requirements in ports such as the Durban Container Terminal (DCT), which is the largest in the Southern Hemisphere and han-dles 65% of South Africa’s container traffic, as well as the transport and logistics linkages through the King Shaka International Aerotropolis 302 kilometers of railway line in the port area and the N3 and N2 highways. Additionally, relative to other coun-tries in the world, our regional ports have port and terminal handling costs that are lower than average.
Manufacturing, trade, business ser-vices and transport and communi-cations are large and strong sectors within the province. Manufacturing
is the largest sector in KwaZu-lu-Natal, with a 16 percent share of the provincial GDP supported by various indus-trial hubs stra-tegically located throughout the province such as Durban, Richards Bay, Newcastle, Ladysmith and P i e t e r m a r i t z -burg but there are also a host of smaller enter-prises active in a variety of areas. The size of the ‘fuel, petroleum, chemical and rubber products’ m a n u f a c t u r i n g sector is R 94.8 million rand on average over the past five years. This accounts for 29% of all manufacturing in Durban. Durban is the second highest contrib-utor to ‘fuel, petroleum, chemical and rubber products’ manufacturing in the country and at 16% of the whole country’s ‘fuel, petroleum, chemical and rubber products’ manufacturing in the country.
What do you expect in terms of increased demand for power in the next few years in the region?
There are several infrastructure de-velopment projects planned for Kwa-Zulu-Natal and this will result in a definite increase in demand for en-
InterviewAfrica Energy Series | South Africa
ergy. If our economy is to grow and develop in an inclusive and sustain-able way, the demand for power will increase as well. The average growth rate of Durban’s economy over the past five years has been 1.3%. The KwaZulu-Natal economy is extremely reliant on energy and the risk evident in traditional energy generation infra-structure has highlighted the need for alternatives produced by Independent Power Producers especially in the gas and renewables space. According to recent reports, the amount produced
by Independent Power Producers has increased from only 884 GWh in De-cember 2007 to 2 060 GWh in No-vember 2018, accounting for 9.7 per-cent of total generation.
What is KwaZulu-Natal’s long-term strategy to continue
economic growth while mitigating the adverse effects of climate change?
The Renewable Energy Independent Power Producer Procurement (REIPPP) program will play a crucial role in how this is implemented and actioned to capitalize on the high level of renew-able energy potential in KwaZulu-Na-tal and South Africa as a whole and to limit the knock-on effects of the current energy shortfall and disrupted supply.
The REIPPP program has the added benefit of stimulating Independent Power Producers and the overall re-newable industry, contribu ng towards socio-economic and environmentally sustainable growth as South Africa tran-si ons to a low carbon green economy.
Businesses are ac vely transi oning to-wards or exploring energy alterna ves to source an effi cient, cleaner and low carbon source of energy and to limit the challenges experienced with tradi onal energy sources.
KwaZulu-Natal’s long-term strategy is outlined in the Provincial Growth and Development Strategy (PGDS) which aims to drive inclusive economic growth, human resource development, human and community development, strategic infrastructure, environmental sustainability, governance and policy and spa al equity.
In a recent address, Premier Sihle Zi-kalala stressed the importance of mainstreaming climate change and en-vironmental policies in Integrated De-velopment Plans and the PGDS. Hence, incorpora ng climate change ini a ves into policy making will act as a catalyst to mi ga ng adverse eff ects as well as serve a sustainable long-term strategy.
What is your outlook on the potenti al for hydrocarbon explorati on off shore KwaZulu-Natal?
Although South Africa is exploring alter-na ve sources of energy, it is important that we remain mindful of the environ-mental impact and poten al biodiversity management challenges that can result from hydrocarbon or any oil and gas explora on. KwaZulu-Natal is home to scenic beaches, diverse fl ora and fauna and a thriving tourism economy that is heavily dependent on our province’s natural beauty. Therefore, before any plan is enacted, there needs to be an environmental impact assessment con-ducted by independent third par es as well as public consulta on with local businesses and communi es that will be aff ected, in order to limit any possible nega ve impacts. Prior to its ini a on, we need to ensure that hydrocarbon exploration is in accordance with envi-ronmental legislation and policies.
ENGINE OF THE PROVINCIAL ECONOMY
Nigel WardPresident Durban Chamber of Commerce and Industry
We must keep to
the basics, keep it simple and adhere to the economics underpinning the projects.
39
Interview
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Africa Energy Series | South Africa
account consumer choice, aff ordability, accessibility, new technology and sus-tainability, including climate change.
People are asking ques ons; whether the market should be restructured and liberalized. We are likely to see the ad-vent of distributed genera on using re-newable technology to off set the need to upgrade and extend transmission grids, and eliminate the cost and associ-ated me periods. Legisla ve and policy moderniza on and integra on will be cri cal. Procurement integrity will be crucial.
We are already seeing the development of the corporate power purchase agree-ment market, taking into account the need for tariff certainty, reliability and sustainability.
Countries are reconsidering their ener-gy mix, both from a na onal and region-al perspec ve taking into account the principles of sustainability, innova on, customer choice, bankability, de-car-boniza on, digi za on and the fulfi l-ment of their interna onal and regional obliga ons.
Water scarcity could also see the need to evaluate the feasibility of desalina- on projects notwithstanding the asso-
ciated costs. It will not be the answer to everything, but it may help. Our energy mix is going to change, it is not just going to be what we had in the past.
We have to be able to advize across all of these new disrup ve technologies. Some of them are new and evolving and are doing so quickly. Storage and hybrid solu ons are other emerging evolving areas in the energy sector.
What contributions do you see African capital playing in the development of the infrastructure and economic advancement moving forward?
In respect of human capital, there are
some concerns about the availability and depth of human capital in some Af-rican countries which is troubling be-cause work fl exibility, mobility and agil-ity are important aspects of crea ng a modern workforce that is an asset.
At Baker McKenzie we move people around and I believe we are going to see people move around a lot more to address work needs. Our model is not the parachute in and fl y out model; we undertake extensive training with our designated African rela onship fi rms in countries where we do not have a per-manent presence.
We invest in developing human capital so we host training programs and as-certain what they need and what they are going to be exposed to. We create spaces, such as interac ve round table discussions, so that they can be exposed to trends, challenges and opportuni es in par cular sectors. We give them the tools to get involved in the narra ve and then we support them to allow them to prosper.
The availability of funding and associ-ated terms will be crucial to addressing the infrastructure defi cit. Innova ve funding models and prac cal imple-menta on of localiza on requirements in respect of goods and services will be required. Measurable training and skills development goals must be established.
The prediction for Africa is that mergers and acquisitions will increase until 2020. Do you see the same activity happening in the energy sector and what would be driving it?
Consumer demand, innova ve tech-nologies, projected economic growth and the pursuit of an industrializa on agenda will be catalysts for that type of development of the energy sector.
It is a catch-22, because some of this
innova on is not necessarily going to grow employment at the desired levels. Africa is going to have to make sure that it has the right skills at the right me, otherwise we are going to end
up with a lot of highly qualifi ed people with skill sets that are redundant. There are many challenges but also opportu-ni es.
Are there any major aspects of the energy sector in Africa or of your practice that we have not talked about?
It is going to be innova ve, fast moving, demanding and highly compe ve. On energy transac ons, lawyers s ll have to work closely with fi nancial and tech-nical colleagues - it is truly mul disci-plinary.
We are just one of the players. We have to have rela onships with all the other disciplines, as well as collegiate rela onships with our compe tors, be-cause they will be on the other side of the transac on. We have to get all of these deals done. It is no use showing everyone how clever we are, we have to show them how prac cal and solu on orientated we are, which is very import-ant in a dynamic sector and what clients demand. We need to assist clients to navigate an evolving sector.
It is going to be an exci ng place and I think junior professionals will like this space because its innova ve and the re-sults are tangible.
Baker McKenzie is a global law firm that operates across 47 countries with 77 offices. Because of this, the firm is considered one of the largest law firms in the world, ranking second in the world’s top five biggest law firms list.
What attracted Baker McKenzie to the South African market?
Our Johannesburg offi ce has been open for about six years, it is one of three offi ces in Africa, the other two are in Casablanca and Cairo. In the countries that we do not have offi ces we have formed rela onships with African fi rms.
Baker McKenzie is a client-focused fi rm, because of this; we follow the cli-ents around the world. The strategy is to grow work mandates in Africa. Some African countries have the highest growth rates projected, and for Africa to achieve its full poten al, the defi cit in infrastructure, par cularly power, transport and social infrastructure, must be addressed in a sustainable manner, taking into account technolog-ical advances, the need for job crea on, de-carboniza on, digi za on and con-sumer choice.
However, addressing the power defi -cit throughout Africa is not without its challenges. We have to monitor global
trends, opportuni es, and challenges, using our global pla orm.The energy sector is where a lot of the innova on is likely to happen, especial-ly with society relooking exis ng elec-tricity supply models that do not meet demand suffi ciently and are in many instances outdated, and not fi t for pur-pose. The type of technology that has tradi onally been used to produce elec-tricity is likely to change, taking into ac-count sustainability, aff ordability, speed to market and customer choice.
Renewable energy has become very im-portant, regarding the UN’s Sustainabil-ity Development Goals and Africa 2063. Regionaliza on strategies and objec- ves are also important. We think that
we are going to see a lot more regional coopera on and intra-Africa trade.
We must keep to the basics, keep it sim-ple and adhere to the economics under-pinning the projects.
How much innovation within smart power are you expecting to see coming from Africa and the rest of the world? Do big African markets have the regulatory frameworks and business climate to encourage innovation?
Regulatory and policy certainty, polit-ical will and leadership, credit worthi-ness, ownership and availability and project bankability in Africa are major
concerns for investors. Bilateral invest-ment trea es and tax regimes, including the existence of double tax trea es, are also important to facilitate investment.
Project development is a mul -pronged approach. I think we are going to see the African Development Bank (AfDB) and other development fi nance ins tu ons play a big role in the fi nancing of infra-structure across Africa.
Are the intellectual property frameworks strong enough to encourage people to patent and invest?
Technological innova on across the project value chain of both primary and enabling infrastructure, digi za on, and the advent of blockchain technolo-gy, are going to be game changers in in-frastructure, mining and energy. That in itself is likely to encourage investors to enter new markets or expand.
What have been some key changes in Baker McKenzie South Africa’s operations over the years? How is the environment and societal participation likely to contribute to the future of the country’s energy mix?
In the past, South Africa relied on state-owned Eskom to do everything in the electricity supply chain, but today soci-ety is examining alterna ves, taking into
RESTRUCTURING MODELS
Kieran WhytePartnerBaker McKenzie
41
INVESTING IN ENERGY
South Africa boasts the highest level of demand for energy across the continent. It’s renewable energy industry, coupled with a major recent off shore gas discovery, provides an attractive environment for investment.
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Africa Energy Series | South Africa
meters, Total and its partners are set to acquire 3D seismic data this year, fol-lowed by up to four explora on wells on the license. Block 11B/12B is operated by Total (45 percent), Qatar Petroleum (25 percent), CNR Interna onal (20 percent) and Main Street – a South African con-sor um comprising a 10 percent working interest in the prospects. Total claims that the fi nd could uncover around one billion barrels of global resources, gas and con-densate light oil – helping to open a new hydrocarbons province in South Africa.
According to South African President Cyr-il Ramaphosa, the oil and gas discovery could cause ripples in the energy sector: “This could be a game-changer for our country and will have signifi cant conse-quences for our country’s energy security and the development of this industry.” He adds that cabinet would con nue to de-velop legisla on for the sector to ensure that it is properly regulated for the inter-ests of all concerned.
As such, Minister of Mineral Resources and Energy, Gwede Mantashe, plans to separate oil and gas from the Mineral and Petroleum Resources Development Act, implemen ng separate legisla on for the oil and gas industry, which would deter-mine all terms and condi ons that apply to oil and gas licenses, for all industry par- cipants including future poten al inves-
tors. Drilling for oil is capital-intensive and high risk by nature, with li le certainty for success, making solid legisla on and gov-ernment policy vital for investment in the industry.
Addi onally, Minister Mantashe called for South Africans to embrace foreign inves-tors interested in pouring resources into the local economy: “In the long run, the discovery will have a posi ve impact on our energy needs. South Africa is in the global economy; it is not an island state, a barrier or apartheid state. Therefore, global companies will come to South Afri-ca and we must prepare for them.”
Financing Energy
With the government’s commitment to a more reliable, cleaner mix, energy fi -nance has become a key component of the overall strategy. Lenders are required to shi their business models to suit the new demand that originates from energy producers. Too many operators are s ll implemen ng similar funding structures, such as selling to state-owned enter-prises with a government guarantee. It is necessary for fi nancial ins tu ons to move towards a model where they can play their ac ve role as a posi ve agent in the energy industry transforma on. Al-though the African private equity market is s ll in its early stages, South Africans are seeing increasing appe te from in-terna onal investors. Hence, educa ng investors and reducing the gap between perceived risks and actual residual risks remains a priority for deal-making.
Several banks have managed to provide fi nancing for a large number of projects over the last years. Nedbank has success-fully funded 42 energy projects to date, in line with the REIPPP program, totaling a value around $2,5 billion. Its Energy Fi-nance en ty has allowed Nedbank the be the leading bank in support of the renew-able energy industry.
One of South Africa’s other major banks, Standard Bank, has already funded sev-eral REIPPP projects, commi ed $1,4 bil-lion last year to renewable energy proj-ects, in partnership with China-based Industrial and Commercial Bank of China (IBC). Twenty percent of Standard Bank is owned by ICBC and hopes to facilitate the entry of investors into the country, while strengthening its posi on as a leading funder of South Africa’s energy transforma on.
In an eff ort to demonstrate their commit-ment to suppor ng na onal goals, both banks as well as FirstRand, signaled in the previous months that they will stop
funding coal-based power projects unless they meet very strict criteria. In line with Minister Mantashe’s stance regarding coal, banks are open to discuss technolo-gy solu ons for clean coal.
A Safe Investment Desti nati on
Not only is the country’s banking sector ranked 37th globally for fi nancial sound-ness, but South Africa is also a member of the World Trade Organiza on and boasts enhanced access to global mar-kets through bilateral agreements with most major trading partners. South Afri-ca has world class equity and debt capi-tal markets and the Johannesburg Stock Exchange (JSE) is one of the world’s top 20 exchanges, with a market capitaliza- on of $1.11 trillion. South Africa’s major
primary and secondary equity and bond markets – based at the JSE – represent a market capitaliza on-to-GDP ra o of 312 percent.
The government’s long-term energy plan is detailed in the dra IRP 2018 that was released for public comment. Insofar as providing a roadmap for planned energy genera on, the dra plan outlines how South Africa’s energy mix will evolve over the period leading to 2050. Both the gov-ernment’s energy policy and Gas U liza- on Master Plan agree that, by increasing
the amount of natural gas in South Afri-ca’s energy mix, the country could move away from coal and imported crude oil.
This will restore confi dence in South Africa as an investment des na on, through the consistent implementa on of robust energy legisla on and policies that will facilitate direct foreign invest-ment and in turn assist with job crea on and skills development. Certainty is also needed across other sectors that rely on the energy sector including the min-ing, industrial and commercial sectors, with transparency and integrity in the procurement of all goods and services a necessity.
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Arti cle
Renewable Energy Investment
South Africa’s renewable energy sector has experienced explosive growth in re-cent years seeing over $200 billion in investment. Due to this rapid investment in sector growth, South Africa is now the ninth-leading des na on for clean ener-gy investment among 20 of the world’s developed and emerging economies. A suppor ve policy environment and se-cure investment framework provided by the country’s Renewable Energy Inde-pendent Power Producer Procurement (REIPPP) program can be a ributed to South Africa’s leading posi on.
South Africa has one of the most suc-cessful and progressive renewable ener-gy programs in the world, which has led to the country becoming an a rac ve energy investment des na on – with in-creases in small medium and micro-sized enterprises (SMMEs) focusing on renew-able energy, an infl ux of global large-scale energy project developers as well as local and interna onal investors. The green economy has been iden fi ed as one of South Africa’s top 12 job drivers, poten ally contribu ng to the crea on of fi ve million jobs by 2020.
In 2003, the South African government signed-off on private-sector par cipa- on in the energy sector, deciding that
future power genera on capacity would be split between state-owned Eskom (70 percent) and Independent Power Produc-ers (IPPs) at 30 percent. As a result, IPPs began by par cipa ng in a compe ve bidding and selec on process, and from
there built electricity genera on infra-structure – since there is independent project fi nancing, any cost overruns are borne by the IPPs themselves and not passed onto the public through increased tariff s. The bidding IPPs also have to meet local economic development require-ments.According to the IRP 2018 dra , 17,800 megawa s (MW) of the 2030 target, should be provided through renewable energy sources, with 7,000MW opera- onal by 2020. To this end, the REIPPP
program is centered around bringing addi onal power onto the grid through private sector investment in wind, solar, photovoltaic, concentrated solar power, biomass and small-hydro technologies. Consis ng of seven bid windows, the REIPPP program was designed to pro-duce 3,725MW of renewable energy technologies for the na onal grid – to date fi ve bid windows have been complet-ed and the program has already delivered 5,243MW of capacity through 79 diff er-ent projects.
Turning to Explorati on
Large off shore and onshore gas reserve discoveries present huge opportuni es for investment and energy genera on in South Africa and in February this year, French petroleum giant, Total, made a signifi cant gas condensate discovery on the Brulpadda prospect, located on Block 11B/12B in the Outeniqua Basin, 175km off the southern coast of South Africa.
Covering an area of 19,000km², with water depths ranging from 200 to 1,800
South Africa is the conti -nent’s leading economy and the eighth largest per capita emitt er of green-house gases globally. Simultaneously, Total’s major off shore discov-ery demonstrates the country’s commitment towards increasing explo-rati on acti viti es. Moving forward, the country’s energy diversifi cati on will necessitate deep syner-gies between the public and the private sector, especially in the fi nancial spectrums where major banks have an important role to play.
INVESTING IN ENERGY
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Africa Energy Series | South Africa
PIC’s key economic sector strategies is to spur electricity generation through investment funds from its clients.
Independent Power Producer office (IPP) Office and renewable energy
The Renewable Energy Independent Power Producer Procurement (REIPPP) program is a competitive tender pro-cess. It is designed to facilitate private sector investments into grid-connected renewable energy generation in South Africa. As a result of the program, South Africa has achieved more investment via IPPs in four years, than in the rest of Sub-Saharan Africa over the past two decades. Bid tariffs have fallen sharply over the course of the program and the most recently awarded projects are now amongst the lowest priced grid-con-nected renewable energy projects in the world.
The REIPPP is operated by a separate DoE IPP unit that is seconded from the Public-Private Partnership Unit of the National Treasury. The DoE IPP Unit also received substantial input from lo-cal and international technical, legal and financial transaction advisors. The Min-istry of Energy makes determinations and plans what new generation capacity is needed and from which sources, and whether it should be from Eskom or an IPP.
Nedbank is considered as the market leader in the financing of large infra-structure, energy-related and telecom-munications projects across the conti-nent – as the leading South African bank involved in the renewable-energy space, Nedbank has funded 23 deals through committing R25 billion to the REIPPP, obtaining ten awards in the process.
Standard Bank supported 22 renew-
able energy projects during the first REIPPP bidding window, half of which were chosen as preferred bidders. The 11 projects – consisting of five wind and six photovoltaic (PV) projects – required combined funding of R9.4 billion. From the remaining 11 of the 22 projects backed by the bank during the second bidding window, six were chosen and included a variation of wind, concen-trated solar power and PV technology. In addition, Standard Bank has assisted in financing more than 40 percent of ap-proximately 1,760MW provided by the REIPPP since its inception in 2011.
Earlier this year, Nedbank, Standard Bank and FirstRand Bank pulled out of funding two new coal power projects in favour of greener energy sources.
Oil and gas regulations
The Mineral and Petroleum Resources Development Act (MPRDA) 28 of 2002, is the principal legislation governing the exploration and production of oil and natural gas. Petroleum resources be-long to the nation while the state, via the Minister of Mineral Resources, acts as the custodian thereof and is responsible for regulating and promoting petroleum development in South Africa. The Minis-ter may also grant or refuse applications for reconnaissance permits, technical cooperation permits, exploration and production rights and can initiate licens-ing rounds.
In September 2018, the Minister of Mineral Resources announced the with-drawal of the MPRDA in order to make room for a new Petroleum Bill that will regulate the upstream petroleum in-dustry and separate it from the mining sector. Total’s major deep-water oil find made the finalizing of the draft a more urgent matter than ever. “We need to
work speedily, to entrench regulatory and policy certainty,” Minister of Ener-gy and Mining Gwede Mantashe said in a speech. The goal is to provide full regulatory certainty to the upstream petroleum industry while stimulating growth and development.
The Petroleum Agency South Africa (PASA) advances the exploration of onshore and offshore oil and gas re-sources, regulating exploration and production activities and acting as the custodian of the national petroleum ex-ploration and production database. By application of appropriate technology, the agency promotes South Africa’s the commercial potential of natural oil and gas resources in order to attract investment, with more than $1billion spent on oil and gas exploration in the country over the last few years.
As Africa’s leading economy, South Africa has one of the continent’s strongest regulatory and institutional frameworks. Although lack of trans-parency and legislative uncertainty has hindered growth in the energy sector in the past, a new era of invest-ment is opening up. The country has implemented a renewable energy pro-curement program among the most advanced globally, putting together a strong dialogue between the public and the private sector, resulting in sizeable investments and ambitious projects. In the power sector, the government is committed to increase expenditure in the energy infrastructure scope while unbundling Eskom, with the underlying goal of providing a cheaper and more reliable access to electricity for all citi-zens. Finally, the oil and gas exploration campaigns should multiply thanks to Total’s discovery and the new petro-leum bill that will come into play in the next few months.
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Arti cle
implementing an integrated energy plan, regulating energy industries and promoting investment, in accordance with the draft Integrated Resource Plan (IRP) 2018. As stipulated in the Nation-al Development Plan, the DoE envis-ages that by 2030, South Africa will have an energy sector that promotes economic growth and development through adequate investment in energy infrastructure.
A number of acts, regulations and pol-icies guide the development of South Africa’s electricity sector, with the main guiding document being the draft IRP 2018. The IRP is a document that guides electricity provision in South Africa and is updated every two years. The plan indicates the quantities of var-ious electricity sources that will meet the country’s electricity demand in the next 20 years, guiding future energy infrastructure investments and deter-mining the country’s generation mix.
The IRP is developed in the context of the Integrated Energy Plan (IEP), which guides the country’s broader energy needs. The IEP was developed in terms of the National Energy Act of 2008 and seeks to ensure the diversity of energy supply, as well as security, by combining the objectives of the country’s climate change, energy supply and demand plans and aspirations. The primary dif-ference between the IRP and IEP is that the IRP’s focus is on electricity, its sup-ply and The National Energy Regulator of South Africa (NERSA’s) ability to grant licenses, while the IEP considers
the whole energy sector and the impli-cation of the different prices.
A number of government departments and institutions are responsible for guiding the development of South Af-rica’s energy sector including the DoE, the custodian of all energy policies and energy security in South Africa; the De-partment of Trade and Industry, which is responsible for commercial policy and industrial policy; the Department of Public Enterprises, which is responsible for the country’s energy infrastructure through its responsibility over state-owned entities; Eskom, the country’s state-owned electricity public utility that owns most of the country’s elec-tricity generation, transmission and distribution infrastructure; the South African National Energy Development Institute – responsible for achieving the objectives of the National Energy Efficiency Strategy – the main strate-gy is guiding the uptake of energy ef-ficiency projects in South Africa – with a primary function of directing, moni-toring and conducting applied-energy research, development, demonstration and deployment. NERSA regulates the electricity sector with the DoE and is the custodian department. Municipalities are the arm government that are closest to the end-users and are responsible for a large portion of electricity distribution in the country. Finally, the Public Investment Corpora-tion (PIC) is a state-owned asset man-agement company that manages assets for public sector entities. One of the
South Africa boasts the highest level of demand for energy across the continent and, therefore, necessitates strong institutional and regulatory framework to cater to its population’s needs. South Africa has recently gone through major changes regarding the regulation of energy, which will aid in moving away from heavy reliance on coal. The country currently shares a com-mon challenge with other developing markets globally: how to provide a safe, reliable power stream at a relatively competitive cost for both the produc-ers and the end-users. Partly due to oil price hikes, in 2018 South African cit-izens saw an increase in power of be-tween five and seven percent. Never-theless, an improved business climate alongside other framework initiatives give hope to the business community, as well as the population a more stable energy sector.
The primary focus of the Department of Energy (DoE) is ensuring secure and sustainable provision of energy for so-cio-economic development through
REGULATING ENERGY
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Africa Energy Series | South Africa
round four. We have gone from being solely reliant on the lowest ranking cash fl ow stream to having alternate cash fl ow profi les that are above the line.
What is the extent of Pele’s current interest in the energy sector?
In the fi rst bidding window of the REIPPP in 2012, we invested in a 36 megawa s (MW) solar concentrated photovoltaic project in Touwsrivier. To-day, within PGE the renewable energy business, we have two opera ng power plants, four projects in construc on and one project at fi nancial close, collec ve-ly amoun ng to c.1,000MW across the solar and wind technologies.
In 2013 we setup Pele Natural Ener-gy to house all our future conven on-al fi red power plants in line with the group’s strategy of a diversifi ed energy mix. PNE today, has a 340MW por olio which consists of the 300MW Khanyisa conven onal coal fi red plant in Mpuma-langa, and a 40MW Kuvaninga gas fi red power plant in Mozambique. The con-solidated Pele Energy Group por olio currently is just under 1,400MW.
We use South Africa as our base, how-ever, we are not only an African play-er; we aim to be in emerging markets across the globe. In par cular, we have iden fi ed South America as our next des na on outside of the con nent.
How has the structure of the REIPPP program supported the participation of local black busi-nesses?
Currently, the program is structured to ensure that there is a 60 percent foreign ownership element and 40 percent local ownership. In addi on, there is a mini-mum 12.5 percent BEE requirement and a 2.5% local community ownership requirement although the targeted black ownership par cipa on is 25 per-cent. The program has put in place lo-cal content thresholds that govern the procurement of all the key inputs in the power plants.
We ensured that Pele was structured with the end goal in sight; an IPP with project development, construc on, as-set management and opera onal exper- se. To this end we only worked with In-
terna onal partners that would support the vision that we had and ensured a meaningful exchange of knowledge and skills. That said, I hope that when we next look around more black and South African owned IPP’s will have emerged having built sustainable companies that will provide the power needed to fuel the economic growth required to address the countries developmental challenges.
The rules that we managed to work with have clearly been an obstacle for others
and I would be remiss if I didn’t highlight the severe challenges we have faced. In par cular, the required equity par cipa- on of 12.5 percent to 25 percent does
not necessarily mean there is easy ac-cess to sourcing the funding required to hold the targeted shares. While South Africa has a world class fi nancial market industry with dedicated development fi nanciers, being able to successfully se-cure equity funding in a project fi nance non-recourse power plant is not easy.
What are the funding options for black participants?
An IPP to some extent relies on the abil-ity to raise third-party non-recourse project debt fi nancing.
Typically, a black shareholder has ac-cess to development fi nance ins tu- ons such as the Development Bank
of South Africa and the Industrial De-velopment Corpora on and the likes of the Public Investment Corpora on to raise their equity fi nancing. All fi ve of the commercial banks in South Africa have begun demonstra ng an appe te to provide equity fi nancing. While it is posi ve that these en es exist to which we can immediately go to raise our funding, few of these en es pro-vides 100 percent funding – a typical best-case scenario results in funding of 80 percent to 90 percent from the development fi nance ins tu ons with the commercial banks only being able to provide 50 to 60 percent of the eq-uity required. The missing funds must be sourced elsewhere.
O en local shareholders struggle to fi nd the addi onal 10 to 20 percent, and therefore create a risk to receiving the 90 percent from development fi nance ins tu ons. This is more pronounced with the commercial banks. One bar-rier to accessing funding that we have encountered is that a fi nancier may re-quire access to 100 percent of the cash fl ows to fi nance the 90 percent loan, which makes it impossible to fi nd the ad-
di onal 10 percent in funding from an-other funder. A second barrier that we have experienced may come in the form of terms that fall outside of the non-re-course nature of project fi nance when it comes to the security package that the funder would want, this leads to a direct bo leneck to growth, where a funder is able to provide funding but the terms of the funding inhibit the borrower (an en- ty like ours) to do any further projects
other than fi nance that one par cular project.
On the other hand, where the share-holder can fund the 10 to 40 percent from an alternate lender, it is o en at exorbitant rates that erode the benefi t that the 90 percent leverage came with. Ul mately, many black par cipants are le with an investment that is largely there to pay off both sets of lenders and which limits their ability to par cipate meaningfully in the economics of the power plant.
On the fi nancing side, there are incon-sistencies with what the people who are meant to provide the fi nancing end up availing to black IPPs. The projects we have fi nanced from round one to round three have been through commercial banks, U.S. grants, or through raising vendor fi nancing from equipment sup-pliers who have been able to provide funding on terms that were diff erent from the DFIs. The signifi cance of grow-ing and developing our capabili es and exper se from round one to round four, and the removal of the ini al de-pendence on investment dividends, has meant that we have more of a say and contribu on in all the projects that we are involved in.
What is a solution for funding and encouraging black participation?
Between the various departments, South Africa must fi nd a way of devel-oping concessionary or grant funding at both the development and equity investment levels. Without that layer
of funding at the development stage, it could take 10 to 15 years to repay the 100 percent equity funding raised with-out any signifi cant return to the share-holder. This naturally curtails the rate and pace of growth, transforma on, and localiza on.
For us, our fi rst-round project, the Touws-rivier power plant (CPV 1), proves that this type of model can work as we were part of the late-stage development team and used the fee earned there to fund our business. More recently, we received a grant of $1 million from the United States Trade Com-mission to develop a 75MW solar photo-voltaic project in the Free State. It was the CPV 1 development fee that we received that allowed us to keep the lights on for the fi rst few years un l the next project came on, while we were wai ng for the dividends to trickle down into something substan al.
There is also a need for a bigger coordina- on or teaming arrangement between all
the various role players insofar as it per-tains to black par cipa on. There needs to be be er coordina on between the banks and the policymakers informing these pre-scrip ons.
We might need to see some sort of a charter or transforma on policy that closes the gaps where the various chains of the cycle were not adequately ad-dressed from an equity perspec ve. More importantly, we now need to pre-scribe a certain minimum level of ac ve opera onal black involvement. South Africa must move away from only incen- vizing black par cipa on from an equity
perspec ve.
South Africa does not need a further class of investors in energy. South Africa really needs an alterna ve to the single generator being the state-owned Eskom - and that won’t be through a black ener-gy investor. That can only come around through the establishment of a South African, black energy provider, a black IPP, or a black u lity.
How has Pele grown since its first entry to the market?
From the perspec ve of Pele Energy Group as the holding company of Pele Green Energy (PGE), Knowledge Pele and Pele Natural Energy (PNE), our goal has always been to develop, own and operate both renewable and con-ven onal power plants. We develop our own projects from green fi elds to construc on and ul mately through to the opera ons phase where our team manages the day to day running of the power plants.
When we started Pele, we were ada-mant that we were not building another black investment vehicle, our view was that South Africa had adequately cked that box through the fi rst decade of Black Economic Empowerment (BEE) transac ons, but rather an Independent Power Producer (IPP) with the long-term view that it will become a future privately owned u lity.
From round one through to round four of the South African Renewable Energy Independent Power Producer (REIPPP) program, we have been successful in almost every bidding window, barring round two.
Essen ally, we have grown from wear-ing one hat at the table to occupying several key parts of the value chain in
Interview
FINANCING TRANSFORMATION
Gqi RaolekaManaging DirectorPele Green Energy
49 50
Africa Energy Series | South AfricaInterview
What regional trends in the power sector have stood out in 2018?
As a bank we are seeing more region-al integra on through cross country distribu on projects, as na ons seek to align themselves with regional ini- a ves or projects put forward, some- mes supported by development ins -
tu ons such as the World Bank and the African Development Bank.
As a commercial bank we follow and track informa on and research to allow us to unpack markets to poten ally un-lock and develop these opportuni es. For example, there is already a high lev-el of energy interdependency between South Africa, Botswana, Zimbabwe, Na-mibia, Zambia and Mozambique. Each of these countries has energy objec ves, but they can’t be individual genera on hubs for the region. There is quite a lot of discussion between South Africa and Mozambique, on the back of some of the upstream gas developments, main-ly around how the two countries could poten ally benefi t from gas to support
power genera on. There is also the Batoka Gorge hydro project between Zimbabwe and Zambia. In 2018 alone, we have seen a lot of close collabora- on in the Southern African Develop-
ment Community region and it is quite remarkable to see how these countries are coming together to unlock the po-ten al of regional power projects.
Should we expect to see a stronger drive towards renewable ener-gy-based projects in coming years?
Signifi cant improvements in the cost and quality of renewable technologies are enhancing the feasibility and at-trac veness of energy projects across the world and in Africa. Combined with new ba ery storage capabili es, these changes off er investors, funders, gov-ernments and consumers a fundamen-tally diff erent energy make-up and mix - presen ng Africa with a new universe of energy ownership, supply and fund-ing opportuni es.
As the size and number of large govern-ment-funded and implemented non-re-newable power projects in Africa has decreased, there has been an uptake in smaller mixed public-private, or en rely private, off -grid power projects with ra- onal, local end-user funding.
After years of heavy infrastructure investment, what is the current state of China’s interest in the southern African energy market?
The interest from China has been diver-sifi ed. The fi rst drive of Chinese inter-est was from engineering, procurement and construc on (EPC) contractors, par cularly in East Africa, for example in Kenya. However, more recently we have seen an increased focus from new investors focusing on Zambia and Zim-babwe, and have also seen a shi from EPC-type investments to more involve-ment throughout the project develop-ment and equity phases. This is encour-aging in terms of regional development.
It is also fair to say that a number of China’s investors, such as PowerChina, have been successful in tapping into the trend for regional power projects, and I think there is more appe te for these types of investments.
What role has Standard Bank played in the latest round of renewable energy projects arising from Eskom’s power purchase agreements?
A er a long delay, Standard Bank is the mandated lead arranger, underwriter and hedge provider of seven of the to-tal 27 projects which have signed pow-er purchase agreements with Eskom as part of South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) program. Stan-dard Bank was the fi rst bank to close a project under the latest fourth bidding round, with a total of four projects al-ready closed.
Collec vely, the four projects already closed, being the Sirius, Dyasons Klip 1 and Dyasons Klip 2 solar projects in the Northern Cape and the Wesley-Ciskei wind project in the former Ciskei region of the Eastern Cape Province, will add 258MW of renewable energy to South Africa’s na onal grid. The four projects represent a combined investment of $457 million in South Africa’s renew-ables sector.
The three Northern Cape solar projects, being constructed by Norway’s Scatec So-lar ASA were among the fi rst projects to reach fi nancial close in the current round of the REIPPP program.
In addi on to providing innova ve funding structures, crowding in asset managers and capital markets, the three Scatec projects were also signifi cant, as they represent the fi rst me that Standard Bank has provided infl a on linked consumer price index debt to a renewable energy project. Once com-missioned, Scatec will have a por olio of six solar projects in South Africa.
HEDGING INVESTMENT IN RENEWABLESRentia van TonderHead of PowerStandard Bank
Interview
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Interview
Africa Energy Series | South Africa
JSE LISTEDINFRASTRUCTUREINVESTMENT
Prudence LebinaCEOGAIA Infrastructure Capital
What have been GAIA’s biggest milestones to date?
Achieving our JSE lis ng and acquiring quality assets in a short period of me, and within the investment criteria, have been some of our biggest achievements to date. We are one of a few JSE listed infrastruc-ture companies and we were the fi rst to be listed in that space as a special purpose ac-quisi on company (SPAC).
Addi onally, soon a er acquiring our fi rst asset, we moved out of the SPAC index into the investment services index and have been able to return some funds to our shareholders. We paid a dividend in our second year of opera on and a further divi-dend this year off ering shareholders stable infl a on-linked dividends.
What are some of the key assets in GAIAs portf olio?
GAIA has two wind assets, and a further three solar assets under the Renewable Energy Independent Power Producer Pro-curement (REIPPP) program. However, our investment policy is not only restricted to energy; we operate as a Southern Af-rican diversifi ed infrastructure investment holding company. We have a R1.7 billion investment pipeline which spans energy infrastructure, water and sanita on and transporta on.
What are the advantages and challenges of being a listed company for the purposes of funding projects?
As an investment holding company, we use diff erent fi nancial instruments, directly or indirectly giving economic benefi ts and re-turns that are expected to meet the target investment returns, to acquire assets. We raised R550 million upon lis ng and we de-ployed R501 million of that to our fi rst as-set, Dorper Wind Farm. Our second asset was funded by Rand Merchant Bank using a preference share structure to invest in Noblesfontein Wind Farm.
To fund our pipeline, we con nuously
engage with exis ng investors, as well as prospec ve investors to provide us with support and equity capital, so that we can realise the a rac ve superior risk-adjusted returns. We look to partner with the long-term savings industry in matching their long-term liabili es through our investment in low risk, uncorrelated infl a on-linked cash fl ows.
For us, compliance, governance, and making sure we do what needs to be done in terms of the JSE Lis ngs Requirements has been cri cal. Because we are smaller, prudently managing our cost base is our key focus at the moment whilst trying to raise capital to pursue more investment opportuni es.
Although we compete with listed and un-listed players for the same assets, being listed enables access to capital that unlist-ed players would not easily access. What sets us apart is that our management team is able to source good quality assets at fair valua ons through detailed assessments by conduc ng thorough due diligence and ne-go a ng the best investment for our share-holders.
How does GAIA select its assets and opportuniti es?
GAIA’s primary focus is the secondary mar-ket in infrastructure equity where invest-ment opportuni es are not dependent on whether new infrastructure projects are being developed. We focus on core infra-structure assets for which cash fl ows can be forecast with a low margin of error. We only invest in opera onal or near-opera onal as-sets, being projects that are not more than six months from commercial opera on, assets that are income genera ng and can deliver a minimum gross internal rate of re-turn of CPI + 6% over the life of the o ake or concession agreement. The assets must have a visible Environmental, Social and Governance (ESG) policy apprecia on and an acceptable third party credit risk expo-sure.
This is what a racts us to renewable ener-gy. With the REIPPP program in South Af-
rica, there is a long term power purchase agreement backed by a sovereign guaran-tee, off ering certainty for the subsequent cash fl ows.
Right now, our investments are only in South Africa, but our shareholder-approved geography mandate is Southern Africa and the Company is con nuously assessing op-portuni es outside South Africa.
What does the signing of the 27 outstanding independent power producer agreements mean for the company and what opportuniti es does it present for the economy?
GAIA shares the posi ve industry sen ment that followed the signing of the 27 Round 4 and Round 4.5 REIPPPP projects. For South Africa, these projects presents opportuni- es for job crea on mostly for the youth;
black economic empowerment; and pover-ty allevia on through strategic black equity partners and community involvement. The localiza on poten al of these projects is signifi cant with job crea on across the en- re value chain including the manufacturing
sector.
We see the tangible diff erences at ground level, where these assets are located and the diff erences they make to the commu-ni es from suppor ng small and medium enterprises and inves ng in educa on through suppor ng learners from the com-muni es. That is social investment and we welcome it.
Policy certainty is a key requirement in at-trac ng private capital to any investment and the involvement of the private sector in long term infrastructure investment has a cri cal benefi t to South Africa as it not only results in increased access to capital but can also assist in higher opera onal effi ciencies and improved project management. The ex-pedience in which both the private sector and Government work together in inves ng in infrastructure can yield posi ve results including contribu ng to the s mula on of the much-needed economic ac vity in our country.
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What factors led to the joint venture between you and Africa Finance Corporation (AFC) creating the electricity giant, Anergi Holding? What complementary skills are you both bringing to the table?
AFC and Harith have a similar genesis. We were supposed to be launched as a single company from the start. For several reasons, we decided to form two different companies, AFC in Nige-ria and Harith in South Africa. I walked into AFC for the first time at the end of 2007 and we have been working together ever since. Late 2008-2009 saw our first joint investment and we have entered several projects togeth-
er since then. We jointly invested in the Henri Konan Bedie toll bridge in the Ivory Coast. AFC and Harith have a similar experience and vision when it comes to developing projects and identifying strong potential markets. We have shared successes and have developed best practices to overcome certain challenges. A lot of people talk about their ambitions and what they want to achieve; we talk about what we have achieved. This mindset makes a big difference when building a com-pany such as Anergi. AFC invested in Ncondezi Energy’s power plant and Harith has supported several projects, such as the Lake Turkana wind turbine, the Amandi power plant, the Azura power plant and others. AFC is a strong player on the debt market whereas Harith Investments has extensive ex-pertize in the equity market. Our do-mains of competence and experience complement each other well and will benefit Anergi in the long run. Further-more, we bring a diversified platform to the table and plan to increase our geographical footprint thanks to our presence in two different countries, added to the fact that projects we have supported come from different areas of the continent. Currently, Anergi has two projects that are operational, an-other two under construction and we have a healthy pipeline in the backlog. From day one, we were able to create a bankable platform which is poised for growth and we feel we can do more to-
gether than we could individually, due to the fact we have managed to turn our complementary convictions into this single platform, Anergi.
How does Anergi position itself in terms of financing projects?
Anergi is an equity player. AFC has historically shown strong expertize when it comes to debt and given the nature of the projects we undertake; risk capital is our main focus. We are fortunate enough to have extensive associated experience in these do-mains and we share a clear vision of how we want our company to support the development of African projects. We are an equity player and want to stay one.
What, in your opinion, is the level of readiness and involvement in technology in African energy companies?
As a fund, we are quite invested in the Information Technology sector. We have an investment in an Inter-net of Objects business, Sqwidnet, so we can gain skills and exposure when it comes to technology and the tre-mendous developments that are go-ing on worldwide. Sqwidnet (as the licensed Sigfox operator in South Af-rica, Sqwidnet is a network allowing long-range object to object communi-cation at low data rates) is now at the
Interview
54
Africa Energy Series | South Africa
stage where it covers 85 percent of the South African population, mean-ing the country is ready to use such products immediately – even if some of them are still at the stage of proof of concept. The African continent is blessed with an opportunity because a lot of the heavy lifting, when it comes to technological innovation and R&D, has been made elsewhere. We are not looking to invent products; we are looking to tailor products to the Afri-can population. The cost of technolo-gy adoption has shrunk tremendously and we are providing a solution that helps companies adopt technology to solve problems. From an energy point of view, we are tailoring IoT solu ons for power plants and using technology to address challenges.
What types of technology products can be applied to the energy sector?
Many technology projects related to energy are s ll at the proof of concept stage. IoT-based emissions tests, for ex-ample, proac vely let you know when you are reaching a certain limit of emis-sions in a power plant. The key is auto-ma on, we must fi nd devices that can iden fy an issue and repair it without human interven on. The energy sector is an endless market for technology; proac vity and automa on are the two keywords in this business.
How can international synergies help South Africa’s export market?
The need for interna onal synergies is an issue for Africa as a whole. To increase your level of skill, you must iden fy the best prac ces and the best people to learn from them. Each or-ganiza on, company and country has a limited set of skills and knowledge, which can only grow if we adopt a pro-ac ve outlook and trigger partnerships. An old Africa adage states ‘If you want to go fast, walk alone, but if you want to go far, walk together.
The need for internati onal
synergies is an issue for Africa as a whole. To increase your level of skill, you must identi fy the best practi ces and the best people to learn from them
MERGING ASSETS TO BRING POWER TOAFRICA Sipho MakhubelaMD: Investments Harith Investments
55
Engineering and Architecture fi rm GIBB’s power division, which features French electricity giant EDF as a shareholder, off ers an array of services in several areas such thermal and hydraulic, power transmission and distribu on networks, as well as services in power and wind. The company aims to support the country’s government’s vision to diversify and clean its energy mix.
As a recently appointed managing director of GIBB Power, what assets and experience do you bring to the table?
I have a long standing experience and pres-ence of over 20 years in the sector, having been involved with Africa’s biggest energy u lity and with organisa ons such as the South African Na onal Energy Associa- on, serving as a board member and as its
current chairman. I’ve played key roles in strategic, opera onal and entrepreneurial ac vi es across the power value chain with some of my highlights in key roles in ener-gy trading and bidding, overseeing the safe and eff ec ve produc on of electricity from a fl eet of power plants, managing an inte-grated primary resources procurement, op-era ons and logis cs func on and business strategy and op misa on. My passion for the sector and entrepreneurial spirit most likely made the decision an easy one.
I aspire to develop and grow GIBB Power as a business that has a vital and impac ul
presence in Africa, providing sustainable, cu ng edge solu ons to power challenges, off ering more value-added solu ons to its clients and most cri cally, ensuring this is done in a responsible and ethical manner. We are very embracing of the Energy Tran-si on 4.0 and its poten al disrup on to the sector and are ac vely seeking oppor-tuni es and solu ons to build agility and resilience into the transi onary process.
How is GIBB Power developing its turnkey capabiliti es throughout the conti nent?
The enablement and development of turn-key capabili es is about using opportuni- es to deepen our service off ering and
leveraging exper se. GIBB Power u lises the broader Group Enterprise PMO, GIBB Capital and other GIBB Service lines to focus on construc on management and engineering services to provide specialist project development, design and services which unlock the fi nancing and implemen-ta on of projects. Services such as project planning, viability and demand analysis, bankable feasibility study development and much more is off ered to our clients.
What synergies are created with French power giant EDF, who holds a 30 percent stake in GIBB Power since last year?
The partnership has been fully eff ec ve since the signing of the agreements. We are working jointly on developing the in-
terfaces and points of integra on that will give eff ect to the intent and value propo-si on of the partnership. The partnership builds on the exper se, experience and credibility of both en es enabling an en-hancement of value based outcomes to clients. For GIBB Power the partnership represents an enhancement of its skills and exper se from the vast experience of EDF as a power developer, operator and investor across the world and for EDF, GIBB Power increases its ability to extend its vast capability into local and regional opportuni es.
Some of GIBB’s major milestone projects completed in South Africa include the Ingula Pumped Storage Scheme, the Gautrain, Cosmo City and Greenpoint Stadium. What does GIBB att ribute its success to in undertaking these projects?
GIBB is a historically credible professional business that understands the importance of maintaining a good reputa on through demonstra ng quality service delivery. Through experience and learning, GIBB goes above and beyond service delivery to provide solu ons that make a real diff er-ence and adds great value.The focus is on pushing forward the spirit of Ubuntu, being authen c and genuine with clients with an engaged workforce who aren’t afraid to take risks for the cli-ent’s benefi t. We are agile and resilient, embracing new technology and strategies that drive us to be at the forefront.
Interview
GIBB POWER TO PROVIDE SOLUTIONS TO SOUTH AFRICA’S ENERGY TRANSITIONKiren MaharajManaging DirectorGIBB Power
BRING YOUR A-GAMEIF YOUR A-GAME IS AFRICA
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Centurion Law Group is a pan-African corporate law conglomerate, with a specialised
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58
Africa Energy Series | South Africa
lending capability, so local banks do not get involved in hard currency funding, which instead tends to be provided by Development Finance Ins tu ons (DFIs).
As far as local lenders are concerned, I would not expect too much innova on out of the local commercial banks. They have lending commi ees to sa sfy, are under the scru ny of the South African Reserve Bank, and are subject to inter-na onal lending guidelines and proto-cols.
There is a big appe te for what one could call vanilla project fi nance in the South African market and most of the REIPPP projects take good advantage of that availability. But very few countries in Africa are able to fi nance large infra-structure projects in local currency so most are dollar denominated, relying on the DFIs for funding. This gives rise to currency risks – a huge challenge across most of the con nent.
What has been the involvement of
private equity players thus far, is there potential for provate equity investment to grow?
That depends on who the private equi-ty players are. Generally speaking, we have found that they tend to enter at a certain level of de-risk. We do not fi nd private equity playing a signifi cant role in the development phases of projects and that is usually le for the interna- onal sponsors – either as Engineering
Procurement and Construc on (EPC) contractors or Own Equipment Manu-facturers (OEMs).
What is your outlook for the power sector?
From a regulatory point of view, I think the local content, employment and ownership requirements in future pro-grammes are going to become more stringent. That is fi ne from a domes c investment perspec ve, but may be a deterrent for interna onal invest-ment, par cularly given the uncertainty around South Africa’s sovereign ra ng.
But the signals are promising, and it is quite likely that one or other energy program will be launched in the near future.
What can we expect from your firm in five to ten years in terms of business strategy?
Law fi rms do not create opportuni es; they iden fy and pursue them. Our cli-ents create the opportuni es; and we need to make sure that we are ready and able to meet their expecta ons. That means really understanding the client’s needs and ambi ons and the sector in which they operate. It also means keeping fully abreast of new funding structures and trends.
From a legal perspec ve, embarking on a large infrastructure project is to enter a legal minefi eld and it is the func on of a fi rm such as ours to guide clients through that minefi eld. The advantage of employing a large fi rm, such as we are, is that we have many specialists in mul ple countries and are able to advise on a wide range of legal issues, calling on the exper se of the greater group if necessary.
Law fi rms do not create
opportuniti es; they identi fy and pursue them. Our clients create the opportuniti es, and we need to make sure that we are ready and able to meet their expectati ons.
57
Tell us about Hogan Lovells and its presence in Africa.
We are a large interna onal law fi rm with head offi ces in Washington and London. We have a strong and ac ve Africa-focused team, headed by a Lon-don-based partner. We in the Johan-nesburg offi ce naturally tend to focus on the Southern African region with our colleagues in Paris, Dubai, London, and Singapore covering the rest of the con- nent in varying degrees, depending on
sector, local laws and language.
What have been the key drivers of success of the Renewable Energy Independent Power Producer Procurement (REIPPP) program in South Africa compared to similar programs on the continent?
One of the reasons that the REIPPP in South Africa has been successful, more so than programs elsewhere in Africa, is that South Africa has a strong regu-latory environment in which applicable laws are clear and the processes well structured. When requests for propos-als (RFPs) are issued, they set out very clear guidelines allowing one fully to understand what the requirements are in terms of local par cipa on and con-tent, price compe veness, non-nego- able agreements, etc.
The country also has sophis cated banking and legal systems, which makes
it rela vely easy for sponsors to oper-ate in the country. Our exchange con-trol rules and regula ons also support foreign investment into these projects. And the fact that local South African banks have the appe te and ability to provide virtually all of the loan capital to these highly geared projects is a big factor in the success of these programs.
How do you assess the equity participation of institutional investors, both domestic and international, in the South African energy sector?
Sponsors are a racted to opportuni es such as the REIPPP for varying reasons. Some may be looking for ways to in-crease sales of their products (such as wind turbines), others may be construc- on companies looking for ways to keep
their order books full. Some may even wish to add the investment to a por olio of similar projects. But it all depends on the poten al returns on off er.
The internal rate of return of a project is of prime importance. If an opportu-nity does not project a certain level of return, no investors or sponsor will be interested. Sponsors tend to take rel-a vely short-term views and are more interested in seeing the project through to commercial opera on date (COD), which is a signifi cant milestone in these projects, look to fi nd a buyer of their investments at a profi t, given the low-
er level of risk, and redeploy the capital elsewhere. This is not always possible as, in most programs, the implemen ng authori es require that sponsors hold their investment for a certain period of me.
Ins tu onal investors become more in-terested in these investments a er cer-tain key milestones have been achieved as they tend to have longer investment horizons given the nature of their busi-nesses. Their return objec ves may be lower than that of the sponsors (given the lower risk levels) which, poten ally, allows the la er to exit at an a rac ve profi t, in addi on to any development fee they may have earned. Milestones that generally signify lower risk are nomina on as preferred bidder, fi nan-cial close, construc on comple on and COD.
For the reasons men oned there is-generally good local appe te for these projects. The bigger challenges lie in the countries to the north of South Af-rica where currency risk and the weak-ness of sovereign balance sheets pro-vide challenges.
What can be done to provide more innovative financing for projects through banks?
Banks in South Africa are heavily reg-ulated and tend to be conserva ve. In South Africa we have a strong rand
Interview
A QUESTIONOF RISK ANDRETURNCharles MaraisCounselHogan Lovells (South Africa)
59
RENEWABLE ENERGY
South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) program is one of the most successful renewable energy programs globally. The program has miti gated decreased economic development growth, att racted foreign direct investment and boosted job creati on and socio-economic development throughout the country.
60
Arti cle
Africa Energy Series | South Africa
half of 2018, with 27 projects awarded during 2019 from the round 4 window.
At June 2018, the average lead me for projects to complete construc on was recorded at 1.9 years, with 99% of IPPs having started commercial opera ons on schedule.
More than 38,184 GWh of energy had been generated by renewable energy sources procured under the REIPPP pro-gram since its incep on in November 2011. In total, 6,422 MW of electricity was procured from 112 IPPs, of which 20 were small scale IPPs not falling un-der the larger REIPP program. Of the total power procured, 3,976 MW has been commissioned. Compared against na onal targets, the commissioned en-ergy in opera on by 2019 met 57% of a 7,000MW target for 2020, and 22% of government’s 17,800MW target for 2030.
In total, the program has a racted R209.7 billion in investment, of which 20% is a combina on of foreign capital and equity investment. The 27 renewable projects announced in 2018 are expected to pro-vide R8.3 billion in foreign investment and a further R58,4 billion investment in domes c investment.
Policy
The REIPPP program serves as the primary initiative by government to realize national renewable energy ob-jectives set out in the Integrated Re-sources Plan (IRP).
The dra IRP sets out a plan to increase the relevant share of renewables – while removing more capital intensive nucle-ar power builds from the proposed en-ergy mix. According to the dra plan, 8,100 MW of wind, 8,100MW of gas, 5,670MW of solar PV, 2,500MW of hy-dro, and 1,000MW of coal will be built between 2019 and 2030.
Onshore wind, solar photovoltaic (PV), concentrated solar power (CSP) biomass, landfi ll gas, small hydropower and biogas are included under the program. Through private sector genera on of energy through these resources, the program aims to meet mul ple objec ves including the allevia on of the country’s shor all in energy supply, achieving sustainable development and environmental com-mitments, and ensuring socio-economic upli ment within the country.
Role players
The program is administered by the Inde-pendent Power Producers Offi ce (IPPO), an offi ce of the DoE responsible for ini- a ng the RFP, evalua ng proposals,
and compiling the legal framework in-cluding the fi nal power purchase agree-ment (PPA).
Eskom is responsible for both energy generation and management of the national grid. Consequently, the utility plays an important role in the REIPPP program by granting access to the grid through tis Grid Access Unit (GAU) and serves as the off-taker under the PPA.
The Renewable Energy Independent Power Producer Procurement (REIPPP) program was launched in 2011 by the De-partment of Energy (DoE), the Na onal Energy Regulator of South Africa (Nersa) and, state-owned power u lity, Eskom. The program encourages private sector investment to develop South Africa’s re-newable energy industry.
Lauded as one of the most successful Inde-pendant Power Producer (IPP) programs interna onally, the REIPPP program has a racted signifi cant interna onal invest-ment while driving down the capital costs of renewable energy over me.
Key Indicators
The program takes the form of an open tender process – or bidding model – to procure renewable energy. By placing upper caps on the bids, the eff ect of the bidding process has been a steady drop in tariff s over successive rounds, poten ally leading to grid parity.
According to the DoE, the average por olio costs of all technologies under the REIPPP program stood at R0.96/kWh in April 2019 terms. By way of comparison, the whole-sale cost of Eskom’s Medupi and Kusile coal fi red plants constructed by Eskom are es- mated at R1,40/kWh and R1.05/kWh at
April 2019 terms respec vely.
The fi rst bid window was launched in November 2011 and the DoE has sub-sequently awarded preferred bidders for rounds 1, 2, 3, 3.5, and 4. In total, 92 proj-ects have been awarded to IPPs by the fi rst
TRANSFORMINGSOUTH AFRICA’S ENERGYLANDSCAPE
The REIPPP Program
61 62
What was the basis for selecti ng a bid-in tariff for South Africa’s REIPPP program?
In 2009, the Na onal Energy Regulator of South Africa (NERSA) approved The Renewable Energy Feed-in Tariff (REFIT) policy where tariff s were designed to cover genera on costs plus a real return on equity of 17 percent, fully indexed for infl a on. There was uncertainty in the market about the legality of feed-in tariff s within South Africa’s public procurement framework compounded by delays in fi -nalizing power purchase agreements and interconnec on agreements with the na- onal u lity, Eskom. Furthermore, there
was an understanding that with compet-i ve bidding the market would fi nd its sweet spot.
The Department of Energy announced that a compe ve bidding process for renewable energy would be launched, known as the Renewable Energy Inde-pendent Power Producer Procurement (REIPPP) program.
The feed-in tariff s were abandoned, and no off -take agreement had been signed in the two years since the launch of the RE-FIT program.
While feed-in tariff s provide price certain-ty to investors, which represents lower risk for individual fi rms, auc ons of fi xed amounts of megawa s (MW), through compe ve bidding, incen vize compe -
on and drive down prices, which is be er for consumers and society at large, and aligned with the requirements of the Con-s tu on of South Africa.
Through the compe ve bidding process, the REIPPP program eff ec vely leveraged rapid, global technology developments and price trends, buying clean energy at lower and lower rates with every bid cycle, resul ng in South Africa ge ng the ben-efi t of renewable energy at some of the lowest tariff s in the world.
To what do you att ribute the success of the program?
A 2016 World Bank Case Study, en tled Developing Renewable Energy through an Independent Power Producer Pro-curement Program, highlights a number of success factors. The program off ered an expedited mechanism to roll out new, u lity scale power-genera ng capacity to broaden the energy mix, as envisaged in the Integrated Resource Plan 2010. The REIPPP program was designed to roll out a signifi cant amount of power in a very short amount of me, using transparent procurement and implementa on frame-work. High-level poli cal support, champions in government to drive the program and the largely ad-hoc, arm’s length from govern-ment, ins tu onal status of the IPP Offi ce encouraged an opera ng approach that emphasized problem solving and innova- ve thinking to make it successful.
An important lesson highlighted by the World Bank is that, regardless of size or loca on, private sponsors and investors in the renewable energy sector are seeking to invest in renewable power in emerging markets, especially when those markets adopt a business-friendly approach. If deals are reasonably profi table and key risks are mi gated in an acceptable man-ner, considerable private sector interest, exper se, and fi nancing are likely.
In many instances, a convincing case needs to be made repeatedly to jus fy the procurement of renewable energy. The REIPPP program was preceded by sever-al years of policy proposals, analy cal and market enablement work, and engage-ment with the private sector.
What was the initi al vision for the program?
In the beginning, we started with a fi ve-year window; fi ve bidding rounds, with one round a year. There were set dates for each bid window, which were published on the IPP website and were also included in the procurement documents. Although it didn’t work out exactly as planned, we remained commi ed to the vision.
There were 3,725MW new genera on ca-pacity for clean energy determined by the Minister of Energy in August 2011. The strategy was to close every deal, knowing that we wanted each bid to be successful
Interview
Africa Energy Series | South AfricaArti cle
months for bidding to reach fi nancial close and had planned to close fi ve rounds with-in fi ve years. Despite this, the fourth bid-ding window, which was opened in 2014, took three years to close a er preferred bidders were announced in 2015.
The delay in signing off on the PPA’s resulted in the closure of fourteen lo-cal manufacturing companies that served as suppliers for the renewables projects. In addi on, several IPP’s re-ported that their skilled employees had le the country to work on renewable programs abroad, while the opportuni-ty costs for unemployed construc on workers con nued to rise. IPP’s had incurred signifi cant sunk costs without certainty around the round closure and reimbursements, causing damage to the program’s reputa on.
According to local media, the delay in clos-ing round four was largely caused by Es-kom’s inability to sign off on the PPA’s as re-quired, while pressure from lobby groups and unions had worsened the problem.
The u lity claimed that the cost of pur-chasing electricity from the IPPs had in-creased as a result of the deprecia on of the rand, making the procurement of en-ergy from IPP’s unaff ordable. Several in-dustries commentators however, a ribute the delay to the now abandoned and con-troversial poli cal decision by the previous government administra on to procure signifi cant nuclear power assets at a cost of R1tn.
Shortly a er their respec ve appoint-ments in February 2018, South African President Cyril Ramaphosa and Minster of Energy, Jeff Radebe, moved quickly to ensure that Eskom signed off on 27 out-standing PPA’s, working to restore credi-bility to the REIPP program.
A fi h REIPPP bid window is expected to target 1,800MW of renewable power, and is expected to introduce revised lo-cal content and socio-economic require-ments.
Socio-economic development and sec-tor transformati on
As with similar programs in Africa and other developing countries, a key com-ponent of the REIPPP program is a com-mitment to socio-economic upli ment, local enterprise development, and local-iza on.
In Round 4, the program required that a minimum of 40% of the project value was for onshore wind and concentrat-ed solar power (CSP) with storage, and 45% of project value for solar PV and CSP, must be owned by local en es, with a higher target of 65% set. These minimum content requirements have increased by 15% and 10% respec vely from round one where a 25% and 35% local content requirement was set.
According to the IPPO, these require-ments have been put in place to s m-ulate the development of local green industry with development expected to be seen in goods and services through-out the value chain. Addi onal mea-sures have been put in place to ensure skills transfer and community upli ment through both equity and capital invest-ments in these projects.
Ownership in an IPP consor um must include a minimum of 12% sharehold-ing by black-owned enterprises, and 1% by local communi es. The construc on contractor and opera ons contractor are required to be at least 8% black owned. In addi on, a total of 2.2% of revenue is payable towards socio-eco-nomic development to improve the quality of life and human capital for ci -zens in rural areas.
Despite cri cism, the project has been largely successful in realising its policy objec ves. By the end of June 2019, R23,1 billion had been received in so-cio-economic development contribu- ons since incep on of the program
while R927.8 billion had been spent on local content.
Bidding
The bid-in model was selected by the IPPO over an earlier feed-in tariff program which was launched in 2009 with limited success. The selec on of a bid-in tariff permi ed the IPPO to leave the determina on of the tariff in the hands of the market. Earlier a empts at modelling the feed-in tariff re-sulted in a tariff which was too high rela ve to the cost of genera on by Eskom.
The criteria used by the IPPO to evaluate bids considers the price bid by IPP’s (70%) and compliance with socio-economic crite-ria (30%) such as job crea on and commu-nity upli ment.
Each bidding round, known as a bid window, is announced by the release of a request for proposals (RFP), in response to which bid-ders are to submit their project bids. Project developers are required to select poten al sites and resources, undertake associated measurements, conduct environmental as-sessments and enter into land agreements while Eskom provides support through se-lec ng line routes and substa on sites and providing access to the grid.
Typically, developers take a por olio ap-proach to projects, and shortlist their bids before entering the tender process. The process can take between two and four years before reaching the bidding stage depending on the type of technology. So-lar projects are usually ready for bid in two year, half the me as that required for wind.
Once a project is bid, the IPPO issues a let-ter to preferred bidders who are then re-quired to bring the project to fi nancial close. At this point developers are reimbursed by the IPPO for certain costs outlaid and are able to collect a development premium from equity and consor um partners. Es-kom is then required to sign the 20-year PPA before construc on begins on the project.
Challenges
The IPPO has targeted a period of 12
REIPPP-ING THEREWARDS
Sandra CoetzeeActing HeadIndependent Power Producer Office (IPPO)
Ini al interview by former Head of the IPP Offi ce, as confi rmed by Ac ng Head of the IPP Offi ce September 2019
63 64
based on the electricity shortage at the me. This required commitment from
lenders before the bidding process which is unusual in most programs, as banks only come in much later a er bids are award-ed. However, it was necessary. What we needed was the ability to close the deals and then kick start the development as quickly as possible.
It was also fundamental for the program to have black economic empowerment, socio-economic development, community upli ment and entrepreneurial develop-ment due to the history of South Africa. We knew it was non-nego able for the people of South Africa to form part of the journey and we designed the program around them.
We also decided that we did not want to nego ate with bidders. Bidding docu-ments were developed in full so that po-ten al IPP’s simply had to sign them as is. Some may have thought that this was a risky choice, but we were convinced that the documents were bankable and would meet the expecta on of the lenders. In the end, it was a posi ve decision that pro-tected us against protracted nego a ons.
The request for proposal (RFP) was very clear and based on a two-pronged ap-proach. First, we required compliance in the areas of fi nancial, legal, technical and economic development. Secondly, a er compliance had been shown, bidders would go into a process of ranking, where-by price and contribu on to development were contracted from the local market.
Where did the IPPO source its skills for developing the program?
From the IPPO’s perspec ve, almost all our technical transac on advisors were foreign when we started. Although, de-spite having worked all over the world, we found that these interna onal advisors did not have the experience to take us where we wanted to go in South Africa. For in-stance, the prevailing view interna onally was that one could not build a solar plant bigger than 20MW; while in South Afri-
ca, companies were already developing plants that were more than 75MW.
It should be noted that the team of trans-ac on advisors were supported by inter-na onal review teams. The reason for it was to ensure South Africa will follow best interna onal prac ce and standards. The IPP and Public-Private Partnership pro-cesses are similar, and therefore South African Law fi rms were more experienced in this regard.
The system of having a transac on adviso-ry team working with the IPP Offi ce plus an interna onal review advisory team worked very well and contributed to the success of the program.
How has the skills transfer, and foreign investment, changed over ti me within the industry?
From an investment point of view, the in-dustry was mostly foreign in the early days of the program. We had, however, put in place specifi c requirements to transfer skills and upli local communi es over me. Each poten al bidder had to partner
with an empowerment partner to ensure transforma on.
Each IPP was required to build in a per-centage of its revenue line to spend on socio-economic and entrepreneurial de-velopment and had to provide commu-nity ownership. In total, three revenue streams were earmarked for communi es in these areas: the socio-economic devel-opment funds, entrepreneurial develop-ment funds and dividends to fl ow to the surrounding communi es.
One mistake we may have made early on was to assume that foreign developers would necessarily buy into socio-eco-nomic upli ment of the people in the areas where the projects are located. We were resolute in our commitment to provide opportuni es and improve the standard of living for local communi es and we want foreign fi rms to care about the communi es around the projects and to understand our people in South Africa.
Some interna onal companies took the socio-economic model with them out into the world, which was very good and have posi ve responses from these recipient countries.
By 30 June 2019, IPPs had spent R927.8 million on socio economic and enter-prise development. Across the IPP Bid Windows procured to date, a total con-tribu on of R23.1 billion has been made. These funds have supported educa on and skills development, health, social wel-fare and enterprise development projects in these communi es. Across the IPP Bid Windows procured to date, a total contri-bu on of $1.4 billion has been commi ed to socio-economic ini a ves, and Enter-prise Development commitments amount to $443 million, over the dura on of the contracts.
IPP Projects also provided 881 bursaries by the end of March 2019 to young people to a end Universi es, Colleges or Techni-cal and Voca onal Educa on and Training Ins tu ons. These bursaries cover fees, accommoda on, transport, food and ev-erything else the students may need, even mentorship.
On average, black South Africans own 33 percent of project equity in the projects, which have reached fi nancial close under Bid Windows one to four. Through the REIPPP program we have also secured 9 percent equity in IPPs for local communi- es, who will receive R26.9 billion net in-
come over the 20 year-life of the projects.
An average of 21 percent shareholding by black people in the engineering, pro-curement and construc on contractors has been a ained in projects that have reached fi nancial close under the program and currently with 22 percent, and grow-ing, par cipa on during the opera ons and maintenance period.
Ul mately, we had diff erent pockets of success during the fi rst rounds. Where we made mistakes, we learned from them and corrected in the following rounds. Current-ly, we require that 40 percent of the IPP
Interview
Africa Energy Series | South Africa
consor um must be South African, and of that, a percentage must be black. We did this to ensure be er partnerships with South Africans, to build strong skills and see growth. It was a posi ve move that allows local fi rms to par cipate ac vely which led to a change in ownership with majority now owned by South Africans.
Will further regulati on, perhaps similar to the mining charter, be required to formalize community investment?
Yes, I would rather say Ins tu onaliza on of the Offi ce and the pro-gram with the monitoring of the contracted commitments made by the private sector. We have received over R209.7 billion in investment, and this investment will require steady formaliza on in me. A charter is a good idea because it will ensure all par cipants focusing on the same success factors. We will have to get to a point where we plan be er for community spending and create a framework within which we can eff ec vely measure the impact thereof.
A concern for IPP’s has been the delay between the bidding process being fi nalized and getti ng to the fi nancial close. What are some of the issues behind Eskom making approvals and what is the IPPO going to do moving forward?
We need to rebuild trust and confi dence by showing that we can s ll car-ry out the program in a very successful and transparent way, despite the delays that occurred. The impact of the delay was nega ve on investor confi dence and growth as well as job crea on.
Poli cal uncertainty under the previous administra on may have con-tributed to the situa on, and you will see less of these issues arising as our democracy matures. Having said that, the fact that Eskom holds a monopoly meant that the delay worked well in its favor.
I think the solu on is to reconsider the structure of the industry in line with the Na onal Development Plan (NDP). The sector needs to be aligned with interna onal best prac ce. Effi ciency is cri cal to minimize opera onal costs and lower the tariff to the consumer and aff ordability to all people living in South Africa is highest priority. Fair compe on that drives prices down is what the industry needs – and that compe - on should not be between the IPPs alone. The NDP envisions a struc-
ture where the current generator is subject to the same rules and must compete on the same terms as other power generators. Once this sys-tem is in place, I think the country will begin to see a real change.
Do you believe that we’re on the right path now?
Yes. While the system is not 100 percent there yet, I am op mis c. From a leadership point of view, the industry has changed. It is clear that we are heading in the right direc on. At this point, we need to ensure that everyone supports the current posi on to maximize buy-in and drive success, jobs for the youth and business opportuni es for entre-preneurs. It is very important to always remember that what makes a Country successful is its people and opportuni es for all, it cannot be anything else than prosperous!
CLIMATE ANDGEOGRAPHYSouth Africa’s climate and geographic loca-
tion offer an abundance of renewable resourc-es upon which to build a successful renewables program.
Solar energy is the most readily accessible re-source in the country which records more than 2,500 hours of sunshine per year . Average dai-ly solar radiation levels vary between 4.5 and 7kWh/m², with some regions receiving radiation levels of more than 6.5kWh/m² per day in win-ter. The Northern Cape, North West, and Free State provinces respectively receive the highest levels of solar radiation annually.
“The sun is everywhere, even in places like Durban where it rains often. Spain and Germa-ny are less sunny than South Africa, but they have more solar installations than we do. Every roof in this country should have a solar panel.” - Thembakazi Mali, Interim CEO, South African National Energy Development Institute.
The country also has good wind potential, al-though these resources are influenced by weather patterns that vary widely between win-ter and summer. According to the Wind Atlas of South Africa project, initiated by the Depart-ment of Energy to map wind resources in the country, the coastal provinces of the Western Cape, Eastern Cape and KwaZulu-Natal have recorded the highest wind speeds in the coun-try respectively, although sufficient windspeeds have also been recorded throughout the territo-ry in more isolated locations.
Generally dry, South Africa is prone to period-ic drought recording average annual rainfall of 500mm. There are two main river systems that flow through the country. The Limpopo flows eastward towards Mozambique and forms part of the boarder with Zimbabwe and Botswana, while the Orange River flows westward bor-dering Namibia. Several smaller river systems flow south, limiting the countries hydroelectric power possibilities. Despite this, the country is home to several small hydro-electric systems.
65 66
TimelineTimeline
RENEWABLE ENERGY INDEPENDENT POWER PRODUCER PROCUREMENTPROGRAM
Offi cial launch within the Integrat-ed Resource Plan
Bid Window 2 submission19 preferred bidders1,040MW of contracted capacity
Signature of the Power Purchase Agreements (PPA)
MAR.
AUG.
MAR.
NOV.
Bid window 1 submission28 preferred bidders1,425 MW of contracted capacity
Signature of the PPAs
Bid window 3 submission17 preferred bidders1,457MW of contracted capacity
NOV.
2010
2012
Bid window 3.5 submission2 preferred bidders200 MW of contracted capacity
Bid window 4 submission26 preferred bidders2,205MW of contracted capacity
Signature of the PPAs
MAR.
AUG.
DEC.
2014 Signature of the PPAs (Windows 3.5 and 4)
APR.
2018
2013
2011
TARGET PRODUCTION (MW)
2019
5,000
2020
7,000
2030
17,800
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Africa Energy Series | South Africa
67
Interview
What are the key fi ndings and impact of the WASA wind mapping project?
Generally, is was thought that wind was only coastal, but through WASA we have found that South Africa has wind all over, with three wind regimes. Wind is blowing in South Africa at any given me, and the key is to locate wind farms so that there is con nuous wind genera on.
The WASA informa on is used for the loca on of the Renewable Energy Devel-opment Zones and for determining which geographical areas are best suited for wind or solar. It is also used for strategic envi-ronmental impact assessments.
What is the value of solar mapping in South Africa and has SANEDI done any similar work to develop a solar map?
If you are going to develop a wind farm, you should have measurements, because you want to know what your output is going to be. The same is needed for so-lar farm development to be bankable. But I think solar mapping, specifi cally for em-bedded genera on, is a bit of a waste of me and money in South Africa. The sun
is everywhere, even in places like Durban where it rains o en. Spain and Germany are less sunny than South Africa, but they have more solar installa ons than we do. Every roof in this country should have a solar panel.
Something you have personally been involved with is wave energy. What is the movement in that directi on for South Africa?
Wave energy is a big opportunity that we should be looking at because we have the resources. South African waves are very good, equal to those in Australia, Chile, and in the North Sea. There is also an ocean current which could be used to generate electricity.
The problem is that South Africa does not have the fi nancial resources to invest in
ocean energy and the technology to har-ness that energy is not yet commercially viable. That said, South Africa is not doing much work to ensure commercial viability and we could be doing some research on our own to develop local technology. The work that was done has recently been stopped be-cause there was insuffi cient funding.
What is the poten al for new sources of en-ergy, like biomass and waste energy for the development of low-income communi es in South Africa.
We have a por olio called ‘Working for En-ergy’ where we are trying to create an inte-grated energy solu on for communi es. We work with biomass produc on and rainwa-ter harves ng, and look at where houses are located so that residents do not have to spend too much money hea ng and ligh ng. With biogas, communi es are able to cook, and from the digester, they have access to a fer lizer for vegetable gardens. We have also piloted cool surface coa ngs which help to moderate temperatures in low income hous-es and make comfort levels bearable. Having these energy effi ciency solu ons for com-muni es is an important factor for develop-ment in South Africa, and an important part of SANEDI’s mandate.
Do you think South Africa is on track to meet its renewable energy targets?
It depends on the price and the strength of the grid. Remember that most of the Renew-able Energy Independent Power Producer Procurement (REIPPP) programprojects that were approved - they have been built very close the available grid. For the upcoming rounds, when you look at the loca on of the new bids, there needs to be some more work done on the grid, like ex-tension and strengthening.
Right now, there are about nine renewable energy zones that are very strategically placed. Having a viable project depends a lot on land and having access to it. Also, if you build a project in one place and the grid is in another, the onus is on you to connect to the grid; it is not going to come to you. Those are
things which are very project and company specifi c, and dependant on people who are willing to put up the fi nance to develop in-frastructure in these zones. For most compa-nies it is easier to be close to the grid because the costs are less.
Also, if all of these projects are feeding into the grid, it cannot all be opened to indepen-dent players. The grid needs to be stabilized, strengthened and extended by state-owned Eskom fi rst. The u lity might say that it does not have money for a grid extension, so the storage route could be a be er solu on.
Storage could allow for the grid extension and strengthening to be deferred. Storage capacity will take the addi onal load off the grid and then allow it to be released when needed. However, storage is s ll quite ex-pensive; but like all technologies, the prices are coming down, so it might be an op on at some point in the near future.
In terms of skills and technology, do the students coming out of university have the skills necessary to move the sector forward?
Many students coming out of high school do not go into the sciences. Most prefer com-mercial degrees, which makes the pool for the science and engineering students quite small. When we started our human capital development, we looked at funding Mas-ters and PhD students because we did not think we were producing enough graduates as a country. However, a challenge current-ly experienced globally is that graduates do not want to stay in academia. They want to work and make money. So the pool is get- ng much smaller. As the Renewable Energy sector is developing in the country, we have experienced a growing need for suitably trained technicians. In that regard we part-ner with ins tu ons like the South African Renewable Energy Technology Centre at the Cape Peninsula University of Technol-ogy, to support their training and then they can be placed within the renewable energy industry. Our work does not stop though, and we should keep trying to recruit as many local students as possible.
What role does SANEDI play in the energy sector in South Africa?
Within the energy sector, the main func- on of SANEDI is to direct, monitor and
conduct applied energy research and de-velopment, as well as undertake specifi c measures to promote the uptake of green energy and energy effi ciency in South Af-rica. We off er solu ons for challenges that are facing society in the energy space and pilot and demonstrate how they work to accelerate their deployment.
As far as energy is concerned, our research covers everything except nuclear energy. We look into advanced fossil fuel technol-ogies – considering the technologies that will enable South Africa to use the vast coal resources we have as a country. We are currently looking into carbon capture, storage and u liza on as this will assist in not only injec ng the carbon dioxide in suitable geologies but also to fi nd uses for it as a feedstock.
We also look into renewable energy. Not only high-tech renewable energy but also low-tech renewable energy technologies that could be sustained by communi es. We are also involved in smart grids and we have undertaken some ini a ves to support municipali es to be more sustain-able and profi table. In all our eff orts we endeavour to transfer skills and build ca-pacity in the various technologies that we demonstrate.SANEDI has a broad mandate and we
could provide input in the en re energy value chain, but it would simply cost too much for an organiza on funded by the fi scus. Universi es, by design, undertake blue-sky fundamental research, while we play our role in the applied research space and working together with them and other partners.
Is the research output only for government use?
No, we work very closely with industry. We partner a lot with private players and donor governments because some mes they have the technical assistance and technologies we need, and through these partnerships we can access them and bring them into the country.
Also, within the value chain, our role is to get from applied research to demonstra on. We do not go beyond that. If anything is to be commercialized, it has to be taken by someone else, such as another government ins tu on, like the Technology Innova on Agency (TIA) or the Industrial Development Coopera on (IDC), because we do not have the capacity or resources to take the project to commercializa on.
What is the Wind Atlas of South Africa (WASA) and how was it developed in collaborati on with SANEDI’s partners?
WASA is one of our fl agship projects funded by the Global Environment Fa-cility (GEF) through the United Na ons Development Program (UNDP) and the
Royal Danish Embassy.
The WASA 1 project involved the mapping of wind resources within a smaller sec on of South Africa and formed part of a larger project called the South African Wind Energy Project (SAWEP 1). The Darling wind farm – one of the fi rst wind farms in South Africa consis ng of fi ve wind turbines – was the demonstra on part of SAWEP 1.
For the WASA 1, we formed a research con-sor um with the Council for Scien fi c and Industrial Research (CSIR), the South African Weather Service (SAWS), the University of Cape Town in South Africa, and the Danish Technical University, which provided most of the modules and so ware that were used for the project. We, the South African partners, grew our capacity to complete some of the work packages independently by partnering with the experts who trans-ferred the skills and knowledge to South African researchers.
WASA 1 covers the Western Cape and ar-eas of the Northern Cape and Eastern Cape provinces, WASA 2 covers KwaZulu-Na-tal, Free State and remaining areas of the Eastern Cape province. WASA 3 will cover the remaining areas of the Northern Cape province. This will then mean that the rest of South Africa will be mapped.
The project is gaining a lot of interna onal credibility and it has been men oned in the World Bank wind mapping tenders as a rec-ommended methodology.
MAPPING RENEWABLES AND ENERGYOPPORTUNITIESThembakazi MaliInterim CEOSouth African National Energy Development Institute (SANEDI)
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Interview
Africa Energy Series | South Africa
69
RESTORINGINVESTORCONFIDENCE
Dr. Kilian HagemannManaging DirectorG7 Renewable Energies
Tell us about G7 Renewable Energies and its history in South Africa
G7 Renewable Energies, which was founded in 2009, develops highly com-pe ve wind farm projects. G7 par ci-pated in various rounds of South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) pro-gram and has been building a por olio of about 1GW of wind projects.
Our fl agship project, the 147MW Rog-geveld Wind Farm, was awarded pre-ferred bidder status in round 4 of the REIPPP in April 2015, reached fi nancial close in April 2018 and has now entered the construc on phase.
What are the key 2018 trends for the South African power sector?
With President Cyril Ramaphosa in pow-er, government has eff ec vely reignited the market for independent power pro-ducers (IPPs). This was most apparent by the signing of power purchase agree-ments (PPAs) with Eskom for the 27 pre-ferred bidders procured under bid win-dow 4 of the REIPPP.
The Roggeveld Wind Farm, in the Karoo, was among the 27 outstanding REIPPP agreements signed in April last year. What does this mean for the company?
Closing Roggeveld was the biggest mile-stone in the development of G7 to date. We have been working on this project for almost nine years, as it had a par c-ularly challenging grid connec on, which was not viable in the early days of the REIPPP.
There has also been substan al doubt in the market that, with such a low tariff , this project would proceed into construc on. Together with our partners, Building En-ergy, we have not only proven this wrong but have also cemented our ability and track record to develop the most compet-
i ve wind farms in South Africa.
The Roggeveld Wind Farm in the Karoo is said to become the Southern Africa’s most effi cient wind farm. Tell us about the project.
When completed, Roggeveld will have a capacity factor in excess of 47 percent. That compares favorably with other projects constructed under the REIPPP, which have much lower capacity factors of between 30 and 40 percent. Coupled with clever and innova ve fi nancing structures facilitated by Rand Merchant Bank, the project achieved the low-est tariff ever awarded in the REIPPP, ZAR0.56/kWh in April 2014 terms.
In today’s U.S. dollar terms with South African infl a on adjustments since then, that is equivalent to about $0.05/kWh
In creati ng a stable energy mix for the country, the Minstry of Energy has affi rmed government’s plan to push renewable energy, and championed successful partnerships with IPPs. How can the country stand to benefi t from this focus on renewable energy projects?
Renewable energy is decreasing in cost every year with cheaper equipment costs in photovoltaic and larger, more effi cient rotors being released by the world’s biggest turbine manufacturers.
This means that by con nuing to pur-sue renewable energy in a compe ve bidding environment like the REIPPP, South Africa can arrest, if not reverse, the decade long trend of rising elec-tricity tariff s far above infl a on. In ad-di on, this lets the country leverage all the other benefi ts of renewable energy, such as the substan al reduc ons in carbon emissions, to mi gate climate change and honor the country’s obliga- ons in terms of the Paris Agreement,
not to men on all the socio-economic development spin-off s arising from the local manufacture of renewable ener-gy components, as well as the infl ow of investment into the historically im-poverished rural areas of the country in which these projects are located.
The Minsitry announced that the next bidding round for renewable energy agreements would begin in November. What does this say about political certainty and policy discipline within the sector?
The Minsitry has given investors a pos-i ve sign that it means business. In a very short space of me, the Ministry facilitated the long overdue signing of Power Purchase Agreements with the 27 round 4 preferred bidders.
What are some factors for potential foreign investors to consider when looking at the South African renewable energy sector, especially after a three year hiatus in renewable energy developments?
A er the REIPPP honeymoon years dissipated in 2016 and 2017, foreign investors will now be more cautious with their investments going forward. We believe the project development business will continue similar to what it was in the past, however, when it comes to investing in local wind tow-er manufacturing, investors will be more circumspect, as boom and bust cycles with local tower manufacturers has shown.
71
Interview
What have been Sola Future’s key accomplishments over the years?
Since 2013, we have designed, built and con nue to operate 49 commercial and industrial projects, just under 30MW of power. We have also been nominated for several awards including government’s Vision 2030 awards for furthering the vision of the Na onal Development Plan and achieving our ISO 9001:2015 stan-dard for quality assurance.
Our vision is to propel the widespread adop on of solar energy in Africa. We have grown to over 40 staff in Cape Town, Johannesburg and Windhoek, Na-mibia, and have several pending projects in other African countries. We have re-cently been awarded a project in Swazi-land and have been shortlisted for Zam-bia’s GET FiT program – the equivalent of South Africa’s Renewable Energy In-dependent Power Producer Procurement (REIPPP) program – for up to two 20MW solar photovoltaic (PV) projects.
Sola has also built two notable microgrid projects. The fi rst, Robben Island Micro-grid, was an iconic project to change the island - which was historically powered by diesel - to a sustainable solar and ba ery powered tourism a rac on. The solu on was a 666kWh solar PV array with an 837kWh ba ery.
The second notable microgrid projects is Cedar Mill Mall, an ‘islandable’ on-grid
microgrid, which uses PV and ba eries to supplement the grid’s weak power supply, enabling the energy needs of a large mall to be met. In this case, an 851kWp PV system and 696kWh ba ery supplemented 250kVA provides power to the mall, allowing its total demand of 500kVA to be met.
Both projects demonstrate the invalu-able contribu on of solar PV and ba er-ies for remote areas without grid access, as in the case of Robben Island, and in areas where there is limited, or weak grid connec on, as in the case of Cedar Mill Mall.
What is your current view of the South African energy sector?
The energy sector globally is going through an exci ng change, and South Africa is no excep on. Globally, invest-ment in renewable energy grew by al-most $6 billion in 2017, with a total in-vestment of $279.8 billion. Of this, solar represented a signifi cant chunk; it was the largest source of genera ng capac-ity added in 2017, increasing by nearly one third, to 402GW of power global-ly, according to the Renewables 2018 Global Status Report. South Africa is well posi oned to keep up with these world wide trends, due to our fantas c solar resource.
However, like any rapidly transforming sector, it is not without challenges. Vest-
ed coal interests and legi mate concern over shi ing job markets are just two of the challenges for moving forward. I be-lieve that if government and state-owned u lity Eskom both look forward, they will see that transforming the sector and re-ducing barriers to entry for renewable energy is the best way to provide South Africans with low-cost, reliable power.
What are the main drivers of the inclusion of solar in South Africa’s energy mix?
While there is a push from government in terms of reducing carbon emissions, this increased uptake is mainly due to rapidly decreasing costs for solar com-ponents.
In South Africa, costs associated with solar PV installa ons vary between 73c/kWh and 85c/kWh, while Eskom’s Megafl ex tariff can average from 64c/kWh during standard mes in low-sea-son, to 285c/kWh during peak mes in high-season. When averaged out, the costs of PV work out to around 40 per-cent lower than incumbent electricity tariff s.
Similarly, the cost of lithium-ion ba er-ies fell by almost 80 percent between 2010 and early 2018, indica ng a sim-ilar trajectory. These falling costs are exci ng because the combina on of ba eries and solar PV allow businesses and individuals to go completely off -grid or supplement weak grids in rural areas, promo ng economic growth.
What would be your message to investors looking to enter the South African renewable energy space?
South Africa’s future relies on its abili-ty to provide cheap, reliable energy to power the economy. The best way to do that is through renewables, gas and storage. It thus remains a very exci ng place to invest, as the returns are good, and there is a social good in enabling an economy through sustainable measures.
A BRIGHT FUTURE FORSOLARDominic WillsCEO, Sola Future
Arti cle
sector that will inspire a shared view of the transformation project in the country.
Having entered renewable ener-gy space in 2015, we have seen the renewable energy sector face some hard times, with securing funding, political and policy certainty being among the biggest challenges. The South African renewable energy sec-tor is in a much better place today. Minister of Energy, Jeff Radebe has been championing renewable ener-gy projects and recently signed the 27 outstanding renewable energy independent power purchase agree-ments that had been delayed for two years.
As the minister works towards sta-bilizing the sector and creating a sustainable energy mix, there are still some concerns with the current state of the renewable energy sector. We believe the sector could benefit from being kind to small and medium entrepreneurs (SMEs) and the re-quirements of the Renewable Ener-gy Independent Power Procurement program (REIPPP) are prohibitive. For the sector to be truly transfor-mative, SMEs need to be supported and play a more significant role in the sector.
Small scale embedded generation holds the most untapped potential,
granted the regulations are clear. They need to be clearer in what they mean when they require local au-thorities the latitude to deploy re-newable energy, but ultimately allow authorities to develop or purchase power from IPPs at their discretion and in accordance with their needs.
Despite those concerns in mind, there is still tremendous potential to be realized in the South African re-newable energy sector, beyond the REIPPP. Some of the greatest oppor-tunities lie in the innovative projects that happen in the B2B markets, em-bedded generation and smart-grids being deployed all over the country. Energy storage will also be a signifi-cant opportunity in South Africa. At the moment, we are working on two 8MW solar photovoltaic projects in the town of Leeudoringstad in the North West province of South Afri-ca.
At SIG Energy we believe as long as we continue to be brave enough to have the tough conversations about the energy sector and the changes that need to take place and its role in the pursuit of a transformed, in-clusive and growing economy, we will get it right eventually. The South African renewable energy sector is well on its way to achieving that if it persists with the same momentum seen recently.
SIG Energy Investments was found-ed in 2015 in the Eastern Cape prov-ince of South Africa, with an aim to see renewable energy lead in the South African energy mix, while pro-viding innovative turnkey solutions.
Believing in the sustainability of renewable energy, its potential to meet demands and drive economic growth, SIG Energy has contributed to the conversation around the fu-ture of renewable energy as part of the country’s energy mix, and how those projects can be funded cre-atively. We believe that our contri-bution will serve as a template for the development of a transformed
There is sti ll tremendous potenti al to be realized in the South African renewable energy sector, beyond the REIPPP program. Some of the greatest opportuniti es lie in the innovati ve projects that happen in the B2B markets, embedded generati on and smart-grids being deployed all over the country.
INVESTING INRENEWABLE ENERGY
Cuma DubeFounder and Managing DirectorSIG Energy Investments
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Africa Energy Series | South Africa
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ACWA Power’s Redstone Solar Thermal Power (RSTP) iplant is located in South Africa’s Northern Cape Province. RSTP is a 100 megawa molten salt energy solar tower plant.
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Africa Energy Series | South AfricaResource
SOUTH AFRICA’S RENEWABLE ENERGY PROJECTS
REIPPP 1
REIPPP 2
REIPPP 3
REIPPP 4
OTHER UTILITY
wind
solar
hydro
PV
Biomass
Gas
SWAZILAND
LESOTHO
uthricauthrica
Durban
Port Elizabeth
East London
Polokwane
Musina
Johannesburg
Gaborone
Tsabong
pington
Welkom
Ladysmithnn
SouAfrSouAfr
Cape Town
Up
South Africa launched its Renewable Energy Independent Power Producer Procurement program in 2011. The goals of the program are to increase the number of renewable energy projects while lowering tariff rates and genera on costs.Thanks to strong par cipa on from the private sector, the program is ongoing and successful with fi ve bidding rounds run since 2011, totaling over 80 awarded projects.
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Africa Energy Series | South AfricaResource Key
REIPPP 1
1-Soutpan Solar ParkTechnology Solar Photovoltaic (PV) Capacity (MW) 28Region/province/state Limpopo
2-Witkop Solar ParkTechnology Solar Photovoltaic (PV) Capacity (MW) 30 Region/province/state Limpopo
3-RustMo1 Solar FarmTechnology Solar Photovoltaic (PV) Capacity (MW) 6.8 Region/province/state North-West Province
4-Kathu Solar Energy FacilityTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
5-Lesedi Power CompanyTechnology Solar Photovoltaic (PV) Capacity (MW) 64 Region/province/state Northern Cape Closest town or city Postmasburg
6-Herbert PV Power PlantTechnology Solar Photovoltaic (PV) Capacity (MW) 19.9 Region/province/state Northern Cape
7-Droogfontein Solar PowerTechnology Solar Photovoltaic (PV) Capacity (MW) 50 Region/province/state Northern Cape Closest town or city Kimberley
8-Letsatsi Power CompanyTechnology Solar Photovoltaic (PV) Capacity (MW) 64 Region/province/state Free State
9-Greefspan PV Power PlantTechnology Solar Photovoltaic (PV) Capacity (MW) 10 Region/province/state Northern Cape
10-Mulilo Renewable Energy Solar PV PrieskaTechnology Solar Photovoltaic (PV) Capacity (MW) 20 Region/province/state Northern Cape
11-Aries SolarTechnology Solar Photovoltaic (PV) Capacity (MW) 9.7 Region/province/state Northern Cape Closest town or city Kenhardt
12-KalkbultTechnology Solar Photovoltaic (PV) Capacity (MW) 72.5 Region/province/state Northern Cape
13-Mulilo Renewable Energy Solar PV De AarTechnology Solar Photovoltaic (PV) Capacity (MW) 10 Region/province/state Northern Cape
14-De Aar Solar PowerTechnology Solar Photovoltaic (PV) Capacity (MW) 50 Region/province/state Northern Cape
15-Solar Capital De Aar 3Technology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
16-Solar Capital De Aar (Pty) LtdTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
17-SlimSun Swartland Solar ParkTechnology Solar Photovoltaic (PV) Capacity (MW) 5 Region/province/state Western Cape
18-Touwsrivier ProjectTechnology Solar Photovoltaic (PV) Capacity (MW) 36 Region/province/state Western Cape
19-Hopefi eld Wind FarmTechnology Onshore Wind Capacity (MW) 65.4 Region/province/state Western Cape
20-Dassiesklip Wind Energy FacilityTechnology Onshore Wind Capacity (MW) 26.2 Region/province/state Western Cape
21-Kouga Wind Farm - Oyster BayTechnology Onshore Wind Capacity (MW) 80 Region/province/state Eastern Cape
22-Jeff reys Bay Wind FarmTechnology Onshore Wind Capacity (MW) 138 Region/province/state Eastern Cape
23-MetroWind Van Stadens Wind FarmTechnology Onshore Wind Capacity (MW) 27 Region/province/state Eastern Cape
24-Cookhouse Wind FarmTechnology Onshore Wind Capacity (MW) 135 Region/province/state Eastern Cape
25Dorper Wind FarmTechnology Onshore Wind Capacity (MW) 97 Region/province/state Eastern Cape
26-NoblesfonteinTechnology Onshore Wind Capacity (MW)72.8 Region/province/state Northern Cape
27-KaXu Solar OneTechnology Concentrated Solar Thermal (CSP) Capacity (MW) 100
28-Khi Solar OneTechnology Concentrated Solar ThermalCapacity (MW) 50 Region/province/state Northern Cape
REIPPP 2
1- VredendalTechnology Solar Photovoltaic (PV) Capacity (MW) 8.8 Region/province/state Western Cape
2-AuroraTechnology Solar Photovoltaic (PV) Capacity (MW) 10.35 Region/province/state Western Cape
3-LindeTechnology Solar Photovoltaic (PV) Capacity (MW) 36.8
Region/province/state Northern Cape
4-DreunbergTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Eastern Cape
5-Boshoff Solar ParkTechnologySolar Photovoltaic (PV) Capacity (MW) 60 Region/province/state Free State
6-Jasper Power CompanyTechnology Solar Photovoltaic (PV) Capacity (MW) 96 Region/province/state Northern Cape
7-Sishen Solar FacilityTechnology Solar Photovoltaic (PV) Capacity (MW) 74 Region/province/state Northern Cape
8-Upington Solar PVTechnology Solar Photovoltaic (PV) Capacity (MW) 8.9 Region/province/state Northern Cape
9-Neusberg Hydro Electric Project ATechnology Small Hydro Capacity (MW) 10 Region/province/state Northern Cape
10-Bokpoort CSP ProjectTechnology Concentrated Solar Thermal Capacity (MW) 50 Region/province/state Northern Cape
11-West Coast 1Technology Onshore Wind Capacity (MW) 90.8 Region/province/state Western Cape
12-Gouda Wind FacilityTechnology Onshore Wind Capacity (MW) 135.2 Region/province/state Western Cape
13-Tsitsikamma Community Wind FarmTechnology Onshore Wind Capacity (MW) 94.8 Region/province/state Eastern Cape
14-GrassridgeTechnology Onshore Wind Capacity (MW) 59.8 Region/province/state Eastern Cape
15-WaainekTechnology Onshore Wind Capacity (MW) 23.4 Region/province/state Eastern Cape
16-Amakhala Emoyeni (Phase 1)Technology Onshore Wind Capacity (MW) 134.4 Region/province/state Eastern Cape
17-ChabaTechnology Onshore Wind Capacity (MW) 20.6 Region/province/state Eastern Cape
18-Stortemelk Hydro (Pty) LtdTechnology Small Hydro Capacity (MW) 4.3 Region/province/state Free State
REIPPP 3
1-Electra Capital - Paleisheuwel Solar Park
Technology Solar Photovoltaic (PV) Capacity (MW) 75Region/province/state Western Cape
2-Khobab Wind FarmTechnology Onshore Wind Capacity (MW) 138 Region/province/state Northern Cape
3-Loeriesfontein 2 Wind FarmTechnology Onshore Wind Capacity (MW) 138 Region/province/state Northern Cape
4-Xina CSP South AfricaTechnology Concentrated Solar ThermalCapacity (MW) 100 Region/province/state Northern Cape
5-Ilanga CSP 1 (Karoshoek Consor um)Technology Concentrated Solar Thermal (CSP) Capacity (MW) 100 Region/province/state Northern Cape
6-Redstone CSPTechnology Concentrated Solar Thermal (CSP) Capacity (MW) 100 Region/province/state Northern Cape
7-Kathu Solar ParkTechnology Concentrated Solar Thermal (CSP) Capacity (MW) 100 Region/province/state Northern Cape
8-Adams Solar PV 2Technology Solar Photovoltaic (PV) Capacity (MW) 82.5 Region/province/state Northern Cape
9-Mulilo Sonnedix Prieska PVTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
10-Mulilo Prieska PVTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
11-Pulida Solar ParkTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Free State
12-Longyuan Mulilo De Aar 2 North Wind Energy FacilityTechnology Onshore Wind Capacity (MW) 139 Region/province/state Northern Cape
13-Longyuan Mulilo De Aar MaanhaarbergWind Energy FacilityTechnology Onshore Wind Capacity (MW) 96 Region/province/state Northern Cape
14-Noupoort Mainstream WindTechnology Onshore Wind Capacity (MW) 79 Region/province/state Northern Cape
15-Nojoli Wind FarmTechnology Onshore Wind Capacity (MW) 87 Region/province/state Eastern Cape
16-Red Cap - Gibson Bay
Technology Onshore Wind Capacity (MW) 111 Region/province/state Eastern Cape
17-MkuzeTechnology Biomass Capacity (MW) 16 Region/province/state KwaZulu-Natal
18-Johannesburg Landfi ll Gas to ElectricityTechnology Landfi ll Gas Capacity (MW) 18 Region/province/state Gauteng
REIPPP 4
1- Excelsior Wind Energy FacilityTechnology Onshore Wind Capacity (MW) 32 Region/province/state Western Cape
2-Perdekraal East Wind FarmTechnology Onshore Wind Capacity (MW) 108 Region/province/state Western Cape
3-RoggeveldTechnology Onshore Wind Capacity (MW) 140 Region/province/state Western Cape
4-Karusa Wind FarmTechnology Onshore Wind Capacity (MW) 140 Region/province/state Northern Cape
5-The Soetwater Wind FarmTechnology Onshore Wind Capacity (MW) 139 Region/province/state Northern Cape
6-Oyster Bay Wind FarmTechnology Onshore Wind Capacity (MW) 140 Region/province/state Eastern Cape
7-Golden ValleyTechnology Onshore Wind Capacity (MW) 120 Region/province/state Eastern Cape
8-Nxuba Wind FarmTechnology Onshore Wind Capacity (MW) 140 Region/province/state Eastern Cape
9-Nxuba Wind FarmTechnology Onshore Wind Capacity (MW) 140 Region/province/state Eastern Cape
10-Kruisvallei HydroTechnology Small Hydro Capacity (MW) 4.5 Region/province/state Free State
11-Ngodwana Biomass Power Sta onTechnology Biomass Capacity (MW) 62 Region/province/state Mpumalanga
12-De WildtTechnology Solar Photovoltaic (PV) Capacity (MW) 50 Region/province/state North-West Province
13-ZeerustTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state North-West Province
14-BokamosoTechnology Solar Photovoltaic (PV) Capacity (MW) 68 Region/province/state North-West Province
15-Waterloo Solar ParkTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state North-West Province
16-Droogfontein 2 SolarTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
17-Greefspan PV Power Plant No. 2 Solar ParkTechnology Solar Photovoltaic (PV) Capacity (MW) 55 Region/province/state Northern Cape
18-Garob Wind FarmTechnology Onshore Wind Capacity (MW) 136 Region/province/state Northern Cape
19-Copperton WindfarmTechnology Onshore Wind Capacity (MW) 102 Region/province/state Northern Cape
20-Dyason’s Klip 1 / Dyason’s Klip 2Technology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
21-Sirius Solar PV Project OneTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
22-Konkoonsies II Solar FacilityTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
23-Aggeneys Solar ProjectTechnology Solar Photovoltaic (PV) Capacity (MW) 40 Region/province/state Northern Cape
24-Kangnas Wind FarmTechnology Onshore Wind Capacity (MW) 137 Region/province/state Northern Cape
25-Solar Capital OrangeTechnology Solar Photovoltaic (PV) Capacity (MW) 75 Region/province/state Northern Cape
Other U lity
1-Eskom Sere Wind FarmTechnology Onshore Wind Capacity (MW) 100 Region/province/state Western Cape
2-Darling Wind FarmTechnology Onshore Wind Capacity (MW) 5.2 Region/province/state Western Cape
3-Eskom CSPTechnology Concentrated Solar ThermalCapacity (MW) 100 Region/province/state Northern Cape
79
POWERSTRATEGY
The Department of Energy (DoE) aims to ensure that the country’s energy supply is secure and demand is well managed. The DoE is focused on broadening electricity supply technologies to include gas and imports, as well as nuclear, biomass and renewable energy resources to meet the country’s future power needs and reduce its carbon-dioxide emissions.
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Arti cle
The DoE developed its Strategic Plan 2015 – 2020 in order to map the way forward for energy genera on and supply in South Africa. The growth and development of the economy is at the center of the DoE’s energy strategy, as set out in the Na onal Development Plan (NDP) – the NDP outlines the need for an energy sector that pro-motes economic growth and develop-ment, social equity through expanded access to energy services and environ-mental sustainability through concert-ed eff orts to reduce pollu on and to mi gate the eff ects of global climate change. The DoE iden fi es skills development in the energy sector of cri cal impor-tance in achieving the NDP’s ener-gy vision – with the level of planned energy infrastructure investments, South Africa will require a substan al investment in technical skills such as engineers, technicians, ar sans and project or program managers. In addi- on, the DoE emphasizes the strategic
importance of the right combina on of policies and technologies to ensure that links between economic growth, increasing energy demand and the as-sociated energy-related carbon diox-ide emissions are managed as energy genera on capacity is increased. As a result, South Africa’s energy policies must address issues of energy access, sustainability, aff ordability and appro-priate quality of service for the end-us-er.
The DoE remains commi ed to ex-pedi ng the fi naliza on of the IRP – according to the department, these
policy development processes are impera ve for the industry to ensure that the IEP provides policy certainty as well as energy security, develop-ment of local industries, job crea on and skills transfer.
DoE: Strategic objecti ves
The DoE outlines seven Strategic Outcomes-Orientated Goals in its Strategic Plan, namely: Security of supply, to ensure that energy supply is secure and demand is well man-aged; Infrastructure, to facilitate an effi cient, compe ve and responsive energy infrastructure network; Reg-ula on and compe on, to ensure improved energy regula on and com-pe on; Universal access and trans-forma on, to ensure that there is an effi cient and diverse energy mix for universal access within a transformed energy sector; Environmental assets, to ensure that environmental assets and natural resources are protected as well as con nually enhanced by cleaner energy technologies; Climate change, to implement policies that adapt and mi gate the eff ects of cli-mate change; and Corporate gover-nance, to implement good corporate governance for eff ec ve and effi cient service delivery.
These goals are to be achieved through the implementa on of the DoE’s fi ve strategic objec ves, com-prising administra on, energy policy and planning, petroleum and petro-leum products regula on, electrifi ca- on and energy program and project
SOUTH AFRICA’SPOWER STRATEGY
management, and clean energy. Within each objec ve, the DoE s pulates its pur-pose and sub-programs, as well as its ap-proach to resource considera on and risk management.
The purpose of administra on is to provide strategic support and management services to the DoE – this involves promo ng sound corporate governance prac ces within the DoE, ensuring eff ec ve and sound fi nancial resource management, ensuring eff ec ve corporate resource management, providing execu ve and administra on support ser-vices to the Ministry, Director General and Deputy Director Generals.
Energy policy and planning is in place to ensure evidence-based planning, policy set- ng and investment decisions in the energy
sector to improve energy security through supply and demand side management op- ons, while increasing compe on through
regula on. Key targets within this strategic objec ve include improving energy secu-rity, improving liquid fuels energy security by developing and implemen ng the Liquid Fuels 20-Year Infrastructure Plan, review-ing policy and regula ons to ensure secu-rity of supply, reviewing the bulk electrical infrastructure required for universal access to electricity, establishing mechanisms to refund capital and to create a smooth price path over the long term, and to ensure se-curity of supply through addi onal power genera on capacity.
Other objec ves include crea ng an envi-ronment that encourages investment into liquid fuels infrastructure development, promo ng diversity in the supply sources of liquid fuels, enabling improved compet-i veness of the South African economy, empowering all stakeholders to adequately deal with any liquid fuels supply disrup ons that may occur, and ensuring that there is an integrated government-wide approach to
dealing with liquid fuels ma ers.
The DoE’s third strategic objec ve is petro-leum and petroleum products regula on and comprises managing the regula on of petroleum and petroleum products to en-sure op mum and orderly func oning of the petroleum industry in order to achieve government’s developmental goals. Here, the DoE will ensure compliance monitoring and enforcement in the petroleum sector, promote transforma on of the South Af-rican petroleum and liquid fuels industry through the issuing of licenses, and ensure transparent fuel pricing of petroleum prod-ucts.
Electrifi ca on and energy program and project management enables the DoE to oversee, coordinate and monitor programs and projects focused on access to energy. This entails ensuring household access to electricity, enhancing programs and proj-ects management, and monitoring energy infrastructure development.
The DoE’s fi nal strategic objec ve is clean energy and comprises managing and facili-ta ng the development and implementa on of clean and renewable energy ini a ves, including the Energy Effi ciency Demand Side Management (EEDSM) program. This involves coordina ng and monitoring the implementa on of energy-related cli-mate change response measures and en-vironmental compliance, coordina ng and monitoring the implementa on of EEDSM measures across all sectors, and eff ec ve renewable energy. The EEDSM program supports municipali es in reducing electric-ity consump on by op mizing their energy use.
Renewable Energy
As one of the policy documents responsi-ble for the promo on of renewable energy
technologies, the White Paper on Renew-able Energy of 2003 set a target of how renewables – such as solar, hydro, biomass and wind – could diversify the country’s energy mix and secure cleaner energy. The IRP 2010 – as part of the na onal commitment to transi on to a low carbon economy – was promulgated in May 2011, se ng an ambi ous target of 17,800MW of renewable energy to be added to South Africa’s electricity genera on mix by 2030.
Approximately 5,000MW of capacity was expected to be opera onal this year, with a further 2,000MW to come online by 2020. As at 2017, 6,422MW of electricity has been procured from 112 renewable energy Independent Power Producers (IPPs) using the compe ve bidding pro-cess known as Bidding Windows. Of this total, 3,162MW of electricity genera on capacity from 57 IPP projects was con-nected to the na onal grid by the end of June 2017. In April 2018, 28 contracts were signed regarding windows 3.5 and 4 of the program.
Established at the end of 2010 by the DoE in collabora on with the Na onal Treasury and Development Bank of Southern Africa, the REIPPP Programme is one of the gov-ernment’s urgent interven ons to enhance the country’s power genera on capacity. The main objec ve of the REIPPP includes securing private sector investment for the development of new electricity genera- on capacity, thereby helping to diversify
South Africa’s energy mix.
The REIPPP also contributes to broad-er na onal developmental objec ves such as job crea on, social upli ment and economic transforma on through the broadening of economic ownership. Mandated to implement this program, the IPP Offi ce assists in achieving these broader objec ves.
Africa Energy Series | South Africa
The Department of Energy (DoE)reports that South Africa’s total domesti c electricity generati on capacity is 51,309 megawatt s (MW) from all sources – of this total, 91.2 percent ( 46,776MW) comes from thermal power stati ons, while 8.8 percent (4,533MW) is generated from renewable energy sources. While conventi onal thermal power sources are likely to dominate electricity generati on for years to come, its share of total capacity will decrease as more renewable generati on comes online. In June 2018, South Africa’s Minister of Energy, Jeff Radebe, signed a contract worth more than $4 billion for 27 power purchase agreements under the Renewable Energy Independent Power Producer Procurement (REIPPP) program, planning to add 19,400MW of new renewable generati on by 2030, as sti pulated in the draft updated Integrated Resource Plan (IRP) released in August 2018.
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Africa Energy Series | South AfricaArti cle
Presently, about 77 percent of the coun-try’s primary energy needs are provided by coal. The key role played by South Africa’s coal reserves in the economy is illustrated by the fact that state-owned Eskom is the seventh largest electricity generator in the world, and petrochemicals giant Sasol, the largest coal-to-chemicals producer.
South Africa’s coal reserves are es mated at 53 billion tons, and with present pro-duc on rates, there should be almost 200 years of coal supply le . Most of South Africa’s coal is low quality with a low heat value and a high ash content. The majority of coal deposits suitable for cheap pow-er genera on are found in eastern and south-eastern Gauteng province and in the northern Free State province. In Gauteng, coal is generally found at shallow depths and in thick seams, whereas in KwaZu-lu-Natal, the seams are deeper and thinner, but of a higher quality.
Eskom relies on 18 coal fi red power sta- ons to produce approximately 90 percent
of its electricity and uses over 90 million tons of coal per annum. Coal mining in South Africa is rela vely cheap compared to the rest of the world, which has had an important eff ect on the na on’s prosperity and poten al for development.
There are both advantages and disadvan-tages to tradi onal coal power. South Afri-ca has an abundance of coal reserves and well established infrastructure to generate electricity from coal. Burning coal is also the most cost-eff ec ve and energy effi -cient way of genera ng electricity, as well as the most reliable method of producing power.
One of the primary disadvantages of coal, however, is waste issues, including sulphur and nitrogen oxides, organic compounds, heavy metals, radioac ve elements, green-house gases and ash.
To produce electricity, coal is fi rst pulverised into a fi ne powder before it is blown into huge ke les known as boilers. The heat in the boiler causes the coal par cles to com-bust and burn, genera ng heat to turn wa-ter into steam. Steam from the boilers is then used to turn the blades of a turbine and the turbine turns the rotor inside the stator. Together they make up the genera-tor which sends an electric current to the homes and factories of consumers via pow-er lines.
The amount of electricity being fed into the grid must always match what consumers are using, since there is no realis c way of storing large quan es of electricity for dis-tribu on to users. This amount varies on a regular basis, not just from day to day, but from minute to minute.Increased demand for electricity has placed Eskom under pressure to provide adequate supply to consumers. Technical issues, lead-ing to a spate of load shedding - or roll-ing blackouts - earlier this year, prompted South Africa’s Minister of Public Enterpris-es, Pravin Gordhan, to address an Energy Por olio Commi ee in February.
Addi onally, February saw South African President Cyril Ramaphosa announce the restructuring of the State-owned power u lity. Eskom is now set to be unbundled and broken into three separate en es, namely genera on, transmission and distribu on, and re-established under Eskom Holdings.
Internati onally, coal is the most widely used source of primary fuel, accounti ng for approximately 36 percent of the world’s electricity producti on; a stati sti c likely to remain unti l at least 2020. South Africa produces an average of 224 million tons of marketable coal annually, making it the fi ft h largest coal producing country in the world. South Africa is also the third largest coal exporti ng country, with 25 percent of total producti on exported internati onally.
COAL STILLDOMINATES SA ENERGYSECTOR
Eskom is South Africa’s na onal electric-ity company, genera ng approximately 95 percent of the electricity used in the country and 45 percent of the electric-ity used in Africa. The power u lity is responsible for genera ng, transmi ng and distribu ng electricity to industrial, mining, commercial, agricultural and resi-den al customers and re-distributors.
Currently, Eskom operates as a ver cally integrated monopoly, meaning that the genera on, transmission, distribu on and retail func ons are all performed by one en ty. This creates a narrow window for municipali es and the private sector to play a role in distribu on and retail, as well as genera on. The unbundling of Es-kom will separate the single power u lity into genera on, transmission and distri-bu on en es.
Unbundling
The unbundling of Eskom – announced by President Ramaphosa in February – will separate the single power u lity into genera on, transmission and distribu on en es.
A type of structural reform, unbundling can refer to either the separa on of a u lity’s genera on, transmission, distri-bu on and retail func ons (ver cal un-bundling), or it can refer to the crea on or entry of mul ple players into each of these func ons, where the players may compete against each other to deliver the same service (horizontal unbundling). South Africa is not the fi rst country to implement this type of reform, with sim-ilar processes seen in both Kenya and
Uganda. Despite Eskom’s eff orts, South Africa’s demand con nued to outweigh supply, causing another round of load shedding, or rolling blackouts, this year. Address-ing an Energy Por olio Commi ee, also in February, Public Enterprise Minis-ter Pravin Gordhan explained that load shedding experienced at the beginning of the year was due to technical prob-lems. Gordhan added that three senior coal power sta on engineers from Italy, along with experienced South African engineers, were recruited to assess why there have been frequent breakdowns, whether Eskom has the right competen-cies among its engineers and whether there is suffi cient maintenance to pre-vent load shedding in future.
A er mee ng with Eskom, it was agreed that external power sta on engineers would conduct the independent audit to get Eskom ‘back on track.’
Corporate Plan
Eskom buys and sells electricity to the Southern African Development Commu-nity (SADC). The future involvement in African markets outside South Africa – namely, the SADC countries connected to the South African grid and the rest of Africa – is limited to those projects that have a direct impact on ensuring security of supply for South Africa.
Following a na onal power shortage in 2007, which led to load shedding throughout South Africa, the u lity em-barked on an aggressive electricity pro-duc on expansion program. In addi on
to addressing rising electricity demand, the construc on of supplementary pow-er sta ons and major power lines also assists Eskom in improving and strength-ening its core business objec ves.
Eskom generates electricity in power sta ons distributed around South Africa, with the bulk of South Africa’s electricity generated from 18 coal-fi red power sta- ons, located mainly on the Mpumalanga
Highveld. The transmission system plays a pivotal role in the provision of electricity by delivering electricity in bulk from the power sta ons to load centres located throughout South Africa and the region. From there, the distribu on networks owned by Eskom and various municipali- es deliver electricity to end-users.
The transmission system not only re-quires maintenance to deliver a reliable supply of electricity, but also needs to be strengthened to meet changing customer needs and to connect new loads and gen-era ng capacity.
Eskom’s corporate plan assists the pow-er u lity by contribu ng to government’s goal of ensuring the security of elec-tricity supply to the country, while en-abling economic growth and prosperity. The plan, consis ng of six pillars, deals with customer centricity, reliability and increase in capacity, cost effi ciencies, decarboniza on and innova on and transforma on.
The power u lity is focused on providing a secure and steady supply of electricity to the country, and good governance is needed to secure Eskom’s future.
Profi le
ELECTRICITY REFORM
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Africa Energy Series | South Africa
concepts further at Argonne Na onal Laboratory in the US. A further example is the SALT ba ery, or ZEBRA ba ery.
Our patented process for the produc on of precursor materials for the next gen-era on high voltage lithium ba eries has massive opportunity for the local manu-facturing of ba eries for sta onary and mobile energy storage applica ons, ben-efi cia ng South African minerals such as nickel and manganese.
Can you give us a snapshot of what South Africa’s power system looks like today, and how it is changing?
South Africa has a coal-based electricity system as it was largely built the 1970s and 1980s through the construc on of large coal-fi red power sta ons, leverag-ing South Africa’s extensive and histori-cally cheap coal resources. At that point in me the development of large u lity scale coal-fi red plants were the most cost eff ec ve way to supply the growing demand for electricity, and resulted in some of the lowest prices for energy in the world, benefi ng the South African economy.
Within that context, many South African municipali es had historically owned and operated their own power sta ons, pre-dominately oil and coal-fi red. With the advent of low cost Eskom supply, those embedded power sta ons were re red and electricity supply has, un l recently, been dominated by a highly centralized energy system. Municipali es purchase energy in bulk from Eskom and distribute to end customers.
This paradigm is now changing. New technology developments have changed the economics and scale of energy sup-ply. Renewable energy costs have de-clined substan ally and the economies of scale are such that small-scale dis-tributed supply (such as roo op photo-voltaic (PV) solar) now present an a rac- ve complementary opportunity for the
South African power system. Solar PV
in par cular can be developed at vari-ous scales, from u lity plants (typically 75MW in the South African Renewable Energy Independent Power Producer Program) to micro-scale embedded sys-tems of roo ops, with applica on in both grid and off -grid roles. Such solu ons are not only a rac ve to large scale energy supply, but also as cost eff ec ve solu ons for the electrifi ca on of deep rural areas that are remote from the na onal grid.
As the cost of renewables falls, electricity prices for South African consumers are sti ll rising. What is the sector going to look like as renewables take a bigger share of generati on and where do the municipaliti es fi t in?
The exis ng Eskom coal fl eet will gradu-ally decommission as these power plant reach end of life and are no longer eco-nomic to operate. That capacity will need to be replaced, and we envisage the fu-ture system to transi on towards lower cost renewable energy sources combined with energy storage, fl exible demand re-sponse and fl exible dispatchable genera- on. Large por ons of these new tech-
nology deployments can be embedded within municipal distribu on networks. With our partners, we are modeling this future energy system and the role and op-portuni es for South African municipali es to broaden their energy services and de-velop new revenue streams. We foresee municipali es complimen ng the tradi- onal Eskom supply with embedded re-
newables (solar PV, wind, and biogas), and gas to power. We see further opportuni es to grow energy sales through the electrifi -ca on of transport and with “prosumers” whereby customers can be both producers and consumers of energy. This transi on will require new business models, policies, regula ons and tariff s. The CSIR will be at the forefront of this transi on.
In what directi on does Eskom need to go to accommodate this new vision?
Eskom remains a key role player in this
energy transi on. As with municipali es, the distributed nature of the new energy sources present opportuni es for Eskom to develop new off erings. With increasing levels of renewable energy deployed, the Eskom genera on fl eet will need to be-come increasingly fl exible to complement the variable nature of renewable energy sources. This presents an opportunity for Eskom to provide system level services for capacity and ancillary services complement-ing the embedded resources being devel-oped in municipali es and by customers. Ul mately that could transi on into ener-gy, capacity and ancillary service markets where the cost and value of all of the ingre-dients for adequate and reliable supply are eff ec vely and transparently managed.
In that future system the transmission and distribu on grid remains cri cal for the in-terconnec on of energy supply, storage and demand. The “wires” business is expected to remain a regulated en ty. Smart grid de-ployments will become increasingly cri cal to manage the distributed energy resources embedded in the distribu on grid. Eskom, in partnership with other organisa ons like the CSIR, will need to develop and deploy cost eff ec ve smart grid solu ons op mised for the South African context.
What do you see for the future of coal in this country? How could coal support renewables, and how would coal fi t into the energy mix in 20 years ti me, if at all?
Our detailed analysis of the South Af-rican Integrated Resource Plan (IRP) informs our views of a gradual re-duction in coal-fired electricity as old coal-fired plants decommission and are replaced with the lowest cost al-ternatives. Coal is a major part of the South African energy system and will remain so for at least the next 20 years, unless there are further incen-tives to accelerate de-carbonisation of the South African energy system. Our analysis, as has been confirmed by other independent studies, shows that the future least
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What is the core purpose of the CSIR?
The CSIR was established in 1945 as a na onal science council through an act of Parliament. Our mission and vision are centered on crea ng sustainable solu- ons for the socio-economic benefi t of
the people of the republic of South Africa. As a na onal science council we focus on research and problem solving in collabo-ra on with tradi onal academic univer-si es and partnerships with key stake-holders. One of our key strategic drivers is industrializa on, integra ng new tech-nologies and localising and adap ng/im-proving exis ng technologies. We do this in order to develop markets and indus-tries and to make exis ng industries more compe ve on an interna onal scale. A key driver includes suppor ng all ers of government in the delivery of services and a capable state.
Energy is one of our fi elds of research. In 2014 the CSIR increased the prominence of our energy research by establishing a dedicated Energy Center, concentra ng all energy focused research in that center.
How does the research that you do feed into the nati onal discourse and planning–and feed through to projects?
Our research agenda is focused on sup-por ng the needs of major stakeholders and to complement the research work
done in the broader research, devel-opment and innova on landscape. We do this on a partnership basis, with the Department of Science and Technology, Department of Energy, the South African Na onal Energy Development Ins tute, the na onal electricity unity Eskom, mu-nicipali es, private sector clients and lo-cal and interna onal research organisa- ons. In analyzing the energy landscape
we establish where we can best add val-ue without unnecessary duplica ng the work of others, focusing our research in areas where we see opportunity and fu-ture need.
What are those key areas?
We focus on technology development and decision support across the energy value chain covering energy supply and demand, energy systems, energy industry and energy materials. Our work extends from na onal energy systems modelling to primary research progressing new technologies through the technology readiness levels from conceptualiza on through to commercialisa on.
Our energy materials research teams de-velop new genera on ba ery and hydro-gen produc on and storage technologies, which we foresee will play a major role in the future energy system and posi on South Africa to meet this future market demand.
Our energy modelling and planning work
is performed at various scales from na- onal country level analysis through to
municipal level studies and services to industrial and commercial energy users looking to reduce cost and improve sus-tainability. These decision support ser-vices help our stakeholders and clients with scien fi c and economic fact-based analy cs of the future scenarios for the energy system, and the op mal mix of energy sources, energy storage, energy effi ciency and demand response. We do this considering the en re energy system, from electricity to transporta on and heat including all primary energy carriers. These insights inform our research focus areas given our understanding of new and emerging opportuni es. We have fo-cused our research on renewable energy systems, energy storage, energy materi-als and the development of local energy industries and decision support for a just transi on towards cheaper and more sustainable sources of energy. These are areas set for major growth and new tech-nology development.
Are there any major achievements on the innovati on front that have come out of South Africa?
The CSIR has a proud history develop-ing pioneering technologies and ground-breaking energy materials research. The development of lithium ion ba ery technology had its roots at the CSIR via interna onal experts such as Dr. Michael Thackeray, who went on to develop the
Interview
DECENTRALIZEDAND DECARBONIZED
Dr. Clinton Carter-BrownEnergy Centre HeadCouncil for Scientific and Industrial Research (CSIR)
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Interview
cost power system will be based on low cost renewable energy deployed with complementary fl exible dispatch-able genera on (e.g. gas to power) and energy storage, with fl exible demand such as controlled charging of electric vehicles and hot water cylinder hea ng. Such a power system not only results in the cheapest electricity but also sub-stan ally reduces emissions and water consump on. South Africa is blessed with abundant renewable energy sourc-es (solar, wind and biomass) and ample land in which to sustainably develop these sources of energy. This energy transi on needs to be carefully planned and managed, apprecia ng the sub-stan al impacts that a move away from coal will have on specifi c industries and communi es.
How much of that new capacity do you think will be natural gas fired?
Our IRP analysis confi rms that there will be a substan al role for gas-fi red pow-er operated in a mid-merit to peaking role, complemen ng the variability of renewable energy sources. This gas can ini ally be economically supplied via liq-uefi ed natural gas (LNG) supply, and in the longer term via regional piped gas or
indigenous gas via off shore and possible shale gas. Gas-fi red power technologies inherently provide fl exible opera on, low cost capacity and have half of the CO2 emissions of coal-fi red power.
The ming and capacity of new gas-fi red power sta ons will be dependent on the rate of electricity growth, pace of de-commissioning of the coal-fi red sta ons and the economics of compe ng tech-nologies.
Why is climate change not a core part of the energy discourse in South Africa?
It is a very important discourse. The lowest cost future electricity system in South Africa is a primarily renewable en-ergy system, with large scale reduc ons in emissions and water consump on. The rate at which we transi on to this renewable based system is dependent on the rate at which the coal-fi red sta- ons are decommissioned. If these coal-fi red sta ons are operated un l their economic end of life (with no externality costs associated with emissions) there will be a gradual transi on, with the en-ergy system only star ng to drama cally change a er 2030. The further acceler-a on of the transi on via earlier decom-missioning of the coal-fi red sta ons will need to be balanced with cost and the environmental implica ons. The ener-gy discourse in South Africa has largely centered on the decisions regarding the replacement of aging coal-fi red sta ons, and not the accelerated decommission-ing of coal and the de-carbonisa on of the energy system. It is an cipated that as the opportuni es presented by low cost renewable energy solu ons are em-braced by many stakeholders, that the dialogue will further evolve to consider accelerated renewable energy deploy-ment, as accessing interna onal incen- ves and fi nancing support.
It is important to note that the de-car-bonisa on of the electricity system can be prac cally achieved at low cost. Only
a quarter of the total energy consump- on in South Africa is via electricity. The
majority of the end use consump on is in transport (24 percent) and heat used in industrial processes (44 percent). The de-carbona on of transport and heat will result in electricity becoming the primary energy carrier, with the electri-fi ca on of transporta on and heat, le-veraging low cost renewable energy, and a transi on towards hydrogen and clean synthe c fuels. Hence the work that the CSIR Energy Centre is also doing in fuel cells, hydrogen produc on and storage, and synthe c fuels such as solar based methanol using captured CO2.
How will batteries take their place in the electricity system and what will be the interaction with natural gas?
The economics of natural gas-fi red power depend on a range of factors in-cluding the cost of gas and compe ng technologies. In the future South Afri-can energy system the economics are such that in a least cost system, gas-fi red power is dispatched to fi ll the gaps when renewable energy produc on is rela vely low. An alterna ve solu on to gas-fi red power is the deployment of energy storage, shi ing renewable energy produc on into periods where gas-fi red power would otherwise be dispatched.
Our CSIR analysis, as is detailed in our related public submissions to the De-partment of Energy, shows that with projected ba ery cost reduc ons, a substan al por on of the gas-fi red power supply will be more economi-cally met via ba ery deployment and increased Solar PV penetra on. The extent to which ba eries displace gas will depend on the rela ve cost reduc- ons of gas and ba eries. Our mod-
eling indicates that if the ba ery cost reduc on forecasts of the Interna onal Energy Agency (and others) materializ-es, then gas capaci es and volumes will be substan ally reduced, with major
Africa Energy Series | South Africa
opportuni es for the localiza on and manufacturing of ba ery energy stor-age systems in South Africa. Ba ery costs of $100/kWh or less will have a profound impact on the South African power system, and recent cost reduc- ons indicate that these cost reduc ons
are likely to be achieved within a 5-10 year me horizon. Hence the ongoing work the CSIR is doing in these energy storage technologies.
Are batt eries likely to have the same impact in other African economies, especially those that produce gas?
The extent to which ba eries (combined with renewable energy) are cost eff ec- ve depends on the price of gas and
renewable energy op ons. In countries with low cost indigenous natural gas, large propor ons of gas-fi red power may con nue to be part of a least cost energy mix, but gas may be displaced as the cost of renewable energy reduces further.
It needs to be appreciated that natural gas is also used in transporta on and heat. Ba eries are a key enabler for the electrifi ca on of transporta on, but compe vely priced natural gas is ex-pected to remain a cost a rac ve ener-gy source for heat.
Sub-Saharan Africa remains largely un-electrifi ed. Reducing ba ery costs also present major opportuni es for mini-grid and off -grid electrifi ca on solu ons as combined with renewable energy sources
What have you learned in South Africa that one might be able to apply elsewhere on the conti nent?
Many African countries have developed their own Integrated Resource Plans (na onal genera on plans). The regional power pools are crea ng markets and trading opportuni es to further inter-connect the diff erent energy systems and leverage the combined benefi ts of
diversifi ed energy sources e.g. PV and wind complimented by coal, hydro and geothermal in countries blessed with these diff erent resources. Least cost energy planning provides a basis to plan regional power systems, balancing the desire for countries to be energy auton-omous, with the benefi ts and reduced cost of a collec ve approach. By ana-lysing diff erent scenarios, the cost, eco-nomic and environmental implica ons of diff erent decisions can be assessed by policy and decision makers.
This requires transparent and robust dialogue on the future energy system development, and how markets and u li es need to evolve in order to un-lock the value of new technologies. Such considera ons should extend to the localisa on of technologies and co-ordinated plans to address the impacts of changes such as any transi on from tradi onal supply op ons (like coal) to new technologies (like low cost renew-ables). Trade-off s will need to be made, as informed by robust modelling and dialogue. Opportuni es to benefi ciate local resources need to be iden fi ed, linking to the technologies that are like-ly to become dominant components of the future energy system. This should be done considering the decentralisa on opportuni es that new and emerging technologies present, with associated considera ons for the policy, regula on and business models for u li es, munici-pali es, end users and suppliers.
Such should include the opportuni es that renewable energy and energy stor-age solu ons present for the cost-ef-fec ve electrifi ca on of rural areas.
What do you expect for the future of the energy system in South Africa?
South Africa is heavily dependent on imported liquid fuels used in the trans-porta on sector, with commensurate implica ons on balance of trade and the exposure to interna onal oil pricing
and exchange rate risks. The transition of the electricity system towards low cost renewable energy sources also presents an opportunity to electrify transportation and create hydrogen for application in clean synthetic fuel production and for export to markets such as Japan and Europe that are not blessed with our levels of local wind and solar resource or land to develop such projects. We hence see the sus-tained deployment of cost effective renewable energy sources in South Africa, with increased coupling of the electricity, transportation and heating sectors. There will be a gradual move away from coal, the rate of which will be dependent on the economics and cost reductions of clean technologies, as balanced with climate change impli-cations and related incentives and fi-nancing. We see a future where the key elements of the energy system are manufactured locally, creating new industries and jobs, as linking to the green economy. The “wires” electricity grid will remain a key enabler for this transition, complemented by off-grid and mini-grid solu ons.
Eskom remains a key
role player in thisenergy transiti on. As with municipaliti es, the distributed nature of the newenergy sources present opportuniti es for Eskom to develop new off erings.
Our IRP analysis
confi rms a substanti al role for gas-fi red power operated in a mid-merit to peaking role, complementi ng the variability of renewable energy sources.
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Africa Energy Series | South Africa
economy, nor technical necessity at the me. This created uncertainty which could
possibly have been the reason for a three-year delay in Eskom’s signing off on Power Purchase Agreements (PPA) in Round 4 of the REIPPP.
Despite the general posi vity around the Dra IRP 2018, it may be more coal-friend-ly than necessary, under valuing the role of renewables to some extent. That said, the country does have a responsibility to play a role in coal being decommissioned - a just transi on which could have a nega ve im-pact on employment in the short-term for areas dominated by the coal sector.
How has Eskom’s involvement in the tender awarding process and control of the grid aff ected the REIPPP?
Renewable energy projects require access to the na onal grid, as well as a purchaser for the power produced. As the monopoly state-owned par cipant, Eskom is respon-sible for ensuring grid access to bid winners following an applica on made as part of the REIPPP process, and it ul mately signs as off -taker in the PPA.
A er being awarded preferred bidder sta-tus in the fi rst to third rounds of REIPPP, projects typically reached fi nancial close within 12 months which includes the signing of the PPA – a er which the tariff price is fi xed, and construc on can be-gin. In round four, signifi cant money was spent to achieve fi nancial close in the usual 12-month period, but the PPA remained unsigned for three years, which did put un-usual fi nancial strain on developers.
How could the market be restructured to ensure a fairer playing fi eld for IPPs?
The monopolis c nature of Eskom can be problema c as IPPs must compete against the state-owned u lity in power genera- on. An independent system which is s ll
publicly owned - where the market opera-tor is separated from Eskom’s role in gener-
a on - would remove the need for IPPs to sell to their biggest compe tor. In addi on, the u lity remains subject to poli cal infl u-ence, which has led to ineffi ciencies in the REIPPP program.
This does not mean that priva za on of Eskom is necessary and it is not needed at this stage. Eskom could generate posi ve cash-fl ow if it is split up so that the u li-ty remains responsible for transmission, which remains a na onal asset. Its power genera on plants would be split into sev-eral individual power producers in which Eskom could hold majority shares but sell off equity to the private sector. Revenues generated from these sales could be used to se le its debt to levels where Eskom can service the debt, while retaining revenue from the power plants that are operated. The process begins with separa ng trans-mission and genera on, and from there the par al sale of plants would depend on op-era onal needs, as they arise.
How has Mainstream’s global experience contributed to skills development and the company’s growth in South Africa?
Our interna onal skills and exper se helped us a lot in the early days of the South African IPP program. Many people from our opera ons across the world worked in our local offi ces to support us. Their skills and knowledge were ini ally passed on to our South African employees but, following the three-year delay in Round 4, the inverse has occurred. People have since moved on and the local skills we have created have been exported to the global market.
From Mainstream’s perspec ve, our inter-na onal presence has helped us to retain our skills and knowledge by deploying our staff to other regions such as Dublin, Chile and Southeast Asia. It also provided us with the ability to weather the storm and stay alive fi nancially. As a global company, if things are not going well in South Africa, they probably are in Chile or elsewhere. While this is posi ve for us in the short
term, all similarly placed companies have obliga ons towards their shareholders and management and - if certainty is not provided in the local market - there is a limit beyond which there may no longer be a reason to remain ac ve in a market.
While remaining engaged in the market was a challenge for our company - and indeed all mul na onal players during the Round 4 impasse - we were awarded two projects which we are happy with. We see a long-term future for this market and with increased certainty, we believe we are able to make longer-term commitments and in-vestments, especially in terms of capaci-ty-building.
What has your experience been in fi nding the right percentage of local consorti um partners in line with REIPPP requirements?
From Mainstream’s perspec ve - since we are not an IPP in the strict sense of the word - we welcome majority shareholding by local en es. In terms of mee ng local and Black Economic Empowerment (BEE) requirements under REIPPP, we prefer BEE partners that are able to fund themselves and contribute posi vely and directly to the project through ac ve par cipa on and we do not see value in passive par cipa on.
Without ac ve par cipa on of our local and BEE partners, there is unlikely to be long-term viability of the industry. It is nec-essary for direct black shareholding to stand up and say that this cannot be an indus-try built simply on European investment. We believe that is probably the only way forward for the industry, especially in light of downward pressure on the tariff . For a foreign en ty that wants Euro or Dollar returns, the lowering of South African tar-iff s creates limita ons in terms of their op-portuni es in the market. We support the future of the program as majority, locally owned and with signifi cant direct black ownership. That is the kind of poli cs we want to play with and that is the road we see forward.
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Mainstream Renewable Power (Mainstream) brands itself as the world’s leading pure-play renewable energy developer in high growth markets. The company’s vision is to electrify the world with renewable energy and lead a global transi on to more sustainable sources of power. In addi on, Mainstream has received a number of industry awards including the Best Wind Deal Africa 2016 and being named Member of the Year 2019 by Chile’s Renewable Energy Associa on.
Where does Mainstream operate globally?
Mainstream’s headquarters are in Dublin and we have large global wind and solar interests. We are expanding quite aggres-sively into Southeast Asia and we are look-ing at addi onal South American markets, augmen ng our presence in Chile. We are defi nitely considering con nuing our off -shore ac vi es in Europe and entering oth-er off shore markets in America and Asia as well. At this stage, Mainstream is not as ag-gressive in the rest of Africa as it is in South Africa. The company - through our Lekela pla orm - has various projects in Egypt, a project in Senegal under construc on and a project in Ghana that is awai ng fi nancial close. The vast majority of our projects on the con nent are in South Africa.
What is the extent of the company’s interest in South Africa?
Mainstream is one of the biggest renew-able energy developers in the country and
arguably one of the most successful. Strict-ly speaking, we are not an Independent Power Producer (IPP) because we develop projects, put a consor um together and hold a minority stake. We manage project construc on and plant opera ons on be-half of the consor um.
The company has par cipated in the Re-newable Energy Independent Power Pro-ducer Procurement (REIPPP) program since the fi rst bidding window in 2011 in which we secured 250 megawa s (MW), with two solar parks in Kimberly and De Aar and a windfarm in Jeff erey’s Bay. We were once again successful in Round 3 in 2013 where we won 360MW of wind, with two wind plants in Loeriesfontein and a third in Noupoort. In Round 4, announced in 2015, we won an addi onal 250MW of wind, with two plants in Kangnas and Perdekraal East - these projects achieved fi nancial close in 2018
In total, we have won 850MW of renew-ables, mostly dominated by wind and 100MW of solar. In addi on, we have over 4000MW in development, ready to be con-structed.
What role will renewables play in South Africa going forward?
As Eskom’s coal fl eet ages and reaches end of life, renewables are going to have to fi ll the gap as the poli cal pressure for implementa on of nuclear energy has re-cently been resolved. The dra Integrated
Resource Plan (IRP) 2018 confi rms that renewables are the lowest cost op on and that 12 gigawa s (GW) of coal will be decommissioned by 2030, but 12GW of coal generated power cannot simply be compared to 12GW of renewables. The capacity factor for renewables – wind and solar combined – is probably around 30 percent. That is translated into approxi-mately 36GW of renewables that need to replace the coal generated power.
The dra IRP 2018 also assumes that Eskom is going to operate at an 80 per-cent availability factor, which it has not achieved in the last decade and it is un-likely to achieve in the next. The average age of Eskom’s coal plants is about 35 years, which limits the possibility that it will recover to an 80 percent availability factor. At the moment, Eskom’s availabili-ty is around 75 percent. Every percentage point under the 80 percent threshold cor-responds to approximately an addi onal 1.5GW to 2GW of renewables that needs to come online.
How does the revised Draft IRP 2018 measure up against the IRP 2010 for IPPs?
The new Dra IRP 2018 is a be er refl ec- on of what is needed in South Africa. It is fi rm on the cos ng and the risk involved in the energy future of the country. The pre-vious IRP 2010 ar fi cially injected nuclear energy into the market without the fi nan-cial ability on the part of the South African
Interview
RESTRUCTURINGTHE ENERGY MIXAND MARKET
Hein ReynekeGeneral Manager for AfricaMainstream
91 92
Interview
Africa Energy Series | South Africa
FOCUSEDONPOWERJonathan BermanManaging DirectorFieldstone
expensive, but the ques on is if the con-sumer can aff ord it and are they going to pay for it. The technology side is fair-ly straigh orward. There are distribu on issues but it is largely a consumer fi nance business. There is a big debate going on about whether that is the right business model.
What kind of future do you see for innovati on within fi nancing in the African markets, especially when it comes to renewable projects?
On the smaller project end, for the retail off -grid and the mini-grid, small corpo-rate off -grid or capped power, the big-gest problem in most countries is that the commercial banking market is not ready to fund them. In South Africa, the commer-cial banking market can fund those things, but in the rest of the region the commer-cial banking market cannot fund them for two reasons. Firstly, they may not have the balance sheet, par cularly for the long term. Secondly, they think, rightly or wrongly, that they do not have the skills.
In many cases I think they are underes- ma ng the skills they have, but there is
a percep on among local banks that the sector is diffi cult to understand and when I say local I mean locally owned banks and also subsidiaries of big South African banks or banks like Standard Chartered and Ci Bank, where the power or project fi nance skills tend to sit in Johannesburg, London or Paris.
It is o en not economic for them to go and do for example 5MW in Uganda. We need an answer there. DFIs have been the answer. They are developmental and more willing to do smaller projects, but they are fi nding with many that they are a bit cumbersome, the smaller projects. The processes are slow. We see room for new fi nancing vehicles.
What are other industry challenges that becoming apparent?
Storage is a threat to exis ng base load,
as combined with renewable energy it can poten ally wipe tradi onal technol-ogies out. It is a threat to exis ng grid companies, the “u lity death spiral” is-sue we have seen in other economies. It is a threat to peaking technologies poten ally. It will take a bit longer to be a threat to them but it will be one. It is also an opportunity.
We have done a bit of work and some capital raising for a ba ery company in Europe, which is a new space for us, and our understanding of the energy indus-try was very helpful there, and I think it is an interes ng space. In South Africa, it is not just an opportunity to have ba ery companies, but it is also supplying the raw minerals. For a mineral-rich country and sub region, the opportuni es to get new demand out of those metals, even tradi onal ones like copper; the demand for copper is going up drama cally be-cause of its greater consump on in the new energy world. It has a ripple eff ect because copper mining requires more power. That whole technology, ba eries and electric cars, will have a ripple ef-fect on economies. The opportunity for us and for governments at the na on-al level is to think about that and start planning.
When looking at diff erent markets in in Africa, which market do you see as being more promising in terms of ramping up their power generati on faster than the others and att racti ng investments ore easily as well?
Lets set aside the largest and richest ones. Those are good markets for ev-eryone and also bankable. Looking at the rest, you touch on a really import-ant point, which is not purely about the credit risk or the investment environ-ment. The biggest thing that dis nguish-es them for investors is the certainty of deals happening.
Over the past couple of years, Ugan-da has been one of the best ones, be-
cause they have gone ahead and done the GET FiT projects. In the short term, any country that has an effi cient stan-dardised procurement program, it need not be with the support of a DFI like GET FiT or Scaling Solar, but in prac ce those have been the most eff ec ve. In Zambia we have both of these programs and we have scaling solar coming up in Ethiopia and other countries.
Either your project happens or if it does not, you out in a tender, even if you lose, and you don’t waste a lot of me. It is closer to the environment in a devel-oped economy where developers take a say win some, lose some approach.
What is your view of the current state of the South African energy sector?
Our largest area of focus is in the power space, and in that we are pragma c as to where the deals are. We have seen a massive shi from tradi onal genera on technologies towards renewable energy, but we are not ideological about that. For example, we are working on one of the coal-fi red power plants, which has been awarded by the government. We are responsive to that market in that sense and that means you will see a very broad mix of ac vi es in our por olio.
We are seeing a number of opportuni es in coal in South Africa and neighbouring countries, which range from coal supply to the power industry. On the nega ve side, there is an environmental concern for exis ng coal power sta ons, and the big reason for keeping them alive apart from the security of supply, is the broad-er social story – which is a real social and poli cal issue on the ground. There is a very interes ng discussion around that, whether there will be an extension of exis ng coal plants and where com-mercial opportuni es in that are.
There are also s ll some good export opportuni es because par cularly South East Asia is con nuing to invest in coal-fi red power genera on. The level of power demand is so great that even those countries that are doing renew-
ables and gas have coal as part of their energy mix. Because of their fi nancing sources, they are going to be able to con nue doing that for the next few years and therefore there is an export opportunity for coal fi red mines here, and that is something that we are ac- vely involved in.
Will you be parti cipati ng in any gas-to-power projects in the near future?
We are eagerly awai ng the gas-to-power (G2P) program by the govern-ment. There is not much else new on the power side in South Africa in the foreseeable future other than that G2P IPP program. We are very keen on that. On the renewables side, there is a lot of ac vity ranging from larger grid scale power such as the REIPPP program and other programs in neighbouring coun-tries.
Zambia is pushing forward with two renewable energy programmes, Scaling Solar and GET FiT, both of which see a lot of South Africa based investment go-ing on so, that is very exci ng. Mozam-bique recently did a fi nancial close on their fi rst solar project, which is great, considering the sovereign risk environ-ment.
What potenti al do you see off -grid? How att racti ve are smaller scale projects for Fieldstone?
We are doing a bit in the off -grid space, advising a number of off -grid compa-nies, mostly in East Africa. In most coun-tries in East Africa at the moment, it is much easier to jus fy off -grid including for much lower economic and income groups because it is simply not going to be viable for central u li es to connect those people any me soon if govern-ments are suppor ve and u li es do not feel threatened because it is compli-mentary to them.
There is s ll a ques on over the busi-ness model of these off -grid companies though, the household and retail end, whether the business model is right. They face the problem that Africa is a bit of a global tes ng ground for this because even in other developing econ-omies, where there tends to be greater electrifi ca on rates and/or larger grid distribu on, there has probably been less focus on off -grid. Everyone is ex-ploring what the right business model is.
Our view is that most of these compa-nies that we have seen have been in the consumer fi nance leasing business not the power business in the sense that the business model is that you provide a bit of kit to the client but at the end of the day it is a lease transac on and one of the big worries is credit risks.
You are typically not being benchmarked against grid power, so the power is more
In South Africa, it
is not just having batt ery companies but it is also the metals. For a mineral-rich country and sub region, the opportuniti es to get new demand out of those metals, even traditi onal ones like copper; the demand for copper is going up dramati cally because of its greater consumpti on in the new energy world.
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Profi le
Medupi Power Station is the fourth dry-cooled, baseload station built in 20 years by state-owned Eskom after the Kendal, Majuba and Matimba power stations. Upon completion, it will be the fourth largest coal plant in the southern hemisphere, and the biggest dry-cooled power station in the world.The boiler and turbine contracts for Medupi, whose last two units are ex-pected to be fully operational by 2020, are the largest contracts that Eskom has signed in its 90-year history. Each of the six units will achieve a gross nom-inal capacity of 800MW each, resulting in a total capacity of 4,800MW, with a planned operational life of 50 years.
It is the first baseload coal-fired pow-er station to be built in South Africa in more than 20 years and its delivery on schedule is viewed as critical.
Supercritical boilers and turbines were installed at Medupi to improve the ef-ficiency of the station, as they operate at higher temperatures and pressures than Eskom’s other stations. This baseload station will also use direct
dry-cooling due to water scarcity in the area.
Medupi was constructed in a phased manner to meet the growing demand for electricity in South Africa. The first phase was commissioned in 2007 and included construction of the first three units, as well as site clearing through controlled blasting.
The Medupi project is unique in that was built backwards. As a result, Unit 6 was synchronized to the grid at the beginning of March 2015. By August 2015, the unit became commercially operational.
Unit 5 was successfully synchronized to the national grid in September 2016, ahead of schedule, and reached full load in December 2016. After complet-ing performance, reliability and compli-ance tests, the unit attained commer-cial operation in April 2017; ahead of schedule. Unit 4 was synchronized in
May 2017 and achieved commercial operation status in November 2017, ahead of the scheduled timeline of July 2018. Unit 3 reached first synchroniza-tion in April 2018, with completion of the entire six-unit Medupi project be-ing revised to 2020/21.
Financing for the Medupi project was obtained through the African Devel-opment Bank (AfDB) which approved a R20.7 billion loan to source and install boilers and turbo generators. This is thought to be the largest AfDB-sanc-tioned loan in South Africa and was giv-en with a sovereign guarantee from the South African Government. In conjunc-tion with the funds provided by AfDB, the project received a R27 billion loan from the World Bank in April 2010.
The two main contracts for the project were awarded to Hitachi of Japan and ACTOM in November 2007. Valued at R33.6 billion, the contracts were the largest commercial contracts ever
awarded by Eskom. ACTOM was also awarded the R275 million contract to supply all medium-voltage switchgear for Medupi, including 640 switchgear units of 280 x 12kV and 360 x 17.5 kV.
Additionally, the R20 billion boiler con-tract was awarded to Hitachi Power and joint venture partner Hitachi Pow-er Europe. Hitachi Power Europe is also responsible for overseeing the offshore works of the project, which includes plant design and engineering, as well as supply of vital components and high grade materials.
Rheinmetall Defence Electronics (RDE) was awarded an engineering and train-ing simulator contract in June 2010 to optimize process and quality manage-ment while providing scope for oper-ator training. This involved facilitating every stage of the construction, com-missioning and operation processes.
The Exxaro Resources Grotegeluk coal mine was awarded a major contract to supply 14.6 million tons of coal a year
over a 40 year period, and the main civil works contract was awarded to Murray & Roberts, Concor and Grinacker.
Additional contracts were awarded to GEA Air Cooled Systems and relate to the structural steel, mechanical, elec-trical, instrumentation and piping of six air-cooled condenser (ACC) units.
A major challenge of the Medupi proj-ect has been sticking to the commis-sioned timeline. Although the project is now close to completion according to Eskom, the initial duration of the project was estimated at four years. In 2015, Eskom contracted global law firm Dentons to probe into why it failed to meet its own deadlines for new gener-ation capacity. Key reasons for delays included limited skills, poor upfront planning, inadequate quality control and labour strikes. However, measures have been put in place to accelerate progress and recover lost time. This has been evident through the latest achievements of project milestones as per the project plan.
In 2006, Medupi Power Sta on was issued a posi ve record of decision a er an environmental impact assessment by the Department of Environmental Aff airs and Tourism. The then Minister of Environmental Aff airs and Tourism considered the appeals lodged against the decision, and confi rmed the posi- ve record of decision at the beginning of May 2007.
The Medupi fi rst civil concrete pouring took place in July 2008, with the fi rst air-cooled condenser concrete slip forma on in October 2008. One month later, the fi rst three air-cooled con-denser columns were completed.
February 2010 saw the fi rst structural steel erec on on the Unit 6 boiler, with the comple on of the fi rst 220m chimney in August 2010. Two years later, Medupi commenced its fi rst 24-hour performance tes ng to run at maximum capacity for
the delivery of coal to Medupi from the Grootegeluk mine in November 2012.
The wet run of the submerged scraper conveyor was success-fully completed in September 2013. This system removes the ash from the bo om of the boiler, an essen al step in ge ng the boiler ready for fi rst fi re. In January 2014, the boiler sep-arators, which were ini ally installed for Unit 6, were success-fully cut out. The purpose of the separators is to separate the steam and steam water droplets. New replacement separators were then installed.
By February 2014, following close co-opera on between team Medupi and contractors, all boiler issues were resolved, allow-ing for the installa on of the boiler frame for Unit 1 to com-mence.
POWERING SOUTH AFRICA:MEGA COAL PLANTS KEY FORFUTURE ELECTRIFICATION
Africa Energy Series | South Africa
It is the fi rst baseload
coal-fi red power stati on to be built in South Africa in more than 20 years and its delivery on schedule is viewed as criti cal.
MEDUPI CONSTRUCTION MILESTONES
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Established in 1853, Ansaldo Energia is one of the world’s leading suppliers, installers and service providers for power genera on plants and components, with an installed capacity of over 194 GW in more than 90 countries, and about 4,400 employees worldwide in 33 loca ons, including its headquarters in Italy and the South African Branch offi ce in Johannesburg.
What is the extent of Ansaldo Energia’s acti vity in Africa?
Ansaldo Energia has been present in Af-rica since the 1990s and has a long-term commitment to the African market: it has more than 16,000MW installed in sever-al countries in Africa and a new offi ce was opened in Lagos, Nigeria, in March 2018. In 2015 and 2016 Ansaldo Energia commis-sioned two large gas turbine power plants in South Africa (Avon, near Durban, and Dedisa, near Port Elizabeth), for a total of 1,000MW of electric peaking power.
The Avon and Dedisa peaking power plants, which are the fi rst Independent Power Producer (IPP) thermal plants in South Africa, were developed by Engie, with minority shareholding held by Mitsui and local South African companies. The turbines used in the plant are liquid fuel fed, operate on a dual-fuel basis and can operate on diesel or gas. As the original equipment manufacturer (OEM) supplier, Ansaldo Energia manufactured, supplied, installed, commissioned and maintains the turbines in opera on at these peakers.
Where are the turbines manufactured and what is the potenti al for manufacturing locally?
We design and manufacture gas and steam turbines and electrical generators in It-aly, as it is currently too diffi cult to manu-facture them locally from a technological and feasibility standpoint. The high cost of components, metals, and coa ngs u lized requires us to develop economies of scale to remain compe ve.
Despite this, we see localiza on as an op-portunity that supports our compe ve-ness in the marketplace. We source some of the accessories locally, within proximity of the plants, to the extent that it is possible to do so. In addi on, we select local ven-dors for civil works and erec on, and we locally source manpower. The manpower profi le that we have onsite throughout the construc on phase changes, but the manpower peaked at 2,500 people, and the overwhelming majority, more than 95 percent were South Africans, fulfi lling and exceeding the Black Economic Empower-ment (BEE) requirements.
When you look at the African turbine market at the moment, how can the technological aspects and performance of the equipment be improved?
Gas Turbines for power genera on are designed and manufactured according to diff erent technology levels of sophis ca-
on and effi ciency. Typically, “F-Class” gas turbines types produce more power at a higher effi ciency than “E-Class” types, thanks to more advanced materials, ho er working temperatures, larger scale, and are preferred by customers or countries where the power transmission and distribu on network is more developed.
Looking at the African con nent, there is quite a gap between northern Africa and the rest of the con nent. In the north, there have been advanced technology F-class turbines installed in combined cy-cle opera on for many years. Also, the grid is a bit more stable and has the capacity to dispatch and distribute a greater amount of power, so that countries in the region are more easily interconnected than on the rest of the con nent. North Afri-can countries have historically preferred high-effi ciency plants, with above 55 per-cent effi ciency – which has not been the case in sub-Saharan Africa.
In sub-Saharan Africa, there is not a single “F-class” turbine installed while there are a lot of E-class machines, including Ansal-do Energia’s gas turbines in Avon and in Dedisa. This can primarily be explained by the fact that effi ciency was not historically seen as a cri cal point in the region. As a re-sult, regional power grids were not capable of absorbing a lot of power generated by a single machine, aff ec ng the stability of the grid. South Africa, on the other hand, has a reliable and stable grid, which would allow a smooth opera on of F-Class units.
Interview
Africa Energy Series | South Africa
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The plants originated in response to a call from South Africa’s Department of Energy in the wake of electricity supply short-ages experienced across the country in 2008. The 335-mega-wa (MW) Dedisa plant reached its commercial opera on date (COD) on September 30, 2015 while Avon (genera ng 670MW) reached COD on July 20, 2016. Both plants operate under a 15-year Power Purchase Agreement concluded with state-owned Eskom as the buyer and a seven-year renewable fuel supply agreement.
As the only dispatchable Independent Power Producer, the plants supply electricity to the Na onal Grid during peak de-mand hours - reaching full load in under 30 minutes - and also provide back up or emergency power to the grid as and when required under instruc on from Eskom. In addi on to their genera ng capability, the plants can also be used to regulate network voltage and frequency fl uctua ons to help to stabilize the grid.
The star ng point of the plants has been the two daily peaks in South Africa’s power load - which occur in the mornings and evenings - with the evening peak being a li le higher. Like with any peaking plant, their opera on tends to be seasonal, with more dispatches taking place during the winter periods.
Ini ally, the plants were expected to be dispatched more fre-quently than they have been, mainly because Eskom has had the base genera on necessary to cover the power needs of the country. Now, however, with electricity supply constrained in the la er part of 2018, the expecta on is that the plants will be dispatched more o en.
Currently, the plants use diesel, but are designed to be con-ver ble to gas. While the possibility of a fuel switch to gas is a considera on, the key issue is the sustainable availability of natural gas in South Africa. For the plants to run, a reliable and predictable source of fuel is required.
There are currently four peaking plants in the country — the privately-owned Avon and Dedisa plants and the Ankerlig and Gourikwa plants owned by Eskom in the Western Cape. The country’s four peaking plants are probably the best anchors for a gas-to-power project should it be announced.
From our company’s perspec ve, if there is a predictable and reliable supply of gas available within South Africa, we would consider gas-to-power as part of our long-term strategy. We expect the gas-to-power project to be narrowed down to two sites including Richards Bay, KwaZulu-Natal and Coega, Eastern Cape, which is posi ve for both the Avon and Dedisa plants, located in Shakaskraal, KwaZulu-Natal and Coega re-spec vely.
Our demand is driven by consumer peak periods and depends on how Eskom balances the grid. Therefore, even in the case of signifi cant renewables coming online, there is a point when demand for electricity spikes. For fossil fuels, it is about supply, and for renewable technologies it is about storage. The price of concentrated solar power, which does not face the storage challenges of other renewables, has not come down signifi -cantly because there is not yet enough volume. As a result, peaking power will con nue to be necessary. However, the ex-tent of that need will depend on how the grid is balanced.
Profi le
PEAKING POWER PROVISION
The Dedisa and Avon Peaking Power Plants were the first sizeable privately-owned energy plants in South Africa. The plants are owned by South African and international sponsors comprising Engie, majority Black owned Legend Power Solutions, Mitsui & Co and The Peaker Trust - a broad-based trust focused on enterprise development.
Tebogo MoreCEOAvon and Dedisa Peaking Power
FIRING UPSOUTH AFRICA’SPEAKERS Stefano BorsarelliVice President of Sales, New Units, AfricaAnsaldo Energia
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Arti cle
percent, solar PV 10 percent and gas 16 percent of South Africa’s installed capac-ity by 2030.
According to Eskom, the most reliable and cost-eff ec ve way of sending electrici-ty from power sta ons to load centers is by sending the power over high voltage power lines. In October 2018, Eskom announced plans to add approximate-ly 6,500km of high-voltage transmission lines and 46,000 Mega Volt Amp (MVA) of transformer capacity in the next 10 years, as set out in their latest Transmission De-velopment Plan (TDP) for the period from 2019 to 2028.
Signifi cant progress has been made since the last TDP public forum in 2017, includ-ing establishing a transmission network to enable the successful connec on of addi- onal power genera on from the Medupi
and Kusile power sta ons to the na onal grid, requiring the commissioning of 717km of transmission lines and 2,500MVA of transformer capacity. South Africa has also managed to add 11 gigawa s (GW) of addi onal power genera on capacity over the last decade, as well as 8,000km of transmission lines and 37,000MVA of sub-sta on capacity to its electricity system.
Incorporated in the plan is Eskom’s inclu-sion of Independent Power Producer (IPP) projects as part of its transmission network and the increase of cross-border transmis-sion lines to Namibia, Botswana, Zimba-bwe, Mozambique, Swaziland and Lesotho. The investment in addi onal transmission infrastructure – in conjunc on with a planned increase in conven onal energy genera on of 12GW and 13GW of re-newable energy to come online by 2028
- will help boost access to electricity in South Africa.
In February, South African President Cyril Ramaphosa announced in his State of the Na on address that Eskom will be restruc-tured into three dis nct en es under the control of Eskom Holdings. These new en- es will comprise three business units: one
for genera on, one for transmission and an-other for distribu on. According to President Ramaphosa: “Of par- cular and immediate importance is the en- ty to manage an independent state-owned
transmission grid combined with the systems operator and power planning, procurement and buying func ons. It is impera ve that we undertake these measures without delay to stabilise Eskom’s fi nances, ensure security of electricity supply, and establish the basis for long-term sustainability. We have the task and the responsibility to safeguard, build and sustain these key ins tu ons for future gen-era ons.”
Aligned with the strategic objec ves of the Department of Energy (DoE), the South Afri-can Energy Development Ins tute, has com-mi ed to carrying out applied research proj-ects to test and deploy various smart grids concepts within the South African electricity distribu on industry.
A smart grid is an electricity network that intelligently integrates the ac ons of all us-ers connected to it, to deliver sustainable, economic and secure supplies. The Smart Grid Program addresses government’s me-dium-term strategic framework objec ves of energy transforma on and service delivery. With the introduc on of smart grid technol-ogy, South Africa is able to meet its climate change objec ves at a municipal level.
The Nati onal Development Plan (NDP) identi fi es the need for South Africa to invest in a strong network of economic infrastructure designed to support the country’s medium- and long-term economic and social objecti ves. By 2030, the NDP envisages that South Africa will have an energy sector that provides reliable and effi cient energy service at competi ti ve rates, is socially equitable through expanded access to energy at aff ordable tariff s and that is environmentally sustainable through reduced polluti on.
In formula ng its vision for the ener-gy sector, the NDP took as its point of departure the Integrated Resource Plan (IRP). The IRP is a 20-year energy blue-print that outlines how the government plans to meet South Africa’s future pow-er needs. According to former South African Minister of Energy Jeff Radebe; “energy infrastructure is a cri cal com-ponent that underpins economic ac vity and growth across the country; it needs to be robust and extensive enough to meet industrial, commercial and house-hold needs.”
The latest dra of the IRP, released in August 2018, s pulates that new in-stalled capacity in the run up to 2030 will include 1,000 megawa s (MW) of coal, 2,500MW of imported hydro, 5,600MW of wind, 8,100MW of solar photovoltaic (PV) and a signifi cant 8,100MW of gas. In other words, wind will make up 15
AT A GLANCE:SOUTH AFRICA’S ENERGYINFRASTRUCTURE
Africa Energy Series | South Africa
Well-maintained energy infrastructure facilitates trade, improves connecti vity, att racts investment and allows communiti es to access services. South Africa’s Nati onal Development Plan 2030 highlights the need for South Africa to invest in a strong network of economic infrastructure designed to support the country’s medium- and long term economic and social objecti ves.
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Africa Energy Series | South Africa
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Arti cle
Although South Africa adheres to interna- onal obliga ons to reduce emissions, coal
will remain the major producer of electricity in the country, making up 46 percent of the installed capacity and genera ng about 85 percent of the country’s electricity. In addi- on, construc on of another large coal-fi red
power sta on is under considera on.
Transnet Freight Rail (TFR) is a world class heavy haul freight rail company that spe-cialises in the transporta on of freight. TFR maintains an extensive rail network across South Africa, connec ng with other rail net-works in the sub-Saharan region, with rail in-frastructure represen ng approximately 80 percent of Africa’s total.
TFR’s export coal line railed 77 million tons (mt) against a target of 76mt, refl ec ng an historic tonnage performance achievement, surpassing 2015’s 76.2mt. Evidence of suc-cessful implementa on of the road-to-rail strategy, which targets rail-friendly traffi c in various market segments to grow rail vol-umes and market share, is supported by a 3,1 percent growth in general freight tons against the previous fi nancial year. A total of 215 new general freight locomo ves were also deployed into opera ons.
High Eskom tariff s coupled with the rapid decline in roo op solar PV prices has caused an increase in uptake of PV across the resi-den al, commercial and industrial sectors in South Africa. This trend greatly strengthens the case for off -grid solar home systems and mini-grids in remote areas, and a growing number of municipal distributors are in the process of developing regulatory provisions for embedded genera on.
As stated by the DoE, over 6.7 million households were connected to the grid be-tween 1994 and 2016, with an addi onal 256,000 household grid connec ons added in the 2015/16 fi nancial year. Work towards universal access con nues and importantly over 123,000 addi onal households were supplied with non-grid technology via solar home systems.
Moreover, a study published by the Depart-
ment of Environmental Aff airs found that “from an economic perspec ve, it is clear that the off -grid program is already a least-cost economic solu on for the country.” While the Integrated Na onal Electrifi ca on Program (INEP) supports off -grid solu ons, implementa on of other off -grid projects is some mes dependent on donor funding.
INEP has contributed to the remarkable progress made in increasing access to elec-tricity in South Africa, helping to connect over 6.7 million households between 1994 and March 2016, and boos ng access to electricity to 88 percent since 1994. R5.6 billion was appropriated in the 2015/16 fi -nancial year on INEP for use on delivering 260,000 connec ons, u lising both grid and non-grid technologies. The INEP also achieved 231,012 grid and 25,076 non-grid connec ons at the end of March 2016, re-sul ng in a total of 256,088 new connec- ons as part of the 2015/16 fi nancial year
alloca ons.
Integra ng renewable energy into the grid is challenging; unlike their fossil fuel coun-terparts, sources of renewable energy are notorious for producing an erra c fl ow of electricity, mostly due to being weather-de-pendent. For example, solar will be more eff ec ve when the sun is shining and the same goes for wind power, which requires wind to drive the blades and turbines. These fl uctua ons in supply disrupt conven onal methods for planning the daily opera on of the power grid, making it diffi cult to consider renewable energy for baseload power.
South Africa’s interna onally recognized Renewable Energy Independent Power Pro-ducer Procurement (REIPPP) program is a public-private partnership program that fa-cilitates the rapid deployment of new renew-able energy genera on capacity. The REIPPP follows a compe ve bidding and selec on process, where Independent Power Produc-ers (IPPs) build the electricity genera on in-frastructure.
However, the REIPPP faces some challenges - since there is independent project fi nanc-ing, any cost overruns are borne by the IPPs
themselves, and not passed onto the pub-lic through increased tariff s. Yet, priori sing price reduc on for grid supply is not op- mal for driving localiza on of manufac-
turing, nor for facilita ng social ownership in the energy services sector. There has also been limited success in turning proj-ect developers’ Light Emi ng Diode (LED) commitments into las ng impacts on the ground and trade unions - whose mem-bers are employed in legacy energy sys-tems - have expressed opposi on as they fear a net loss of jobs in the energy sector.
Gas works excep onally well as a comple-mentary genera on source to renewable energy since it can be used to supplement supply during periods where solar or wind energy is not available, thereby providing a solu on to the intermi ency of renew-ables and ensuring grid reliability. How-ever, gas infrastructure in South Africa is s ll being developed due to challenges in bringing demand and supply on stream simultaneously. In 2015, the Republic of Mozambique Pipeline Investments Com-pany (ROMPCO) announced the success-ful comple on of a project expanding the exis ng 865km of gas pipeline from the Central Processing Facility (CPF) at Temane in Mozambique to Secunda in South Afri-ca. The pipeline, named Loop Line 1, was installed in parallel to the exis ng pipeline, from the CPF for 126km where it connects back into the main pipeline.
ROMPCO is a joint venture between Sasol, Companhia Moçambicana de Ga-soduto S.A. and the South African Gas Development Company (SOC) Limited. Owning the 865km pipeline through which the gas purchased from Mozam-bique is transported to South Africa and to Ressano Garcia in Mozambique, the project has become a global benchmark in mul lateral, cross-border public-private partnerships with signifi cant benefi ts to all stakeholders. The expansion project increases ROMPCO’s gas transmission ca-pacity and enables the genera on of more than 400MW of power at Ressano Garcia. It also helped mone se Mozambican gas for the fi rst me.
AIIM, a member of Old Mutual Alterna ve Investments, has been inves ng in the Af-rican infrastructure sector since 2000 with a track record extending across seven Af-rican infrastructure funds. AIIM currently manages $2.1 billion in assets across the power, telecommunica ons and transport sectors with opera ons in 15 countries across East, West and Southern Africa.
What have been AIIM’s main contributi ons to the South African economy?
AIIM’s original business started life by fi -nancing toll roads in South Africa. From the experience of backing the construc on of three major toll roads we have seen how essen al new road infrastructure can be a major catalyst for economic development. Building new city-to-city roads eff ec vely creates economic corridors which have had a hugely benefi cial impact on the free movement of goods and people, facilita ng new business.
As our business grew we started looking at the energy market in South Africa. One part of this market that has done par c-ularly well in the last fi ve or six years has been renewable energy. It’s been a re-markable growth story and with our lat-est new solar and wind farm projects we es mate that AIIM has been involved in around at least a quarter of all the new re-newable energy schemes in South Africa.
We are of course aware that a very large
number of people earn their keep on the back of coal and in the power sta ons in the Western Cape and Mpumalanga. These provinces have relied on coal for a long me and we cannot be insensi ve to that. However, in the long term we do not believe that coal is sustainable and it will make sense to replace it in due course with greener, cheaper and more sustainable forms of power genera on.
Right now renewable energy as part of a mixed energy package with coal, oil and gas is a very sustainable play. On top, we want all our projects to contribute posi vely to local communi es, and this means more than direct job crea on. For example, we have funded the installa on of solar street ligh ng in connec on with various solar projects. And we’ve funded programs that address local skills gaps such as the Hopefi eld Home Improve-ment Project, which enabled previously unemployed people to gain prac cal skills in plumbing, electrics or carpentry and then hired them to make improvements to more than 600 homes in Hopefi eld.
Of course we’re pleased that building new renewable energy facili es creates jobs, not just during construc on, but in their opera on and maintenance a erwards, which all adds to local economic devel-opment. Going forward, based on our experience and on the data we’ve been gathering, we’d be keen to play a role in developing more formal plans for the local manufacturing industry based around re-
newable energy plants.
Beyond genera ng sustainable returns to investors, an equally important goal is to give people more opportuni es. An il-lustra on of this is a new fund we have started that contributes to the costs of university educa on of previously disad-vantaged individuals, with a view to them working, a er qualifi ca on, in the renew-able energy sector. That is part of the leg-acy we are crea ng in South Africa and we would like to play the same role in the rest of Africa.
Why were Nigeria and Nairobi the chosen desti nati ons for your business outside of South Africa?
The fi rst des na on outside of South Af-rica was Lagos. Nigeria is Africa’s largest economy and is by far the dominant force in West Africa. Nairobi plays a similar role with Kenya ac ng as a hub in East Afri-ca. At the me we also considered other West African countries in the region such as Angola, but as a non-English speaking country it wouldn’t have been as straight-forward.
Our new presence in Abidjan now serves as a gateway into Francophone Africa and, most importantly, its economy has been growing at nine percent for the last six or seven years with infl a on under control. It is the hub of the West African currency and therefore a natural headquarters for Francophone Africa.
INVESTING ININFRASTRUCTURE
Jurie SwartCEOAfrican Infrastructure Investment Managers (AIIM)
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Profi le
Africa Energy Series | South Africa
Sabine Dall’OmoCFOSiemens South Africa
With that said, our strategy isn’t to de-velop projects in every single African country. We are currently looking at Ga-bon, Cameroon, Benin, Tanzania, Kenya, Zambia, Mozambique, Namibia, Nigeria, Burkina Faso, Mali, Senegal and Ivory Coast.
What are the key challenges in funding South African infrastructure projects?
In South Africa, we are now thankfully at the end of a period of policy uncertain-ty. Without excep on, uncertainty is the biggest killer of infrastructure projects be-cause we need it for investors to commit to these long-term projects.
We are all hopeful that President Cyril Ra-maphosa’s presidency marks a new begin-ning and that the new mood of op mism con nues to fl ourish. We are off to a great start with round four of the government’s Renewable Energy Independent Power Producer Procurement (REIPPP) program now back in play.
When commitment to renewable energy fi rst became a key government ini a ve in around 2012, a lot of other inves ng ins -tu ons seemed to take li le ini al no ce of the opportuni es, so AIIM was almost on its own inves ng in this space. We have since seen a growing interest and we wel-come the compe on and the fact that a whole new renewable energy sector has now developed here.
We accept that there is always a challenge ge ng investors to risk their capital in new spaces and need to be pa ent while we assess risk and secure the permits that de-liver the long term projects. All this takes me. Looking ahead, we think that gas-to-
power will be the next sector and we think that it’s likely there will be more happening in the water space, including desalina on. We are looking at that too, but me will tell.
What factors are at the forefront as you are miti gati ng risk in South Africa?
If you are living and inves ng here, you most likely know what to expect. If you are inves ng from overseas, you will need to be reassured about the levels of risk and what we do to mi gate it. One issue currently is the Rand. It’s an issue that needs to be addressed for Rand investors, and we will also address risks in other cur-rencies, hedging where necessary, espe-cially when a lot of equipment needs to be brought in at the start of a project.
A way of mi ga ng risk is our policy of only inves ng in projects where we are certain of revenue security. We are willing to trade poten al upside against minimised down-side. We don’t work on the basis of back-ing the one big winner in the expecta on of other projects falling over. We expect all our projects to succeed if we back them.
Having preliminary project approvals in place is important before we commit. We won’t work on anything that’s too early stage but we will o en start small and scale up later on certain projects.
Equally, we’ll need to ensure that our tar-iff s are signed and sealed (to guarantee revenue) and that interest rate hedges are also in place at the beginning.
There are three other broad categories of risk mi gants that are extremely im-portant to us. One is that we have a large diversifi ed por olio in the energy sector. We expect some projects to have delays or other issues, but we’d expect other projects to progress more smoothly, and these tend to even out. This is a clear benefi t of diversifi ca on.
The second broad risk mi gant is being sure that our projects are based on long term sustainability. If a project seems too good to be true it almost always is, and it will unwind at some point. By working with the South African government’s IPP offi ce we are able to take this risk out of the equa on because they are extremely thorough and will only back solid projects.
A third means of controlling risk are public
and proven commitments by our partners in the Environment, Social and Gover-nance (ESG) arenas. ESG has admi edly become a bit of a buzzword in our indus-try in recent mes but it has been funda-mental to our thinking and prac ces for many years and it is well established in AIIM. ESG is not a box cking exercise. We believe it is essen al to have the sup-port of the local communi es and con-tribu ng posi vely to the environment is fundamental to what we do.
What role does the private sector play in covering the conti nent’s infrastructure needs and requirements?
The infrastructure needs on the con- nent are huge. The upwardly-revised
es mate from the African Development Bank forecasts that Africa needs up to $170bn a year spent on infrastructure for the next decade. The private sector alone cannot sa sfy this need. But we can play an essen al enabling role as long as we have stable and transparent regulatory regimes in place to guarantee project certainty.
Some projects are so large that they will naturally fall into the domain of govern-ments, and will need to be supported by a combina on of na onal and local funds.
Others projects are more suited to the private sector. These projects need to provide reliable returns over long terms in return for private equity investors to be willing to take a measured risk. For exam-ple, a new power facility might need to be in produc on for 20 years or more to pay back our investment and produce returns for investors.
Africa has made huge strides in infra-structure investment with robust projects and a very clear sense of direc on and purpose. With careful project selec on and management private equity can meet the needs of investors and provide vital new infrastructure that delivers benefi ts directly to local communi es.
UNLOCKING THEPOTENTIAL OF THE OIL AND GAS INDUSTRYIN AFRICA
Having been in Africa for over 157 years, Siemens South Africa considers itself a global powerhouse, providing products, systems and solutions across the electrification, automation and digitization value chain. As an integrated technology company, Siemens con nues to grow its footprint in the African energy sector. With each year that the energy environment is growing and changing, more new approaches are required to leverage the right technology to cre-ate cost eff ec ve, clean, sustainable and reliable solu ons for Africans.
With more countries emerging as producers and entering the global market as contenders, Africa’s oil, gas and power sectors are fast growing. As the market develops and the demand in-creases for a stable energy sector; the implementa on of tech-nology and innova on is playing an even bigger role than before.
With a large por olio of projects and services, Siemens off ers companies cost saving solu ons in low price environments that also benefi t the consumer. According to a 2014 World Bank Data study, over 600 million people across the African con nent have no access to electricity. Whether this is as a result of high electricity costs or lack of infrastructure; insuffi cient funding is at the center of these insuffi ciencies. Despite the technological advancements, electricity costs are among the biggest issues Af-rican’s living in low powered communi es are faced with. Where there is a lack of power supply, there is a lack of funds needed
SIEMENS OIL AND GAS SOLUTIONS
• Automa on technolog
• Compression and pumpin
• Industrial communica ons
• Electrifi ca on
• Technical papers and consul ng
• Digitaliza on
• Process Safety Consul ng
to fi nance the developments in infrastructure and maintain it in the long run.
Siemens received the coveted Digital Solu ons of the Year Award for its South Africa Head Quarters Microgrid Project, which gen-erates, distributes and controls power in small-scale environ-ments. The microgrids are designed to operate independently or when connected to the main grid. Through its fl exible, diverse and cost eff ec ve power supply system, the microgrid technol-ogy designed for small-scale environments aims to provide elec-tricity to people who have no access to power supply as a result of poor infrastructure, or are living in remote areas.
As one of the global technology leaders and key partners of the industry, Siemens technologies contributes to extending global resources further, enabling explora on in harsh deep sea and arc c environments, increasing the use of unconven onal re-sources and improving produc on from exis ng fi elds.
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Interview
Customised power solutions With more than 130 years’ experience in delivering customised power solutions, Worley provides full
engineering services to all types of renewable, gas, coal and oil power plants and power delivery systems.
Through full-service engineering and consulting, we deliver successful lifecycle projects to help customers
achieve their business goals in today’s competitive power generation market.
worley.com
Profi le
energy, WorleyParsons has been involved in several pres gious power projects in Africa, establishing a strong track record, par cular-ly in the renewable energy sector.
Most notably, the company was responsible for the management of all site construc on, commissioning and start up ac vi es for the Lake Turkana Wind Farm project in Kenya.
WorleyParsons is a leading global provider of professional services to the resources and energy sectors, and the complex pro-cess industries. The company off ers ser-vices across the full project lifecycle in the hydrocarbons, power, minerals and metals, chemicals, and infrastructure sectors.
As one of the world’s largest project delivery organiza ons, it has performed engineering, design, procurement, construc on manage-ment, opera ons and maintenance services for all types of renewables, gas, coal, oil, nu-clear power plants and power delivery sys-tems across the globe.
WorleyParsons’ global presence, combined with a full understanding of the African en-ergy sector and on-the-ground knowledge and experience, has allowed it to take a fi t for purpose approach to the power sector.
Having been opera ng in Africa for over 35 years, the company provides the African market with advisory, engineering, procure-ment, project, and construc on manage-ment services, from implementa on stages and development through opera on. Advi-sory services are provided through Advisian, WorleyParsons’ global advisory business, which operates in the incep on and con-cept phase by providing advice on how to get a project started, understanding the challenges, and devising customised solu- ons for successful, viable projects.
WorleyParsons’ global power subsector of-ferings include conven onal and advanced coal, gas turbine, combined cycle, cogenera- on, renewables, nuclear, hydroelectric and
power networks.
With Africa presen ng a high demand for
Our vision is to be the preferred global provider of technical, project and operati onal support services to our customers in Africa across the infrastructure, resources and energy industries
PROVIDING A BETTER SERVICE
Denver DreyerCEO
WorleyParsons RSA
Listi ngCompany presence
• 110 offi ces in 42 countries
Services
• Consul ng• Engineering• Procurement • Construc on management• Project management services• Maintenance, modifi ca ons and opera ons• Digital
Key projects
• Tanzania’s Natural Gas Infrastructure Project which comprises:Natural gas processing plant in Songo Songo Island (140 mmscfd capacity)Natural gas processing plant in Madimba (210 mmscfd capacity)Natural gas transporta on pipeline (551 km)
• Lake Turkana Wind Power Project
• Jasper photovoltaic solar power project in Kimberley
• Kaxu 100 MW concentrated solar power project in Pofadder
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105
Profi le
Kusile is located near the exis ng Kend-al power sta on in Mpumalanga and will comprise six units of 800MW installed capacity each, enough power to meet the electricity needs of 3,5 million house-holds in South Africa. The project will include a power sta on precinct, power sta on buildings, administra ve build-ings, roads and a high-voltage yard.
Construc on on Kusile started in August 2008, with Unit 1 undergoing commer-cial opera on in August 2017, nearly a year ahead of schedule. Commercial op-era on is when the construc on and op -miza on of the unit are complete and the operator, in this case, Eskom Genera on, takes over the plant and runs it on a reg-ular basis.
Unit 2 is scheduled for commercial op-era on in July 2019, Unit 3 in August 2020, Unit 4 in March 2021, Unit 5 in November 2021 and Unit 6 in September 2022. Upon comple on, Kusile will be the
KUSILE: A TRAILBLAZERIN POWER GENERATION
KUSILE CONSTRUCTIONMILESTONES
Kusile reached a number of project milestones in the build-up to Unit 1 synchroniza on. In October 2014, the 300 ton, 910 MVA generator step-up transformer was put on its founda on, assembled with all its auxiliary systems and fi lled with 128,000 liters of mineral oil. Subse-quently, all electrical integrity tests were performed successfully to con-fi rm the transformer was ready to re-ceive power. Ini al synchroniza on of Unit 1 took place in December 2016 and was followed by reaching full load in March 2017. This means Unit 1 is running at the full design and opera ng capacity of 800MW.
October 2014 also saw the unit tur-bogen set put on electrical barring, a cri cal step that demonstrates the good quality work put into the assembly of the high pressure, inter-mediate pressure and the two low pressure turbine cylinders coupled to the generator rotor.
A lubrica ng oil fl ush was done to all bearings on the turbine train in September 2014, ensuring that suffi cient oil will be supplied to the bearings for lubrica on and to con-fi rm there were no leaks or block-ages in the pipework. The main civil joint venture contractor also com-pleted the concrete pour of Unit 6’s turbogen founda on. This consists of a 36 hour con nuous concrete pour, comprising 3600 cubic meters of concrete, which went well without hindrances.
The Kusile Power Stati on Project is the fi rst South African power facility to incorporate wet Flue Gas Desulphurisati on (FGD) technology, a state-of-the-art technology used to remove sulphur oxide from exhaust fl ue gases in power plants that burn coal or oil. It is the second coal-fi red power facility being built by State-owned Eskom which, once completed, will generate 4,800MW of power and have an operati onal life of 50 years.
fourth-largest coal fi red power sta on in the world.
Each supercri cal tower boiler will be approximately 115m high and air-cooled condensers will be constructed on and supported by 60m high concrete col-umns. In line with interna onal prac ce, the FGD technology is fi ed as an atmo-spheric emission abatement technology to ensure compliance with air-quality standards, especially since the power sta- on is located in a priority air shed area.
Kusile Civil Works joint venture was awarded a R2,9 billion main civil works contract in 2008, with construc on com-panies Stefanu Stocks, Group 5, Basil Read and WBHO Construc on forming part of the venture.
Eskom ran into funding issues during the construc on of Kusile and is planning to sell a por on of its stake in order to meet the funding gap as a result. Calyon, BNP Paribas, Societe Generale, Na xis and CIC provided R31 billion funding through a fi xed interest rate loan covered by the French Export Credit Agency, payable over 12 years. In May 2011, Eskom re-ceived a R5,7 billion loan from the US Ex-port Import Bank.
Mossel Bay
East London
Port Elizabeth
Port Shepstone
Richards Bay
Durban
Musina
Lephalale
Thabazimbi
Polokwane
Tzaneen
Phalaborwa
Bela Bela
Pretoria
Johannesburg
Nelspruit
Witbank
Newcastle
LadysmithBergville
Ermelo
Standerton
Vereeniging
Volksrust
Pietermaritzburg
Mthatha
Beaufort West
George
De Aar
Bloemfontein
Welkom
SWAZILAND
LESOTHO
KWAZULU-NATAL
EASTERN CAPE
WESTERNCAPE
NORTHERN CAPE
LIMPOPO
NORTH WEST
FREE STATE
MPUMALANGA
GAUTENG
9
24
1
324
610
811
25
30
29
31
32
15
16
713
12
1426
28
22
20
4
9
107 108
Africa Energy Series | South Africa
ESKOM POWER STATIONS
Resource
Oranjemund
Kleinsee
Saldanha
Cape Town
Cape Agulhas
Springbok
Grabouw
Vredendal
Kenhardt
Upington
18
19
2123
5
27
Coal-fired (RTS)
Coal-fired (New build)
Nuclear
Hydro-electric
Pumped storage scheme
Gas turbine
Wind Facility
BASE LOAD STATIONS
RENEWABLE ENERGY
RETURN TO SERVICE STATIONS
PEAK DEMAND STATIONS
Coal
Wind Facility
Wind Facility
Hydro-electric
Pumped storage scheme
Gas turbine
Hydroelectric
Nuclear
The peaking sta ons can generaet electricity within a few minutes of statr-up, making them ideally suited to supply power during peak perdiods.
Hydroelectric power sta ons fall within the Distribu on Division in the Eastern Cape opera ng unit and are used to stabilize the distribu on network in that area.
The return-to-service sta ons were mothballes in 1990 and are in the process of being recomissioned due to the growing demand for electricity.
DISTRIBUTION
OrO anjemunddd
NOR
NEW BUILD
Coal
Pumped storage scheme
Wind Facility
Solar
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GAS TO POWER
South Africa’s Gas to Power Program is a signifi cant anchor in meeti ng the country’s gas demand. The program aims to provide a market for the potenti al supply of gas, as well as support long-term gas demand for future indigenous gas supplly.
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Africa Energy Series | South Africa
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Arti cle
GAS FOCUSED PROJECTS:A POTENTIAL GAME CHANGER FOR SA’S ENERGY MIXIn 2016, South Africa’s Department of Energy (DoE) released an Informati on Mem-orandum (IM) on the Liquefi ed Natural Gas (LNG) to power program, describing its scope for prospecti ve and interested bidders. The memorandum also highlights op-portuniti es presented by the program for the South African economy.
The DoE intends to procure 3,726 megawatts (MW) of gas fired power, however, one of the major challenges in developing the gas sector is bring-ing demand and supply on stream si-multaneously, while also spreading geographically to stimulate broader lo-calized demand through South Africa. According to the Independent Power Producer (IPP), without localized gas demand, it is difficult to develop dis-tributed gas supply, and without such distributed gas supply, it is difficult to develop localized gas demand.
In an effort to address this impasse, the DoE developed the Gas to Power Program to act as a significant anchor in gas demand. The increased demand from this program will provide a mar-ket for a potential supply of gas, as well as support long-term gas demand sinks for future indigenous gas sup-plies.
In conjunction with this program, the department is in the process of final-izing the Gas Utilisation Master Plan (GUMP) for South Africa, which will act as a roadmap for the development of the gas economy. The GUMP anal-yses the potential and opportunity for the development of South Africa’s gas economy and sets out how this is to be achieved.
LNG-to-Power
Several policy frameworks contribute to the LNG IPPP Program, includ-ing the National Department Plan, the draft Integrated Energy Plan and the Integrated Resources Plan 2010-2030, all of which identify the need for natural gas within South Africa’s energy mix. The primary objectives of the LNG IPPP program are to develop a gas economy in South Africa, encour-age the use of imports from adjacent sources within the Southern African
Development Community, and the de-velopment of gas within the industrial, commercial, transport and residential sectors.The program comprises six projects, namely: LNG procurement and deliv-ery, LNG storage and regasification fa-cilities via Floating Storage Regasifica-tion Unit (FRSU), port infrastructure, including fixed maritime structures and modifications, gas transmission pipelines to connect the FSRU with the new power generation facility, LNG and/or gas distribution hub(s) for third party off take and a power plant, including high voltage connection to the electrical grid.
The procurement will be undertaken in two phases, dubbed the Request for Quotation (RFQ) and Request For Proposal (RFP) stages, with a separate procurement process for each port. The RFQ stage is followed by the re-lease of the RFQ, along with access to the Data Room. An RFQ response is then prepared with briefing notes be-fore the final RFQ is submitted. The RFQ response is evaluated for a sec-ond time, bidders are shortlisted and the approved RFP is released.
Shortlisted bidders are then permit-ted to proceed to stage two, the RFP phase. This phase consists of eight steps, starting with an engagement process. The RFP is then amended and awaits approval by the DoE. The final RFP is approved to internation-al standards and released, whereby a response with briefing notes is pre-pared. After this step, the RFP is sub-mitted again and the RFP response is evaluated. Notice of the Preferred Bidder Award is given, followed by the Preferred Bidder Award itself.
Following the RFP, bidders will be re-quired to make binding offers to the DoE to develop, finance, construct and operate gas-fired power genera-
tion plants at designated ports, with an associated gas supply chain from the pre-qualified bidders proposed FSRU. The electricity output will be purchased by Eskom, under a Pur-chase Price Allocation for a period of 20 years from the scheduled Commer-cial Operation Date.
Additionally, pre-qualified bid-ders must ensure projects are fu-ture-proofed to allow for indigenous gas and third party gas off take. It is also expected that the use of larger sized industry-standard FSRUs will re-sult in LNG import and regasification facilities exceeding the capacity nec-essary to meet the requirements of the project’s gas-fired power genera-tion plant. To this end, the successful bidder will be required to provide for third party access to the resulting ex-tra capacity of the gas infrastructure.
TOTAL’S GAS CONDENSATE DISCOVERY AT BRULPADDA
The recently discovered gas condensate on Total’s Brulpadda prospects on Block 11B/12B in the Outeniqua Basin, offshore South Africa, has opened a new oil and gas play and is well-posi-tioned to test several follow-on prospects on the same block. President Cyril Ramaphosa and South Africa’s Mineral Resourc-es Minister Gwede Mantashe have both stated that the dis-covery could be a ‘game chang-er’ for the country’s economy. The new oil and gas region re-portedly has volumes of around 1 billion barrels and govern-ment has said it will continue to develop legislation for the sector so that it is properly reg-ulated for the interests of all concerned.
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South African industries.
A lot of Mozambican gas has already been commi ed to buyers in the far East and Southeast Asia, where gas prices are high, and it makes economic sense to sell to where the cost is higher.
Nevertheless, there remains room for coopera on between South Africa and Mozambique in the government-to-gov-ernment sense. This has been on the ra-dar of South African Energy Minister Jeff Radebe, who leads these talks.
In addi on, SAOGA took 36 South Afri-can companies to Mozambique in 2018 to try to understand the regulatory envi-ronment, the tax environment and the op-portuni es available for supply and busi-nesses. What they found was a market ready for the skills and capabili es South African member companies have.
Gas-to-Power (G2P)South Africa’s gas-to-power program is a prime driver of demand for gas. One ques on that o en comes up is why South Africa would favor hydrocarbons when it has so many opportuni es in renewables; especially solar and wind. The answer to that is to ensure reliability in response to the variability in the way electricity in dispatched. Gas is rela ve-ly easier to switch on an off than coal, which takes a lot of shadowing in. The
other reason is that gas has half the car-bon emissions of coal, cking several boxes. It looks like South Africa’s gas role will be to maximize renewables. To sup-ply liquefi ed natural gas (LNG) for South Africa’s gas-to-power program, there are two parallel processes in place. One is impor ng gas and, the other is indige-nous exploring.
From the perspec ve of imports, the benchmark for LNG, the MMBTU, has only recently surpassed $3. The price is projected to remain low un l 2022 or 2023, a er which it will p over to short supply. Un l then, it is a good me to conclude LNG import deals.
Explorati onAs the oil price has moved between $40 to $80 a barrel at one point and is now again around $60, it has been an a rac- ve me for drillers looking for replace-
ment barrels on the back of good mar-gins. If indigenous quan es of gas are discovered in South Africa that gas would be rand denominated, which could have a signifi cantly posi ve impact on the coun-try’s balance of payments.
By way of analogy, almost 200 tcf of gas has been found across South Africa’s north-eastern border in Mozambique. Tanzania has 40 tcf, while along the West coast, countries such as Namibia, Angola, Nigeria, and Gabon have proven gas and oil reserves are currently producing.
InfrastructureInfrastructure is also very important, and the country needs to think carefully about how to prepare so that it is ready if sig-nifi cant gas is found, or LNG is imported. Infrastructure must be put in place for off -loading, pipelines for transporta on, tank-age for storing, and power plants for turn-ing gas to electricity. While in October 2016, the Independent Power Producer (IPP) offi ce had provided a good star ng point for how the developed gas-to-pow-
Gas imports and explora on ac vi es stand to bolster South Africa’s produc on and re-newable energy.
In the past three years, talks around the South African energy, oil, and gas sectors have centered around the crea on of harmonized, a rac ve, integrated policy that gives clarity for energy imports and explora on. These eff orts are being real-ized now.
South Africa is at a pping point, where the energy sector is poten ally going to pick up as the country is provided with increased policy certainty and more ra- onal poli cal direc on. The key now is
to focus more on readiness and execu on capability.
Mozambican PipelineThe level of foreign direct investment in Mozambique as a result of gas discover-ies, and the nature and scale of the com-panies opera ng, such as Anadarko, ENI, and ExxonMobile, indicate that very sub-stan al investments are likely to increase in the not too distant future, and could poten ally double the size of the Mo-zambican economy. Although that growth might be from a low base, the country has some of the largest fi nds in recent history at 190 trillion cubic feet (tcf), alongside South Africa being the biggest industrial economy in Africa, presen ng clear op-portuni es for both the Mozambican and
Arti cle
AT THETIPPING POINTNiall KramerDirectorSouth African Oil and Gas Alliance (SAOGA)
115
er industry could poten ally look, and the phases under which it could be rolled out, these plans were stalled as the country entered into the now discredited nuclear debate.
Nonetheless, the gas-to-power program is likely back on track and there is an expec-ta on that the IPP offi ce will make an an-nouncement about the program in 2019. The announcement is expected to set out the degree to which the program will be underwri en by government. It will also bolster certainty in the market, showing in-vestors that the country is serious about its gas-to-power and renewables objec ves.
PolicyThe G2P program will be the fi rst oppor-tunity for par cipa ng companies to work together to bid and supply LNG for power genera on. Gas suppliers, power develop-ers, pipeline companies, and the ports au-thority will need to set up en es to build and supply LNG-to-power, and will likely have to manage their risk exposure to each other within a legal en ty.
Petroleum Agency SA has released a map indica ng all the onshore and off shore blocks in South Africa, as well as the compa-nies that have mainly technical coopera on permits (TCPs).
The map indicates that major companies around the world, which have already suc-cessfully undertaken drilling opera ons, are interested in South Africa. However, to take a step beyond interest, more cer-tainty around the Mineral and Petroleum Resources Development Act (MPRDA) is needed. Engagements with the Ministry of Mineral Resources indicate that the sepa-rate legisla on we have been asking for will be presented to Parliament in 2019.
The country is poten ally si ng on the cusp of another mining industry. But in the absence of legisla ve clarity for what their an cipated share is going to be, and without a clear regulatory environment, it would be very hard for interested compa-
nies to take on risk – especially when there are more certain opportuni es around the rest of the world.
Once South Africa provides certainty around explora on and a rac ve legisla- on; and puts in place measures to pro-
mote market certainty and commercial at-trac veness, then companies will be able to make a decision to invest in the industry and begin drilling.
Notwithstanding the need for certainty, the pragma sm shown in Mozambique in not over-regula ng the sector too early, is a les-son that ought to be applied in South Africa. South Africa poten ally has the geology and discussions around separa ng oil ex-plora on from mining regula ons currently under the MPRDA are underway. All that is needed is a quick and certain outcome.
LeadershipAlthough the country has experienced chal-lenges in terms of its sovereign credit ra ng, currency vola lity, and corrup on scandals in recent years, the new administra on ap-pointed in 2018 has demonstrated solid, focused leadership. Both President Cyril Ramaphosa and the Ministers of Energy and Mineral Resources have a very clear fo-cus on fast tracking energy. The President’s call for $100 billion in investment includes an alloca on of 25 percent to the energy and power sector. Bolstering these eff orts, former Minister of Energy Jeff Radebe soon signed off on outstanding renewables deals that had been held in abeyance for years under the previous administra on. Promis-es to produce a revised Integrated Resource Plan (IRP) were completed within the me-line as stated and it was out for dra and up for high-level comment in the la er part of 2018 and a fi nal version is expected early 2019.
The IRP contains all the right moves for the energy mix: renewables are up, nucle-ar is down, and a strong place is included for gas. It also focuses on a least cost ra- onale which includes built-in fl exibility.
Some have disagreed with the capping of
renewables for South Africa’s energy mix in the dra IRP, but the broad thrust of com-ment has been posi ve all across the indus-try and gas’ role is likely to be to maximise renewables.
Following on from the Na onal Develop-ment Plan, which underpins the policy, the IRP reinforces the idea that reliable power drives development.
Similarly, Mineral Resources Minister Gwede Mantashe has been engaging the industry around the separate explora on legisla on and the sense of urgency to at-tract investment to catalyse growth is now widely evident.
OutlookThe country is close to discovering oil and gas, however, the only way to be certain is to explore. Charts, studies and analogies from other countries will provide good di-rec on, but what is needed more than any-thing right now is empirical South African geological data. Once the data is available, decisions can be made. This is par cularly important when extrac ng in sensi ve ar-eas. Good data assists good decisions.
Currently, es mates suggest high poten al for gas. The U.S. has, for example, predicted 390 tcf in onshore gas in place in South Af-rica. However, even if there is gas in place, it does not necessarily mean that it is recover-able and the recoverable amount is typically much smaller than es mates.
Even if it is recoverable, it does not mean that the gas is viable and can be used. So, one must be careful about pu ng numbers to reserves when accurate data is not yet available. The only way to get that data is to drill. And the only way to make good deci-sions is with good intelligence.
There are many opportuni es in this coun-try but both industry and government need to make sure we use the opportuni es right now. We are on the cusp of what could be-come South Africa’s biggest economic op-portunity since mining began here.
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oilfi elds located in Block 9, off shore South Africa. The gas fi elds provide products de-rived from crude oil to the Mossel Bay Gas-To Liquid (GTL) refi nery. The Mossel Bay GTL refi nery was commissioned in 1992 as the world’s fi rst GTL refi nery and holds the third spot in the fi ve largest GTL refi n-eries opera ng worldwide. The Mossel Bay refi nery uses Fischer Tropsch technology, and converts natural, methane-rich gas into ultra-clean, low-sulphur, low-aroma c syn-the c fuels and high value products. Midstream
South Africa’s Midstream industry includes the processing and transporta on of gas and oil. This done by use of natural gas pipe-lines. The processing of gas in South Africa is done by state owned enterprises such as PetroSA and Transnet. Transnet Pipelines (TPL) is the largest mul -product operator in southern Africa. It transports hydrocar-bons and methane-rich gas through a net-work of pipeline infrastructure. TPL off ers fully integrated supply chain solu ons from source to des na on, while ensuring the best safety prac ces and high-level service reliability. According to Transnet, TPL cur-rently transports:
• More than 65% of all refi ned products to the inland market
• More than 70% of all jet fuel required at OR Tambo Interna onal Airport
• 100% of the crude requirements for the Natref Refi nery
• 100% of the methane-rich gas require-ments to KwaZulu-Natal for Sasol En-ergy and its gas clients; and
• 100% of Tarlton’s volumes, of which 60% is distributed cross-border.
The Republic of Mozambique Pipeline In-
vestments Company (ROMPCO), is also a major contributor to south Africa’s mid-stream sector. ROMPCO expanded its gas pipeline from the Central Processing Fa-cility (CPF) at Temane in Mozambique, to Secunda in South Africa. The gas fi elds at Temane and Pande have a reserve capacity of 2.6 Trillion Cubic Feet (Tcf). The reserves are suffi cient to supply the pipeline for a minimum of 25 years from fi rst gas, which is quite benefi cial to South Africa.
Downstream
Key state-owned enterprises (SOEs) that are operators in South Africa’s downstream industry are PetroSA and Transnet, and the privately-owned play-ers are BP, Engen, Total SA, Shell, Sasol, and Chevron. They operate storage ter-minals and distribu on facili es at our major ports and have distribu on facil-i es throughout the country.
SOEs may own and operate projects. This is because the state needs to se-cure additional government revenue, beyond tax revenue from projects like the ones in the oil and gas industry. The state receives a share of the oil, gas and minerals that are being pro-duced in South Africa.
Developing South Africa’s oil and gas industry is one government’s key initiatives. The aim is to grow South Africa’s ocean economy across vari-ous sectors and recent industry de-velopments highlight what appears to be renewed confidence in the oil and gas sector by both local and overseas investors.
South Africa’s demand for petroleum products is predicted to increase signifi -cantly un l 2050 and the need for natural gas as a cleaner source of natural energy is steadily growing. South Africa’s econo-my stands to benefi t from the discovery of substan al off shore gas reserves, where industry heavyweights Eni, ExxonMobil and Anadarko are currently involved in projects to construct processing facili es.
South Africa has several Industrial De-velopment Zones (IDZs), which, togeth-er with Special Economic Zones, provide tax and fi nancial incen ves for foreign investors. The Saldanha Bay Industrial Development Zone is South Africa’s fi rst hub that is dedicated to the oil and gas services and marine repair sector. It sup-ports explora on and produc on in the West and East African regions, and it is an cipated to provide more services to the South African market in the near fu-ture.
Located in the Western Cape, the Saldanha Bay IDZ serves as the country’s primary oil, gas and marine repair engineering and lo-gis cs services complex in Africa. It caters to the needs of the upstream oil explora on industry and produc on service companies, opera ng in the oil and gas fi elds off sub-Sa-haran Africa. The IDZ has already a racted more than R3bn in investments.
Upstream
There are currently 14 off shore operators spread over 16 concessions, with seven applica ons for off shore gas explora on rights. This category is dominated by state-owned PetroSA. It operates the south coast gas fi elds, as well as the Oribi and Oryx
OIL AND GAS, WHERE SOUTH AFRICA’S FORTUNE LIES
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GAS-TO-POWER PLANS CHANGE SOUTH AFRICA’S FORTUNES
South Africa has taken advantage of gas-to-power generation, with various plans and programs in place that will help transform the country’s energy in-frastructure and aid in job creation.
Natural gas plays a vital role in the global energy mix and with new gas discoveries on and offshore the Af-rican continent, recent advances in technology and the renewed confi-dence of investors, it’s only fair to say that the conditions are right for the growth of gas-to-power activi-ties.
For example, an open cycle 600MW gas-fired power plant is capable of delivering its first power in 18 months and be fully operational in just under three years. Combined cy-cle gas power plants have an overall efficiency of more than 62 percent, and coal-fired power plants have less 50 percent efficiency. Gas power plants also take up considerably less land than coal- fired power plants, operate with lower emissions, and are not as demanding on water as coal or nuclear. According to experts in this field, gas is the most flexi-ble power source, because gas-fired power plants can be stopped and re-started in 30 minutes.
The gas to power program serves as a foundation for the gas infrastruc-ture that is required for the estab-lishment of a growing gas market in South Africa. The program calls for Independent Power Producers (IPPs)
to develop and operate gas-fired plants, along with the associated Liquefied Natural Gas (LNG) supply chain, at each of the industrial ports located on the south coast – up to 1,000 MegaWatts (MW) at Coega, a port close to Port Elizabeth in the Eastern Cape, and 2,000MW in Rich-ards Bay, north of Durban in KwaZu-lu-Natal. State-owned Eskom could be the single buyer of electrical energy generated under the gas to power pro-gram.
To aid the program, government intro-duced the Gas Utilization Master Plan (GUMP) for South Africa. The GUMP is a guide for the development of a gas economy. It studies the potential and opportunity for the development of South Africa’s gas economy, and plans how this could be achieved.
The plan of the gas to power program is not to only supplying power, but to also supply a limited amount of gas, marketed in the form of a Gas Supply Agreement (GSA), for use of indus-trial and other users. In line with the GUMP, the gas to power program, will help enable the development of South Africa’s gas sector.
The Brulpadda Discovery
At the beginning of 2019, South Afri-can politicians, economists, and spe-cialists in the energy sector celebrat-ed the news that a promising show of natural gas had been discovered in deepwater south of Mossel Bay. It
was found in an offshore area called Brulpadda, which is licensed to global energy giant Total. The Brulpadda dis-covery is located on Block 11B/12B in the Outeniqua Basin, which is 175Km off the southern coast of South Africa.
The find could be enough to supply South Africa’s refineries for almost four years and be a major boost for the country’s economy. This was not Total’s first attempt in the Outeniqua Basin. The French oil major has expe-rienced difficulties in its first drill, in 2014 it cancelled operations due to rough currents –¬costing the com-pany approximately $190 million. In its second a empt, which cost about $160 million, Total used a suitable rig for the opera on and a weather fore-cas ng system, and the presence of an on-site specialist to more accurately as-sess the weather and ocean condi ons. The government has vowed to give all the support it can to the project, as the discovery of oil and gas could reduce the country’s dependence on imported crude oil.
Mozambique was one of the fi rst non-oil producing countries to capitalize on its poten al gas reserves. A 2010 oil discovery announcement by an Amer-ican oil company, Anadarko, led to a huge economic boost, and further ex-plora on. Anadarko discovered off -shore oil deposits in northern Mozam-bique. This is enough to inspire South Africa and other countries to continue exploiting their own gas reserves de-spite the potential pitfalls.
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EXPLORATIONAND PRODUCTION
Explorati on eff orts in South Africa’s off shore region have the potenti al to reveal world class discoveries, due to lower operati ng costs, rising oil prices and more certain oil and gas legislati on. There are currently over 300 explorati on wells in the country, including appraisal and producti on wells in South Africa’s enti re off shore area. In additi on, 233,000km of 2D seismic data and 10,200km of 3D seismic data has been acquired since explorati on began.
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South Africa’s primary energy resource is coal, with proven reserves of 30 bil-lion tons – the seventh largest in the world. It is also the world’s sixth larg-est coal producer and the second larg-est exporter of steam coal, with annual produc on exceeding 250 million tons. Although South Africa’s coal reserves are vast, energy demand con nues to increase, necessita ng the diversifi ca- on of the country’s energy mix. The
upcoming years will be key in determin-ing South Africa’s future energy profi le – there is an unprecedented level of interest and ac vity in petroleum ex-plora on, with South Africa on the brink of major developments in the upstream industry. In addi on, South Africa’s fi rst deep-water discovery – reported by French oil major Total in February this year – is expected to prompt a rush of compe ng off shore ac vity as the country works towards curbing its reli-ance on imported fuels.
There are currently over 300 explora- on wells including appraisal and pro-
duc on wells in South Africa’s en re off shore area. In addi on, 233, 000km of 2D seismic data and 10,200km of 3D seismic data has been acquired since explora on began. Approximately 181 explora on wells were drilled be-tween 1981 and 1991 – comprising South Africa’s most ac ve explora on drilling period – with the Bredasdorp Basin at the center of most seismic and drilling ac vity since 1980. Explora on in the Bredasdorp Basin resulted in the
discovery of several small oil and gas fi elds, and the commercial produc on of oil and gas from the Bredasdorp Ba-sin.
South Africa’s fi rst oil produc on began in 1997 when the Oribi oil fi eld began fl owing at an ini al rate of 25,000 bar-rels per day (bpd). The adjacent Oryx oil fi eld was brought on stream in May 2000 u lizing the same facili es. The Oribi/Oryx fi elds are almost depleted with only minor produc on. Sable, a third oil fi eld, commenced produc on in August 2003. With produc on from South Africa’s gas fi elds in decline, fur-thering domes c reserves through ex-plora on is impera ve.
The Central Energy Fund (CEF) is in-volved in the search for appropriate en-ergy solu ons to meet the future ener-gy needs for South Africa, the Southern African Development Community and the sub-Saharan African region. The CEF is also responsible for managing the opera on and development of oil and gas assets and is involved – through its subsidiary the Petroleum, Oil and Gas Corpora on of South Africa (Petro-SA) – in the onshore and off shore explo-ra on for oil and gas in South Africa and across the con nent. PetroSA is the country’s na onal oil company and con nues to play an in-strumental role in the country´s trans-forma on through the explora on and produc on of oil and natural gas, as
EXPLORATIONAND PRODUCTION INSOUTH AFRICA
well as selling petrochemical products to South Africa´s major oil companies and expor ng petrochemical products to interna onal markets. PetroSA holds a por olio of assets spanning the en- re petroleum value chain, with opera- ons that run according to world-class
safety and environmental standards. The company launched the world’s fi rst GTL refi nery in 1992, which remains the third largest among the fi ve now opera ng worldwide, producing some of the cleanest fuels on the market by using some of the most environmental-ly friendly processes ever developed. PetroSA’s strategic objec ve as part of its Vision 2020 is to become a ful-ly integrated, commercially compe ve na onal oil company, supplying at least 25 percent of South Africa’s liquid fuel needs by 2020.
As part of the CEF’s plan to create a via-ble upstream oil industry in the country, its subsidiary, the Petroleum Agency of South Africa (PASA), manages the pro-mo on and licensing of oil and gas ex-plora on, development and produc on in South Africa. The South African Gas Development Company, another CEF subsidiary, acts as the offi cial govern-ment agent for the development of the hydrocarbon gas industry, comprising liquefi ed natural gas and liquefi ed pe-troleum gas in South Africa.
Total South AfricaEstablished in 1954, Total South Africa is 50.1 percent owned by mul -na on-al Paris-based Company, Total Group. Total South Africa is a signifi cant role player within the Total Group, focusing on the manufacturing, sales and market-ing of a range of petroleum products for the retail, commercial, agricultural and industrial markets. With a por olio of 547 service sta ons located through-out South Africa, Total is a key player in the country’s petrochemical market,
with products ranging from jet fuel, liq-uid petroleum gas to lubricants, grease and kerosene.
In February this year, Total announced a signifi cant gas condensate discovery on the Brulpadda prospects, located on Block 11B/12B in the Quteniqua Basin, 175km off the southern coast of South Africa. In water depths ranging from 200 to 1,800 meters, the block covers an area of about 19,000 square km and is oper-ated by Total with a 45 percent working interest, alongside Qatar Petroleum (25 percent), CNR interna onal (20 percent) and Main Street, a South African consor- um (10 percent).
According to Total, the newly discovered gas fi eld could poten ally contain one bil-lion barrels of wet gas – gas containing a small amount of oil – that could be used as petrol or converted into electricity. Some experts es mate that Total’s Brul-padda fi nd is three to fi ve mes larger than all the gas fi nds to date in South Africa put together. Brulpadda is South Africa’s fi rst deepsea well.
Total and its partners will pay 28 percent corporate tax on all taxable income from Brulpadda, which could yield – according to the most op mis c es mates – $1 trillion for Total and its partners, meaning a massive tax windfall in South Africa. In addi on, oil and gas companies have to pay a royalty of approximately 5 percent on all gross sales of all oil or gas produced in South Africa. Local currency could also be boosted by the fi nd – oil represents more than 15 percent of South Africa’s imports. If South Africa produced more of its own oil, the country wouldn’t have to sell so much rand to buy dollars to pay for imported oil.
Sasol E&PSasol is an African based global chemicals and energy company with experience in
regional projects and a growing explora- on and produc on business across the
con nent. Involved in the development and management of the group’s upstream interests in oil and gas, Sasol has, in re-cent years, taken a number of steps to expand their global upstream por olio, encouraged by the global abundance of natural gas and the rapid development of the shale gas industry, as well as the low-er carbon intensity of natural gas.
Mozambique is the center of Sasol’s growth strategy in southern Africa – which is home to one of the largest gas discoveries in the world – located in the Rovuma basin, near the Tanzanian border. The petrochemicals company commenced drilling of its fi rst well for a Produc on Sharing Agreement (PSA) development, in Inhambane province, Mozambique, two years ago. Sasol was awarded two new licences for gas explo-ra on in Mozambique last year and plans to explore an onshore area of more than 3,000km² in southern Mozambique. The company is also part of a successful bid to explore an area of 5,145km² further north in the offshore Angoche Basin. The company holds an interest of 70 percent in the first block and 25.5 per-cent in the second.
Sasol’s well-developed cross border gas infrastructure has served as a key enabler for the monetization of gas in Mozambique and is seen as a mile-stone in Southern African energy and infrastructure development, initiating a much needed broadening of the ener-gy supply mix in the region and impact-ing positively on both on the Mozam-bican and South African economies. Approximately 20 percent of the gas Sasol produces in Mozambique is used for power generation. The balance mainly feeds into an 860km pipeline to the company’s Secunda plant in South Africa, which is used in its production processes.
Africa Energy Series | South Africa
The International Energy Agency’s 2°C Sustainable Development scenario stipulates that oil and gas is set to continue playing a vital role in meeting the world’s energy needs, accounting for nearly half of the primary energy mix in 2040. Although limited in the past – due to lower oil prices and political instability – exploration efforts in South Africa’s offshore region now have the potential to reveal world class discoveries.
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EXPLORATIONOPPORTUNITIES
Resource
NUMBER ON MAP OWNER
Planned drillings
Discovery
Bloemfontein
Pretoria
Exxon Mobil (40%)Impact Africa (25%)Equinor (35%)
Karo BasinResource type: Shale Gas
Current status:
Sasol (60%)ENI (40%)
ExxonMobil
Silver WaveEnergy
Silver WaveEnergy
Sungu SunguPetroleum
OKEnergy
Rhino Oil
Total
9
11A
11B/12B
Cape Town
Anadarko (80%)PetroSA (20%)
Imalorce
Impact Africa
SezigynSezigyn
3B/4B
3A/4A
2C2B
2A
1
Sungu SunguPetroleum
RhinRhino Oil
Rhino Oil
Exxon Mobil (40%)Impact Africa (25%)Equinor (35%)
OK Energy (90%)Equinor (10%)
Exxon Mobil (40%)Impact Africa (25%)Equinor (35%
Exxon Mobil (40%)Impact Africa (25%)Equinor (35%)
IBHUBESI GAS FIELDCurrently under a Gas Market Development Plan
Silver Wave Energy
Brulpadda Discovery 2019Gas Condensate1 billon boeOperator : Total
New Age Algoa (50%)RIFT Petroleum (50%)
1 PetroSA
PetroSA (50 percent) / Sasol (50 percent)
PetroSA
PetroSA
Ricocure (60 percent) / Azinam (40 percent)
Ricocure (49 percent) / Azinam (51 percent)
Total (45%) / Qatar Petroleum (25%) /
CNR (20%) / Main Street (10%)
Sunbird (Operator, 76 percent) / PetroSA (24 percent)
African Energy Corp (90 percent) / Simbo (10 percent)
Anadarko (65 percent) / PetroSA (24 percent)
2A
2B
2C3A/4A
3B/4B
3B/4B
11A
9
11B/12B
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Profi le
PetroSA FOCUSED ONACHIEVING ITS 2020 VISION
Holding a por olio of assets that span the petroleum value chain, the Petroleum Oil and Gas Corpora on of South Africa (SOC) Limited (PetroSA) is the na onal oil company of South Africa. With opera ons that run according to world-class safety and environmental standards, PetroSA’s strategic objec ve is to become a fully integrated, commercially compe ve na onal oil company, supplying at least 25 percent of South Africa’s liquid fuel needs by 2020.
Formed in 2002 through the merger of three state-owned en es - Soekor E and P, Mossgas and parts of the Strate-gic Fuel Fund (SFF), a subsidiary of the Central Energy Fund (CEF) - PetroSA is mandated to operate as an integrated commercial en ty that supports the Na- onal Development Plan (NDP) by pro-
viding hydrocarbons and contribu ng towards economic growth, job crea on and industry transforma on.PetroSA is responsible for the marke ng and trading of oil and petroleum prod-ucts, as well as the explora on and pro-
duc on of oil and natural gas resources, including unleaded petrol, diesel, ker-osene, fuel oil, propane, LPG, export dis llates and alcohols, both locally and interna onally. PetroSA sells most of its fuel and fuel-related products to major oil companies in South Africa.
The focal point of PetroSA’s current pro-duc on ac vi es is the Gas-To-Liquids (GTL) refi nery at Mossel Bay. Commis-sioned as the world’s fi rst GTL refi nery and recognized as a center of excellence, due to specialist teams producing some of the cleanest fuels on the market, Pe-troSA uses Fischer Tropsch technology to produce award-winning ultra-clean, low-sulfur, low-aroma c synthe c fuels and high-value products converted from natural methane-rich gas and conden-sate. The Mossel Bay refi nery is also the third largest GTL refi nery among the fi ve now opera ng worldwide.
Capable of producing a crude oil equiv-alent of 45,000 barrels per day, the re-fi nery sources its feedstock from Petro-
SA’s FA-EM and South Coast gas fi elds, as well as the Oribi and Oryx oil fi elds in Block 9, off shore South Africa. The refi nery holds the Na onal Occupa onal Safety Associa on of South Africa fi ve-star grading, ISO1400 for environmen-tal management systems and SABS/ISO 9002 accredita on, making quality man-agement one of the cornerstones of its opera ons.
The Cetnral Energy Fund (CEF), Petro-SA’s holding company, is commi ed to assis ng with closing the funding gap. To this end, a turnaround plan for the com-pany is currently being developed, which is focused on conver ng the refi nery from gas to condensate opera ons. The condensate business, however, has low-er profi t margins, which means that the CEF will need to reduce its opera onal costs to remain profi table.
In April 2018, former South African Min-ister of Water and Environmental Aff airs, Edna Molewa, gaze ed an amendment to the fi nancial provisioning regula ons of the Na onal Environmental Man-agement Act giving companies with off shore oil or gas explora on, or pro-duc on rights granted before 2015, an addi onal fi ve years to produce funding for their rehabilita on obliga ons.
Over and above its commercial man-date, PetroSA has a strategic mandate of leading transforma on in the oil and gas industry as part of its Vision 2020 busi-ness strategy. Included in this mandate is ensuring that the company’s opera ons, growth, expansion and diversifi ca on ob-jec ves create jobs, act as a catalyst for change and present a successful model for facilita ng transforma on in the oil and gas sector.
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Shale Gas
For many years now, energy experts have been dispu ng the poten al reserves of shale gas found in the Karoo area, a semi-deser c region inland which encom-passes around 400,000Km². While the area is considered prospec ve for shale gas ex-plora on, precise data is s ll lacking to eval-uate its commercial viability. Three areas are currently said to be viable explora on targets: the Permian Whitehill Forma on and the underlying and overlying Prince Al-bert and Collingham Forma ons. All three prospects show high total organic carbon at around fi ve percent, sizeable thickness-es (over 30m ) and reasonable depths (over 1,500m).
According to a report released by the U.S Energy Informa on Administra on, South Africa boasts 390 trillion cubic feet (tcf) of technically recoverable shale gas resources. Said resources are all located in the Karoo Basin, although reserve numbers have wide-ly varied over the years according to diff er-ent es ma ons. The South African Agency for Promo on of Petroleum Explora on and Exploita on reckons the Karoo Basin could contain around 40 tcf of shale gas.
First shale gas assessment opera ons start-ed in 2009-2010 with Technical Cooper-a on Permits delivered to Falcon Oil and Gas, Shell B.V Interna onal and Sasol-Ches-apeake-Statoil consor um. Falcon Oil and Gas, Shell B.V Interna onal and Budun Oil and Gas submi ed Explora on Right appli-ca ons in 2010 in order to move forward with poten al hydrocarbon evalua on. One year later, in 2011, the South African
government declared a moratorium over the mid and southern regions of the Karoo Basin.
Subsequently, the environment Minister, the mineral resources Minister and the Min-ister responsible for water aff airs concluded an agreement, the One Environmental Sys-tem, to manage the environmental impact of these ac vi es. The agreement states that all environmental aspects fall under the control of the Na onal Environment Man-agement Act.
In September 2012, the moratorium was li ed allowing the government to announce the conduc on of 24-month Strategic En-vironmental Assessment in order to under-stand poten al environmental impacts of exploring and exploi ng gas resources in the area.
In March 2017, a few months a er the survey was fi nalized, former Minister of Mineral Resources Mosenbenzi Zwane an-nounced hydraulic fracturing, or fracking, was allowed to move forward in the Karoo Basin. Zwane’s announcement gave hope to several operators although it did state ad-di onal condi ons were to be met to start an explora on campaign, in par cular given the assessment stated fi nding suffi cient wa-ter supply in the area could be a challenge. By May 2017, fi ve explora on licenses were being reviewed by the government.
Although a new petroleum Bill is currently being dra ed, the Mineral and Petroleum Resources Development Act (MPRDA) 28 of 2002 is the country’s offi cial oil and gas law. It states PASA to regulate petroleum
Unconventi onal gas refers to natural gas that requires advanced producti on methods. The main types of uncon-venti onal gas includes gas within ti ght pore spaces ¬– shale gas and coal bed methane – and gas that is trapped in ice on the sea fl oor – gas hydrates. Although most debates that concern unconventi onal gas in South Africa revolve around shale gas and the envi-ronmental impact of fracking, the coun-try boasts reserves of other resources such as coalbed methane (CBD) and deep biogenic gas (DBG) onshore; and ultra-deep hydrate gas off shore.
Since Total South Africa’s off shore gas discovery announcement earlier this year, South Africa’s hydrocarbon potenti al has been cast in the spotlight. While investment towards off shore explorati on will increase in the next few years, talks about unconventi onal gas extracti on have been going on for a while.
Africa is leading the liquefi ed natural gas (LNG) global race as it will receive one third of total greenfi eld investments for LNG projects in 2019, around $103 billion. Massive fi nds in Mozambique and Senegal have paved the way, while sizeable discoveries are taking place across the conti nent, including in South Africa. In the southernmost African country, LNG presents high hopes both to improve its rates of access to power as well as increase its strength on the global energy stage.
UNCONVENTIONAL GAS:AN ECONOMIC ANDENVIRONMENTALCHALLENGE
explora on, which in turns recommends the Minister of Mineral Resources whether explora on applica ons should be granted.
Another overturn occurred in late 2017 when the South African government stated that the Minister of Mineral Resources didn’t have the necessary authority to implement regula ons about environmental issues. For-mer Minister Zwane in turn noted the gov-ernment could appeal the decision – without which it would have to dra new shale gas regula ons - but that it remained commi ed to shale gas explora on. He stated the fi rst licenses could be awarded in 2019 “if every-thing goes well.”
In May 2019, the Supreme Court of Appeal (SCA) ruled that the Minister of Mineral Re-sources did not have the power the promul-gate regula ons for oil and gas explora on and produc on,
Judge of Appeal Chris aan van der Merwe stated in a unanimous judgment: “As I have shown, the One Environmental System en-visaged that all environmental aspects relat-ing to prospec ng, explora on, mining or produc on in terms of the MPRDA would be regulated through Nema and its subordi-nate legisla on. It is plain that this includes making regula ons regarding the manage-ment of the environmental impacts of these ac vi es.”
The judgment clearly states the powers to make regula ons regarding the environ-mental impacts of these ac vi es are those of the Minister of Environment in terms of the Nema agreement. This decision offi cially states no shale gas explora on ac vi es will be undergone un l clear regula ons have been implemented.
Added to governmental disagreement, shale gas supporters face strong public oppo-si on. Hydraulic fracturing uses immense amounts of water, which is a rare resource in the semi-arid Karoo region. Other opposing en es focus on the chemicals used in the process as well as radioac ve elements freed during the fracking then washed off and po-ten ally contamina ng the environment.
Coalbed Methane (CBM)
CBM is a source of natural gas which is pro-duced and trapped in coal beds. Thermal and microbial processes are responsible for producing the methane from the coal. Coal’s large surface areas allow an energy storage capacity six or seven mes larger than the equivalent volume of rock in a conven onal reservoir.
In South Africa, CBM fi rst occurred due to coal mining where it presented high safe-ty risks to the workers. To reduce the risk, methane was vented to the surface in or-der to decrease its concentra on under-ground. Nowadays, as natural gas is an in-creasingly valuable source of energy, large coal deposits in the Karoo Basin and ri basins further north show great poten al.
Deep Biogenic Gas (DBG)
Similarly to CBM, DBG was found during coal and gold mining ac vi es where it presented safety hazards due to its ex-plosive nature. The gas is mainly com-posed of methane with presence of other hydrocarbons such as helium. In South Africa, DBG fi nds have occurred in the Witwatersrand Basin in the Free State and Evander goldfi elds. Those areas are the most promising explora on areas for DBG today.
Molopo Explora on and Produc on has been awarded the produc on rights in the Free State goldfi elds, with fi rst proven on-shore gas resources for the region. There-fore, previous mining hazards may become a substan al energy source for the future. Added hope comes from the fact DBG has been fl ared for years from the gold mines without showing any since of deple on.
Ultradeep Off shore Gas and gas hy-drates
Early February 2019, Total South Africa announced an off shore gas discovery that instantly gave hope to a whole na on while sparking an environmental debate around hydrocarbon extrac on. Deep drilling in the Outeniqua Basin showed a natural gas reservoir, the Brulpadda discovery. Defi nite commercial poten al is yet to be confi rmed but the fi nd has managed to prove the off -shore basin’s poten al to prudent investors. Studies are currently ongoing in the Orange and the Outeniqua basins hoping to reveal new conven onal as well as ultradeep gas plays.
Gas hydrates are unconven onal resourc-es that occur in permafrost regions of the ar c and in deep water along con nental margins. Gas hydrates consists of methane trapped in water-cage like molecules in solid structures.
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LOGISTICS AND OPERATIONS
South Africa has the most developed transport and logisti cs sector in sub-Saharan Africa and conti nues to show strong infrastructure capabiliti es, which has helped catalyze industrializati on and sti mulate economic growth.
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Arti cle
Africa Energy Series | South Africa
Eskom
Eskom generates approximately 95 per-cent of the electricity used in South Africa and 45 percent of the electricity used in Africa. Responsible for generat-ing, transmi ng and distribu ng power to industrial, mining, commercial, agri-cultural and residen al customers and redistributors, Eskom buys electricity from and sells electricity to the countries of the Southern African Development Community.
The primary role of South Africa’s trans-mission system is to transport electrici-ty in bulk from where it is generated to load centers throughout the country. Electricity is then delivered from the load centers – via distribu on networks owned by Eskom, the metros and munic-ipali es – to individual end users. Aug-menta on and reinforcement are need-ed to connect new loads and sources of genera on to the grid, as well as regular planned maintenance and refurbishment or replacement of plant that has reached the end of its opera onal lifespan – this ensures that it performs its role safely and effi ciently.
Eskom transmits energy via the trans-mission network, supplying power at high voltages to various key customers and distributors – the company’s trans-mission license is held by Eskom Trans-mission, which is the Na onal Transmis-sion Company (NTC). The Grid Planning Department (as part of the Transmission Group) is responsible for planning the augmenta on of the transmission net-work – NERSA requires the NTC to in-dicate planned major capital investments annually. This Transmission Development Plan (TDP) covers a 10-year window – the current TDP is for the period 2019 to 2028. The TDP aims to meet the long-term re-quirements of electricity consumers in South Africa by maintaining the legislat-ed adequacy and reliability of the trans-mission grid. The objec ve of the TDP is to produce a plan outlining the expected
development projects for the transmission system for the 10-year period – these projects include approved projects that are currently in execu on, projects that are in the business case development phase and projects that are based on a desktop assessment of the transmission requirements with further engineering feasibility assessment to be conducted at a later stage.
In February this year, South African President Cyril Ramaphosa announced that Eskom will be unbundled, breaking it into three separate en es – genera- on, transmission and distribu on – to
be reestablished under Eskom Holdings. The announcement followed con nued eff orts by the power u lity to unsuc-cessfully balance the country’s electricity supply and demand, resul ng in another round of load shedding – or rolling black-outs – earlier this year. While unbundling is unlikely to have any short-term impact, it does give the government and Treasury me to implement changes and provide
the necessary capital support to alleviate the debt burden on Eskom.
Transnet
Transnet is the largest and most crucial part of South Africa’s freight logis cs chain, delivering thousands of tons of goods through its pipelines and both to and from its ports. Transnet is also re-sponsible for moving cargo onto ships for export and unloading goods from over-seas. The chain’s goal is to deliver inte-grated, effi cient, safe, reliable and cost-ef-fec ve services to promote economic growth in South Africa through increasing market share, improving produc vity and profi tability and by providing appropriate capacity to customers ahead of demand. Transnet is fully owned by the South Af-rican government but operates as a cor-porate en ty aimed at both suppor ng and contribu ng to the country’s freight logis cs network.Transnet operates as an integrated freight transport company, formed around fi ve core opera ng divisions that complement
each other, namely Transnet Freight Rail, Transnet Rail Engineering, Transnet Na- onal Ports Authority (TNPA), Transnet
Port Terminals and Transnet Pipelines. These divisions are supported by various company-wide specialist func ons such as Transnet Projects which underpin the group as a whole.
The Port of Ngqura is the latest devel-opment in the country’s stables of ports, comprising a deep-water port located on the east coast of South Africa, 20km north east of Port Elizabeth and midway between Durban and Cape Town. The Port off ers an integrated, effi cient and compe ve port service for containers on transit to global markets and within the sub-Saharan Africa region. A world class transhipment hub, the Port also services the industrial bulk commodity require-ments of the regional and na onal hinter-land – containers handled include imports and exports from across the globe as well as trans-shipment cargoes serving pri-marily East and West coast traffi c as well as inter-line traffi c from South America to Asia. TNPA plans to address increased global demand for Manganese export through construc ng a state of the art Manganese loading facility at Ngqura, po-si oning the Port as a leading Manganese Ore exporter globally, increasing capacity from 5.5 million tons per annum (Mtpa) to 16Mtpa. Ngqura is considered the fastest growing port in the country.
The Port of Richards Bay is located approximately 160km North-East of Durban and 465km South of Maputo on the eastern seaboard of South Afri-ca. As one of South Africa’s eight oper-a onal commercial ports, Richards Bay provides a combina on of specialized cargo handling facili es, fast vessel turnaround, deep water infrastructure, excellent rail links to the hinterland and large greenfi eld development poten al. Richards Bay is one of the world’s lead-ing bulk ports, handling in excess of 80 million tons annually, represen ng ap-proximately 60 percent of South Africa’s seaborne cargo.
diesel for transporta on from over 4,600 service sta ons throughout the country, with easier access in urban areas. Petrol and diesel prices are government-regu-lated – prices at the coast are lower than inland areas because they are closer to fuel refi neries. Solid fuels can be ac-cessed in all parts – wood, for example, can be widely purchased or gathered in rural areas for free. Biomass energy re-sources are more abundant in vegetated areas of the country, however, the har-ves ng of such resources for energy is not regulated or closely managed and is somewhat unsustainable due to the rate of harves ng exceeding the rate of regenera on.
While gas, mainly in the form of lique-fi ed petroleum gas (LPG), remains an a rac ve form of energy in South Af-rica, the country has a limited number of residen al gas grids, so LPG is largely consumed from gas bo les. LPG would be a much safer and healthier form of energy for communi es without access to aff ordable electricity, but is generally too expensive for low-income house-holds who are able to obtain paraffi n, charcoal and fuelwood for less.
Major players in the energy sector com-prise the Na onal Assembly Por olio Commi ee on Energy, Department of Energy, Minister of Energy, Eskom, Cen-tral Energy Fund, NERSA, South African Na onal Energy Development Ins tute, Sasol, Transnet Pipelines, Municipali es, Independent Power Producers (IPPs) and The Petroleum Oil and Gas Corpo-ra on of South Africa. Mining, refi ning and some import and export infrastruc-ture are funded by these companies and corpora ons, with most of the large-scale energy supply infrastructure owned by the state.
During a por olio briefi ng in Septem-ber 2018, former Energy Minister Jeff Radebe highlighted the importance of the dra Integrated Resource Plan (IRP) 2018 in achieving the government’s Na- onal Development Plan, in which infra-
structure plays a major role in helping the country meet its mid- and long-term economic and social objec ves. Accord-ing to Radebe: “Energy infrastructure is a cri cal component that underpins economic ac vity and growth across the country; it needs to be robust and extensive enough to meet industrial, commercial and household needs.”
The dra IRP s pulates that South Africa’s installed capacity by 2030 will comprise wind (15 percent), so-lar photovoltaics (10 percent) and gas (16 percent), with coal remaining the major producer of electricity in the country, making up 46 percent of the installed capacity and genera ng about 85 percent of the country’s electricity. Despite these fi gures, only two new coal-fi red power plants – known as the Thabametsi and Khanyisa coal-fi red IPPs projects – are set to be added to South Africa’s energy fl eet between now and 2030. However, Nedbank, FirstRand Bank and Standard Bank re-cently reconfi rmed their commitment to clean energy by withdrawing fund-ing for the Thabametsi and Khanyisa projects – further challenges to secure funding for the power plants could re-sult in construc on being cancelled.
It is an cipated that the transforma on of South Africa’s energy mix will con- nue over the next 10-year period as
more electricity from renewable sourc-es is integrated into the na onal grid in accordance with the IRP.
South Africa has the most developed transport and logisti cs sector in sub-Saharan Africa and conti nues to show strong infrastructure capabiliti es.Accessible, reliable and aff ordable energy forms the basis of transformati onal socio-economic development. For Africa, delivering sustainable development depends on meeti ng the conti nent’s energy needs to lift populati ons out of poverty, catalyze industrializati on and sti mulate economic growth.In the past two decades, household ac-cess to electricity has increased with grid connec ons varying between 86 and 97 percent across South Africa. Depending on the distribu on authority in the area, consumers purchase electricity directly from state-owned power u lity Eskom or via municipali es. Municipali es typically purchase electricity from Eskom, adding charges before selling it to consumers – these charges are not standardized, al-though fi nal electricity tariff s are subject to regula on by the Na onal Energy Regula-tor of South Africa (NERSA). Regardless of the vendor, around 80 percent of electric-ity sales are made using a prepaid system.
South Africans gain access to petrol and
LOGISTICS ANDOPERATIONS
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of equipment and materials required must be imported, and therefore companies de-pend on foreign partners and suppliers for sourcing materials. We assist companies in sourcing materials, equipment and other services as may be required, and ensure the fulfi lment of such services.
South Africa produces a large amount of the materials and equipment required throughout the con nent and can be seen as a major supplier to the con nent. Through our local network and rela on-ships, we can source these products local-ly. If it is not available locally on the con -nent, then we source it from elsewhere in the world and arrange for the necessary logis cs to ensure meous delivery.
What are some of the challenges experienced in pan-African logisti cs?
One of the biggest problems for trade between African countries is the delay of shipments at customs, thereby resul ng in unnecessary costs to the clients and, at mes, to cri cal projects. We have estab-
lished reciprocal rela onships with many logis cs companies in various countries and are always expanding this network to improve on service delivery. Our logis cs management services assist in the cus-toms clearance process and in the man-agement of the various shipping compa-nies, road and rail transporters. Managing the process through tracking, experience, and rela onships allows us to clear goods
through customs expediently.
We also see the need for various govern-ments on the con nent to work together to ease the logis cs and customs process. This is only going to happen if there is in-creased trade between the countries and the establishment of infrastructure be-comes commercially viable.
What can be done to improve in-tra-African trade?
Trade is a big opportunity for the con -nent, but so far it has been very diffi cult due to various constraints. It is easier for us to trade with foreign companies in Eu-rope, the U.S., and Asia, and this needs to change at the governmental and business levels. There’s a need for more trust be-tween the countries on the con nent. For me, this means working together to benefi t all African countries. Knowledge, skills, and capital cannot all be concentrated in one country because each country requires some benefi t and the level of trade must be mutually benefi cial to all. There needs to be a focus on building capacity, trading, and manufacturing. There also needs to be reduc ons in tariff s at borders with an in-crease in routes.
It is my opinion that there lies benefi t to all of Africa if we can focus on strengthen-ing rela onships and increasing trade be-tween the countries. This needs to happen as a ma er of urgency.
What is Petromarine’s role within South Africa’s oil and power industry?
The focus of our business is vessel man-agement and vessel agency, where we look a er vessels on behalf of their owners in ports in South Africa and the rest of the con nent. We a end to all the require-ments for bringing the vessel in, berthing it, performing crew changes, and providing supplies, spares and other items required by the vessels. The owners can be based elsewhere in the world, and our clients are from countries as diverse as India, Singa-pore, Azerbaijan, France, Germany, Korea and the Netherlands. We also provide pro-curement and sourcing services to various industries, as well as assis ng in logis cs management for clients throughout the con nent.
What segments of the oil and gas industry does Petromarine service?
Oil, gas, and sub-sea projects including drilling campaigns and provision of ser-vices to refi neries. We have a vast network of diff erent companies who we engage with to provide the requisite services.
Could you expand on the need for procurement and sourcing of materi-als and equipment in Africa?
In many countries in Africa, access to equipment and materials is diffi cult as there are few local suppliers. The majority
Interview
PAN-AFRICAN LOGISTICS AND PROCUREMENTNazir AkoobManaging DirectorPetromarine
www.petromarine.co.za
Oil & Gas and Marine Specialists
We areProactive
We are committed to:
Delivering success
Reducing costs
Providing solutionsBuilding capabilities and empowering local companies
Providing opportunities for our partners and clients
Petromarine is focused on providing high value, dedicated and professional services to the Oil & Gas and Marine Industries in Angola, Ghana, Uganda and South Africa (Durban ,Cape Town, Saldanha , Mosselbay, Port Elizabeth, Johannesburg, Richards Bay ).
1st Floor18 Carlisle StreetPaarden Eiland
Cape Town, 7405South AfricaTel. +27 (21) 5100 184
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SOUTH AFRICA SPECIALECONOMIC ZONES
South Africa’s Na onal Development Plan (NDP) 2030 aims to increase the country’s com-pe veness globally and a ain economic development.
Special Economic Zones were iden fi ed as a strategic tool to accelerate industrial develop-ment. The Special Economic Zone (SEZ) Program was proclaimed in February 2016 by the SEZ Act.
SEZs help to promote industrial concentra on; build industrial infrastructure; provide a plat-form for planning among public agencies and the private sector; as well as guide the devel-opment of other necessary tools.
PurposeAwardNotable facts
StatusTotal investment to dateInvestors
Pipeline of investors(various stages of engagement)
Chief Execu ve Offi cerReduc on of CorporateIncome Tax Rate
Industries
Resource
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SALDANHA BAY INDUSTRIAL DEVELOPMENT ZONE
Special Economic Zones
Oil & Gas Services ClusterOct 31, 2013First sector-specifi c Special Economic Zone (SEZ) in South AfricaFirst SEZ to be located within a port
Freeport$216mTotal 8Local 3Interna onal 5
40
Kaashifah Beukes28% > 15%
Repairs and MaintenanceExplora on and Produc onMarine/Subsea Engineering and Fabrica onLogis cs and Property DevelopmentSupport Services
1.Coega Industrial Development Zone (IDZ). Focus: Mul -industry
2.Richards Bay IDZ. Focus: Mul -industry manufacturing
3.East London IDZ. Focus: Innova on oriented mul -industry
4.Saldanha Bay IDZ. Focus: Oil and gas and related services
5.Dube TradePort. Focus: Logis cs
6.Malu -a-Phofung SEZ. Focus: Logis cs
7.OR Tambo SEZ. Focus: Mining
8.Atlan s SEZ. Focus : Greentech and Renewables
9.Nkomazi SEZ. Focus : Mul -industry
10. Musina/Makhado SEZ. Focus: Mul -industry
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Africa Energy Series | South Africa
Going forward in the next few years in terms of industries and loca on, I think we will establish a bigger footprint in Uganda and Kenya, especially regarding infrastructure.
Looking to the oil and gas sector, we feel there will be a major pick up in explora- on in the coming year. We would like
to have more involvment in the sector in South Africa, especially in drilling, main-tenance and off shore as we have the tools to work in these areas.
SGB-Cape is a South Africa-based access, marine and event scaff olding supplier company, and a leading supplier of equip-ment, material and trained skills to the off -shore industry.
Established in 1948 as division of Waco Africa, we slowly expanded and started looking abroad at Namibia and then Gha-na, Mozambique and Kenya.
We provide mul -skilled personnel to meet the requirements of our customers and improve produc vity, reduce down- me and reduce the bed space on ves-
sels where this is a cri cal factor.
What I do and am very proud of is a product called Quick Tech, which was designed by Safeway. We in-troduced this product to Africa. It is designed for multiple applications, like bridges but adapted in offshore industry in Brazil for the underside of oilrigs. In 2015 we acquired a company called SkyJacks, which is a supplier of powered access systems for the power genera on, construction, mining, building and in-dustrial maintenance sectors. Their suspended access systems combined with our current range of products gives us more scope to provide full turnkey solutions to clients.
The oil and gas industry is going through a low at the moment, so we are working more on the downstream side of the sec-tor, which includes refi neries and power plants. The power industry is the main driver of opera ons at present..
REACHING NEW HEIGHTS
Chris LotzBranch Manager Offshore Division at SGB CapeSGB Cape
The oil and gas industry is going through a low
point, so we are working more on the downstream side of the sector, which includes refi neries and power plants.
Chamber Square, Lion MatchOffice Park, 892 Umgeni RdDurban, 4001
www.durbanchamber.co.za +27 31 335 1000
LET’S PUT YOUR
The Durban Chamber of Commerce and Industry was established in 1856 and is the oldest and largest metropolitan chamber in Africa. As a business-based and member-focused organisation, we work to protect and promote the interests of the eThekwini business community.
In Business for a Better WorldTo be recognised as a world-class business chamber and a united voice of business in the eThekwini Municipal area and beyond.
VISION
To contribute towards creating a conducive economic and business environment in
the eThekwini Municipal area and beyond, as well as providing services specifically
relevant to small and large businesses operating in the region.
#DURBANMUSTRISE - the Durban Chamber official hashtag - signifies working
towards achieving joint goals to move local businesses forward. The Durban Chamber
represents leading multi-nationals; large corporates; small, medium and micro-sized
enterprises (SMMEs); and start-upsin promoting inclusive and sustainable economic
growth and development in eThekwini and beyond.
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How would you characterize the South African oil and gas industry?
If you look at our strategy in oil and gas, we cover upstream, midstream and downstream. In each market we seek to understand the key drivers and issues, followed by an analysis of what the clients need in that market. In that context, South Africa is unique because it has an emerging upstream sector, which is still immature in terms of ex-ploration. In contrast, the midstream and downstream sectors are mature, but still require reinvestment. So that is the lens through which we view the overall domestic oil and gas sector, and it is very different from some other markets in sub-Saharan Africa. Most of our clients in upstream are at the pre-exploration stage, but as a bank we have served the upstream sector by sharing our research-based knowledge with private and public stakeholders in South Africa.
To what extent is South Africa’s upstream sector attractive to local and international investors?
There are two ways to look at the at-tractiveness of this upstream market. If you look at the list of companies who have interest in potential offshore blocks here, you will see companies like Exxon Mobil, ENI, Statoil, Qatar Petro-leum, Total and Anadarko. From this perspective, there is clearly something
attractive about the geology to these operators. From the perspective of the capital markets, I think the big-ticket capital requirements will be met by in-ternational capital rather than the local markets. This is because there is a bet-ter appreciation of the risk, though one or two South African players may have some appetite for specific assets.
Upcoming changes to legislation will also play its part in the overall attrac-tiveness of our oil and gas sector. The Minerals and Petroleum Resources De-velopment Act (MPRDA) 28 of 2002, is the primary legislation governing the upstream minerals sector in South Afri-ca. Looking at some of the amendments that have gone through to the National Council of Provinces – relating to black economic empowerment, beneficiation requirements or the free carried inter-est for the state, for example - it could have a positive impact on the sector and the signals are encouraging. In fact, I am happy to see the level of consultation of stakeholders throughout the process.
What impact will oil price volatility have on South Africa’s upstream sector?
Oil price vola lity is not South Africa specifi c. Research on the global oil and gas sector suggests that upstream in-vestment is s ll feasible and a rac ve at prices of between $60 and $70 per barrel. However, while the dip in oil
prices we saw from 2014 resulted in capital expenditure cuts, it also meant that many explora on and produc on companies restructured to be able to be profi table at lower global oil pric-es. From a local perspec ve, long-term price stability at reasonable levels is what will support interest in our off -shore assets. Standard Bank is doing research into the sector’s specifi c op-era onal challenges, which can arise from oil price vola lity, as a means of understanding the long-term landscape for clients. I should add that in South Africa we are not yet at the stage of upstream capital expenditure, and so the current vola lity may not aff ect us directly in the upstream sector. How-ever, as a consumer in downstream, we are aff ected.
Where do you see the greatest growth potential in the downstream sector?
Since South Africa became a net ener-gy importer in early 2009, the issue of storage as a way of crea ng effi ciencies has become more important. Standard Bank par cipated in the R500 million fi nancing of Burgan Cape Terminals in Cape Town. This 18,000m³ fuel storage terminal project, situated in the Cape Town Harbour, is the city’s fi rst inde-pendent oil storage and distribu on terminal. We are likely to see a lot more investment in storage infrastructure over the next three to four years.
Interview
Africa Energy Series | South Africa
OIL FINANCE AND INVESTMENT SOUTH AFRICA’SOIL AND GASPOTENTIAL Khwezi TiyaHead of Oil and Gas South AfricaStandard Bank Corporate and Investment Banking
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be operated by an Independent Power Pro-ducer (IPP).
Three windfarm projects are going through environmental impact studies. The fi rst is a wind turbine project from Belgium, which will have 25 turbines in total. The second project will see 15 turbines from France and Sweden is developing a further 20. There is also a photovoltaic farm or solar park, and a biomass for an electricity project on the horizon.
Atlanis SEZ
The Atlan s Greentech SEZ was created in 2017, to tap into the growing interna onal green tech market while helping to alleviate poverty and unemployment in the commu-nity of Atlan s, Cape Town.With its loca on, harbor, modern infrastruc-ture, skilled professionals, low opera onal costs and incen ves, the SEZ is expected to a ract R3.7 billion in investments over the next twenty years.
As of this year, the hub has already a racted four major green tech investors: R300 mil-lion from Gestamp Renewable Industries, R50 million from Skyward Windows, R25 million from Resolux Group, and R130 mil-lion from Kaytech Engineered Fabrics.
Richards Bay IDZ
Linked to the deep water port at Richards Bay, the Richards Bay IDZ (RBIDZ) is an export-oriented industrial and trade hub focused on the agro-processing, ICT and techno parks, metals benefi cia on, ma-rine industry development, and renew-
able energy sectors.
Since its launch a few years ago, the indus-trial estate has a racted more than R11.9 billion in investments. Rio Tinto invested R343 million in April this year to further de-velop Richards Bay Minerals by construct-ing the Zul South mine. A R300 million PVC-O manufacturing plant is opera onal and a heavy logis cs company recently con-structed a warehouse.
Predominantly built for the manufacturing and storage of mineral products, the Rich-ards Bay IDZ has recently stepped into the renewable energy space, bringing in R105 million in investments and taking projects into the building designs and plans phase.
Saldanha Bay IDZ
Located at the southernmost p of the con- nent, in the largest and deepest natural
port in the southern hemisphere, the Sal-danha IDZ is the only sector-specifi c SEZ in South Africa. Opera ng as a Freeport, the SEZ serves the oil and gas, mari me fabri-ca on and repair industries.With an innova ve and compe ve oper-a ng model, Saldanha Bay IDZ has a ract-ed a total of eight signed investors since its designa on as a SEZ in 2013. These invest-ments, from the UK, Europe, Middle East, and Africa, add up to over R3 billion and are mostly for metal fabrica on workshops, repair facili es, oil lubricant and fuel plants, and specialized engineering services.A further R2.4 billion in investment is ex-pected in the short-to-medium term, and there are roughly 40 interested companies in the pipeline, according to reports.
Through incen ves including preferen al corporate tax, building allowance, employ-ment incen ves, customs-controlled areas, and 12l tax allowance, South Africa’s Spe-cial Economic Zone (SEZ) program aims to drive the government’s industrializa on, regional development, and employment crea on objec ves through direct foreign investment and the export of value-added commodi es.
Currently, there are ten SEZs in South Afri-ca. They fall into four categories: Industrial Development Zone, Freeport, Free Trade Zone, and Sector Development Zone.
Coega IDZ
Developed and run by Coega Development Corpora on, the Coega SEZ is the biggest, in terms of number and value of invest-ments in Africa and has become a model of best prac ce for all SEZs in South Africa.
In April this year, it was reported that the Coega SEZ has a racted private invest-ments worth R9.93 billion from 43 opera- onal investors across the agro-processing,
automo ve, aquaculture, energy, metals logis cs and business process services sec-tors. It has created 19 402 direct jobs and has s mulated socioeconomic develop-ment in the Eastern Cape.
In the energy sector, the Coega SEZ has a number of projects underway in both con-ven onal and renewable energy.
It will house one of the Department of En-ergy’s (DoE) Open Cycle Gas Turbine plants, the fi rst of the country’s power sta ons to
SPECIAL ECONOMIC ZONES DRIVING ECONOMIC GROWTH IN SOUTH AFRICA
Africa Energy Series | South Africa
Four South African Special Economic Zones that are att racti ng foreign investment and addressing socio-economic challenges.
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MIDSTREAM AND DOWNSTREAM
Consisti ng of both upstream and downstream acti viti es, the oil and gas sector plays a signifi cant role in the development and growth of South Africa.
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the Middle East and Africa. Downstream refers to the refi ning (or processing), transporta on and marke ng of end-us-er products – comprising a fundamental segment of the downstream sector; nat-ural gas distribu on plays a vital role in hea ng and power genera on.
South Africa’s upstream supplier base was propelled by two signifi cant cata-lysts: the development of the South Coast off shore infrastructure in the late 1980s, which established signifi cant South Afri-can capacity to manufacture and provide technical services to the industry, and the notable growth of the East and West African fi elds, which a racted many local fi rms into the market – South Africa is now a signifi cant supplier of services and equipment to both East and West Africa.
The downstream industry in South Af-rica has a long-running history of over a century with refi neries and synthe c fuel plants that are decades old. The country’s refi ning capacity is the second largest on the con nent – amoun ng to 703,000 barrels per day (bpd), with four refi neries located in Cape Town, Durban and Sasol-burg, two located inland, and gas-to-liq-uids (GTL) plants located at Sasolburg, Se-cunda and Mossel Bay. In addi on, South Africa’s Mossel Bay GTL plant and Secun-da coal-to-liquids plant (CTL) – which pro-duces gasoline and diesel fuels – account for nearly all of the country’s domes cally produced fuel.
Sasol Oil uses both GTL and CTL tech-nologies to produce up to 150,000 bpd equivalent of product, while the Petro-
leum, Oil and Gas Corpora on of South Africa (PetroSA) produces up to 45,000 bpd of synthe c products using GTL technology. South Africa’s major refi ner-ies include Sapref and Enref in Durban, Chevron in Cape Town, and Natref at Sasolburg.
There are seven major petroleum prod-ucts sold in South Africa, namely: Petrol, diesel, jet fuel, illumina ng paraffi n, fuel oil, bitumen and liquefi ed petroleum gas. The government is responsible for reg-ula ng wholesale margins and controls the retail price of petrol – regulated by import parity price formulas, domes c petroleum prices are infl uenced by sup-ply and demand for petroleum products in interna onal markets, combined with the rand/dollar exchange rate.
Main actors in the country’s oil and gas sector include BP Southern Africa, Chev-ron South Africa, Engen Petroleum, Pe-troSA, Sasol Oil, Shell South Africa and Total South Africa. The South African Petroleum Industry Associa on (SAPIA) is the industry body which represents the interests of downstream companies – these fi rms operate storage terminals and distribu on facili es at all major ports.
The Department of Energy (DoE) is re-sponsible for ensuring the secure and sustainable provision of energy for so-cio-economic development and plays a signifi cant role – through ins tu ons such as the Central Energy Fund and Na- onal Energy Regulator of South Africa
(NERSA) – in the South African liquid fu-els market.
Recognized as Africa’s most sophisti cated economy, South Africa is a globally important emerging nati on that is equipped with well-developed transport and manufacturing infrastructure to support the downstream petroleum industry. The country’s highly integrated mid- and downstream oil and gas industry serves as a major employer and an economic driver for the country – with downstream acti viti es employing around 250,000 South African citi zens.Consis ng of both upstream and down-stream ac vi es, the oil and gas sector plays a signifi cant role in the develop-ment and growth of South Africa. Up-stream refers to the explora on and produc on of crude oil – at present, the South African upstream sector is limited with 60 percent of the country’s crude oil demands met through imports from
MID- AND DOWNSTREAMIN SOUTH AFRICA
Regulati on, licensing and legal frame-work
Responsible for regula ng and promot-ing mineral and petroleum development, the Ministry of Mineral Resources and Energy is the principal regulatory and oversight body for oil and gas ac vi es in South Africa and acts as the custodian of the country’s petroleum resources on behalf of the government.
Downstream ac vi es are regulated in accordance with the Petroleum Products Act of 1997 – as amended by the Petro-leum Products Amendment Act of 2003 and the Petroleum Products Amendment Act of 2005 – and administered by the DoE, while NERSA is responsible for regula ng the petroleum pipelines seg-ment. The principal legisla on governing transport of crude oil is the Petroleum Pipelines Act of 2003. In addi on, the DoE issues authoriza ons for the import and export of petroleum products in conjunc on with the Interna onal Trade Administra on Commission of South Af-rica, which issues permits for the same ac vi es.
Represented by the DoE’s DDG: Hydro-carbons and Energy Planning division, the Controller of Petroleum Products is the statutory authority mandated to issue manufacturing, wholesale, retail and site licences. The Controller is also responsible for inves ga ng off ences and gathering informa on in rela on to petroleum products. The Petroleum Products Act covers a wide range of downstream marke ng ac vi es and governs the licensing for manufacturers, wholesalers and retailers of petroleum products.
As long as a business is a concern, whole-sale and retail licenses will remain valid – retail licences will only be granted pro-vided the site to which it relates is also licensed. The South African government allocates a limited number of licenses, with manufacturers and wholesalers pro-hibited from holding retail licences ex-
cept for training purposes – a breach in local content requirements as part of the licensing condi ons would cons tute a breach of the licence and could lead to the revoca on of the licence.
Challenges
South Africa’s downstream sector com-prises a highly integrated value chain – from produc on and refi ning of products to transporta on, depots and storage facili es around the country; and fi nally distribu on to service sta ons and cus-tomers.
Security of supply is one of the coun-try’s main challenges in the sector and refers to the development of supply chain solu ons for supply challenges, demand management issues and emer-gency response. From 2011 to 2015, the country’s Compe on Commission granted SAPIA and its members an ex-emp on from some of the prohibi ons outlined in the Compe on Act of 1998 (as amended) in an eff ort to improve domes c security of supply, reduce the threat of supply disrup ons and facilitate mul lateral logis cs delibera ons. SAPIA emphasizes the importance of integrat-ed planning and joint implementa on of infrastructural improvements – such as the reconfi guring of refi ning facili es – to enable produc on to meet emissions standards and improve South Africa’s global compe veness.
Infrastructure is integral in South Africa’s con nued economic turnaround – while the downstream industry is well served in its infrastructure needs, some facil-i es have not been upgraded for many years, lack maintenance and opera on-al effi ciency and do not meet modern technological standards. With the most comprehensive and modern facili es in Africa, the country must s ll ensure it matches global compe on for petro-leum products.
Oil and gas produc on – including devel-oping, producing, transpor ng, refi ning
and delivering oil to end users – entails signifi cant environmental challenges in-cluding harmful emissions, greenhouse gases, spills and contamina on to fi res and explosions at plants. As a result, the Oil Industry Environment Commi ee was established to address these issues – the commi ee was subsequently integrated with the SAPIA Engineering Commi ee to form the Petroleum Industry Environ-ment and Engineering Commi ee, which ensures that no environmental harm arises from petroleum industry ac vi es.
Future outlook
A major barrier to development in South Africa’s oil and gas industry con nues to be regulatory uncertainty – although there have been some posi ve devel-opments from government, there is s ll a high level of variability in a number of jurisdic ons.
South African Mineral Resources and Energy Minister Gwede Mantashe has assured that his department will create a posi ve business environment for the oil and gas sector by being open to engaging the industry on legisla on from day one.
“Together, we will develop [the oil and gas] sector. We know that government cannot grow and develop this sector alone. It is you who can develop and grow this sector and it is us who must create the necessary environment for you to develop the sec-tor,” said Minister Mantashe at an engage-ment session with industry stakeholders in November last year.
Minister Mantashe added that govern-ment’s decision to separate the oil and gas industry from the mining industry in 2013 was an important step in promo ng a strong, stand-alone sector.
In addi on, President Cyril Ramaphosa – during his State of the Na on address in February this year – said that government would ensure the oil and gas industry is regulated properly to protect the inter-ests of all concerned.
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INVESTINGINREFINERIES
Priscillah MabelaneCEOBP South Africa
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Interview
Africa Energy Series | South Africa
Focusing on the refi ning and marke ng of fuels and lubricants, BP South Africa processes crude oil at the Shell and BP South African Petroleum Refi neries (SA-PREF) while manufacturing lubricants at its Durban-based oil blending plant. In addi on to owning a na onal network of BP-branded service sta ons, the pe-troleum giant operates nine depots and three coastal installa ons, as well as the largest rail gantry in Africa.
South Africa has gone from being a net exporter of refi ned oil products to a net importer. What are the causes?
From a macro perspective, increases in demand for fuel have been driven by long-term economic growth over the last few decades. However, there has not been much investment in refiner-ies for various reasons, including the need for demand to shift significantly against supply before it is feasible to make structural changes to increase that supply.
Another driver has been an aggressive shift toward lower sulfur fuel, par-ticularly D50, which local refineries, including SAPREF, have not been ca-pable of producing. In the past, South Africa exported a lot of fuel but also imported a lot of D50. Although there has been a shift towards increased im-ports overall, most demand is still met by local fuel supplies.
Please outline some of BP’s recent work and capital investments in South Africa.
BP signed off on a $1 billion dollar, fi ve-year investment plan in 2018 – about 35 percent of that will go into our refi nery business, which is a joint venture be-tween Shell and others in SAPREF. The rest will be allocated to our marke ng business and midstream opera ons.
A signifi cant part of BP’s investment will go into upgrades to meet customer demand, par cularly the migra on to low-sulfur fuels. Our inten on is to be D50-capable by 2021 with a major tran-si on in 2019. The second element is in line with pending regulatory require-ments involving the transi on to low-sul-fur, so we need to make sure our foundry is able to meet those specifi ca ons in the future. A third element is ensuring the reliability and availability of the refi nery so that it remains compe ve rela ve to refi ned fuel imports.
BP will have approximately 145 sites by the end of 2018 and our inten on is to increase that by a minimum of 30 sites next year. We want to invest con nuous-ly in our customer value proposi on and our partnership with Pick ‘n Pay is one of the ways that we are looking to improve our off ering.
How does oil and petrol price volati lity aff ect consumer purchasing patt erns?
With the recent up ck in oil prices in South Africa, coupled with vola lity of the rand, we have seen oil prices increas-ing substan ally. This is on the back of government increases in levies and tax-es over the preceding three years when prices were lower. Altogether, the cumu-la ve eff ect has been signifi cant price increases at the pump.
As prices have increased, consumers have changed their behavior, resul ng in a decline in overall volumes at the pump.
Signifi cant changes in price diff eren als between 95 and 93 octane fuel were not experienced, but that is expected to shi if 95 octane fuel prices con nue to approach the R20 per liter mark, as they had in the la er part of 2018.
BP South Africa recently launched a partnership with Pick ‘n Pay. Is this one of the strategies taken to adjust to new and changing consumer patt erns at the pump?
In November 2018, we launched a part-nership with South Africa’s second larg-est supermarket chain, Pick ‘n Pay, as a way for us to off er appropriate rewards to customers of both the supermarket re-tailer and BP. Our partnership goes back to 2008 when we opened our fi rst pilot Pick ‘n Pay stores at BP service sta ons. It is a strong partnership that combines two strong partners and we want to leverage that strength now to understand customer demands and pa erns. We are con nuously looking to improve this rela- onship and have invested in technology
that allows consumers to redeem points earned at Pick ‘n Pay on BP fuel.
What is your outlook for the South African oil market?
The market has been under pressure in recent years, but we remain posi ve. The South African government has been en-thusias c about turning it around, which in turn generates op mism throughout the sector. We know it will be a journey to large-scale growth and we believe it will materialize in the long-term. In the mean- me, there have been improvements in
economic outlook, which bodes well for the future.
From BP’s perspec ve, we need to be effi cient in how we run our business - to op mize, support and s mulate the econ-omy. Simultaneously, we need to ensure that we balance risk and return for our shareholders. We are commi ed to South Africa and will con nue to invest in its economy.
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Where does Egoli Gas fi t into the gas sector as South Africa’s only gas reti culati on company?
Egoli Gas is an established natural gas re cula on company that provides piped re culated gas throughout Jo-hannesburg, with 1,200km of pipeline consis ng of high pressure lines and an-other 2,000km of low pressure lines. The high pressure line operates at 20kpa and forms the backbone of the system, while the low pressure line feeds domes c de-mand at 3kpa.
The company supplies all industrial ar-eas around Johannesburg that are not supplied by Sasol. In addi on, it supplies piped gas to domes c users and com-mercial users such as restaurants, hotels, and hospitals.
Egoli Gas is supplied by Sasol through the Mozambican natural gas pipeline.
Who are Egoli’s biggest customers?
Egoli Gas’ customer base consists of over 7,500 tradi onal customers in domes c, mul -dwelling, central water, commer-cial/hospitality and industrial sectors. Industrial customers are their largest, followed by commercial users. The com-pany supplies natural gas to hospitals and also to companies that generate their own power such as MTN, Standard Bank, ABSA, the Parktonian Hotel, Wits Junc on and others.
What is the extent of the network?
We cover around 50% of Johannesburg. The longest line runs between Florida on the West Rand to Edenvale Hospital in Ekurhuleni on the east of Johannes-burg. This network is well established in suburbs such as Kensington and Roset-tenville. From the South, our pipelines run from Nancefi eld and Aeroton near Soweto through Robertsham and up to Sandton and Randburg in the North. Our network is well established in most of the older suburbs such as Parktown, Em-meren a, and Linden.
How has the residenti al market performed in response to electricity supply challenges in the country?
While there is a large poten al residen- al market, the barrier to penetra on
of the market is the cost of conversion from electricity to gas. Most houses are fi ed with electrical stoves, geysers and appliances. To use gas requires structur-al altera ons to homes, and replacement of appliances. Consequently, people are wary of conversions and accept the use of electricity. However, the biggest mar-ket for residen al gas is in renova ons and new builds.
What are some of the most signifi cant capital expenditure projects for Egoli Gas?
We have spent more than R200 million in expanding the network and replacing or renewing exis ng infrastructure since
being taken over by the Rea le Group in 2013. In 2015 the network was expand-ed by 8km in Florida up to 14th Avenue in Fairland, Randburg, adding an entry point to the network area on the west side. This line was designed to deliver 1.5m Gigajoules of natural gas per year and can increase volumes of 2.5m Giga-joules, the pipeline was designed and constructed to support a 10MW power plant at MTN. In 2017, we completed an expansion between Hyde Park and Sand-ton central. We have also expanded from Kew to Edenvale Hospital to supply the hospital with natural gas for their boilers that were converted from coal.
Our expansion is, however, dependent on customer demand. As a result of slow growth in the economy, we have found that there has been less demand for ex-tensions for manufacturing and other industries over the last few years. As a result, the last new pipeline completed were the Hyde Park – Sandton and also the Linden - Mintek extensions in 2017.
What are the key opportuniti es for reti culati on in Johannesburg?
The Johannesburg City Council has re-cently pushed for a cleaner environment in the city and is looking for solu ons that provide lower carbon emissions. We are able to assist the city and the country in realizing these goals through the use of natural gas. As a result, we would like to work with government to push for natu-ral gas as a sustainable way to encourage industry to grow. At the same me, the expansion of Egoli Gas has the poten al to create jobs for the city’s residents, in addi on to the expansion of contractor and subcontractor opportuni es.
Interview
RETICULATING GAS FOR SOUTH AFRICA’S LARGEST CITY Monde TyushaManaging DirectorEgoli Gas
A subsidiary of African investment com-pany Royal Bafokeng Holdings, MOGS is a majority partner in the South Afri-ca-based energy infrastructure compa-ny, Sunrise Energy, which is responsible for Africa’s largest open-access Lique-fi ed Petroleum Gas (LPG) import termi-nal, worth an es mated $76 million.
On the African con nent, MOGS oper-ates within the West, East and Southern African regions as a capital and techni-cal partner to governments and the pri-vate sector. Its opera ons are based in Tema, Ghana; Maputo, Nacala and Bei-ra, Mozambique; and Saldhana, South Africa.
Through its open-access terminals, MOGS owns, operates and maintains oil and gas infrastructure, although it does not own or trade in any of the commod-i es handled. The company handles fuel products on a tariff basis in line with the country’s regulator, aiming to facilitate upstream and downstream access to the market.
As global markets move towards in-creased compe on in the energy sec-tors, the open access model is expected
Profi le
FUELING THE FUTURE OF OIL AND GASINFRASTRUCTURE
MOGS Oil & Gas Services (MOGS) is pan-African operator, investor and developer of oil and gas midstream infrastructure across the African continent. Operating on an open-access basis, the company develops fuel import terminals, storage and blending facilities.
Stephan BurgerVice PresidentMOGS Oil & Gas Services
to drive down prices, and boost access to LPG and other fuel sources where the price of these commodi es is unregulat-ed. In an unregulated market, increased open access capacity could poten ally lower the point of entry. The model also promises to ensure con nuous mainte-nance of infrastructure through compa-nies such as MOGS.
The Sunrise Energy open-access LPG import and storage facility will be acces-sible to all third-party LPG importers, distributors and bulk consumers. Locat-ed in Saldanha Bay in the Western Cape province of South Africa, it is expected to enable the import of LPG in large quan es, boos ng regional energy se-curity and increasing downstream com-pe on.
In recent years, the Western Cape prov-ince has been experiencing shortages amoun ng to half its monthly 11,000 metric ton peak demand for LPG. With a capacity of 200,000 metric tons of LPG per annum, the new terminal is an ci-pated to meet the shor all.
In addi on to the Sunrise Energy ter-minal, Oiltanking MOGS Saldanha – a joint venture company created by MOGS and tank storage logis cs com-pany, Oiltanking GmbH – reached fi nal investment decision for its crude oil blending storage terminal in Saldanha Bay in February 2017.
The 12-tank project with a 1.1-mil-lion-barrel capacity per tank is expected
to be completed and opera onal by the fi rst quarter of 2019. The facility’s oil tanks are connected, however, with blending nozzles and equipment in each tank, in addi on to blending between tanks, it is possible to blend within the tank to make crude oil easier to trade and more fl exible for refi neries. The facility, which is not built to supply to the South African market, is strategically located on the trade route for crude oil to operate as a supply stor-age facility with Saldanha Bay.
As South Africa works towards estab-lishing a stable and sustainable energy mix, and developing a globally com-pe ve energy sector, the projects at Saldanha Bay will serve to change the percep on of South African design and technology.
With a long-term vision to invest in mid-stream infrastructure to boost capacity, MOGS will develop opera ng capabil-i es in diff erent countries in a range of fi elds, including storage, pipelines, nat-ural gas and LPG. Having established itself in South Africa, MOGS hopes to create more opportuni es to develop the sector and contribute to the govern-ments’ ambi on of implemen ng a more sustainable energy mix.
Africa Energy Series | South Africa
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Windpumps and a sunset on a farm. Karoo in South-Africa
mineral resourcesMineral Resources