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1. Climate Change Act – signed into law, but not yet operational
On 23 July 2024, President Ramaphosa signed the much anticipated Climate Change Act into law. The Act is however not yet operational and awaits a further proclamation by the president in order for this to happen. The Act is intended to enable and manage an effective climate change response and a long-term, just transition to a low-carbon and climate-resilient economy and society. One of the ways in which it seeks to achieve this is by setting out key institutional arrangements that mainstream climate change response across sectors and tiers of government. Provinces and municipalities are assigned obligations to establish climate change forums, map risks and vulnerabilities, and formulate response plans. Sector departments are also roped in and are directed to oversee and implement measures in accordance with the Act’s mechanisms on adaptation and mitigation. Importantly, the Act prescribes that it will take precedence over any other legislation that relates to climate change, and all organs of state must align their policies, measures, laws and decisions to align with the principles and objects of the Act. Adaptation is managed via the establishment of a national adaptation strategy and plan, which in turn inform sector adaptation strategies and plans. All plans and measures must be informed by the best available science. Mitigation is managed via the allocation of carbon budgets to emitters whose greenhouse gas emissions exceed certain thresholds still to be determined. Enforcement is intended to be exercised by levying a higher carbon tax rate on emissions that exceed the carbon budget, but no other penalties apply, and the exceedance of carbon budgets is not made an offence. Sectoral emissions targets (SETs) are also still to be determined, and these will compel sectors such as energy to adhere to progressively stricter limits on emissions for the sector.
2. Regulator rejects preferential grid access for public sector renewable energy projects.
At a meeting of the board of the National Energy Regulator of South Africa (NERSA) on 30 July 2024, the board approved the unanimous recommendation of the regulator’s Electricity Subcommittee to reject Eskom’s application to reserve and provide preferential grid access to IPPs providing energy into the grid through public procurement processes such as the Bid Window 7. The application by Eskom stands in stark contrast with Eskom’s long-stated policy of providing non-discriminatory access to its transmission and distribution grids to both public and private sector procurements of new generation capacity, a principle also enshrined in the Grid Code, which was developed largely by Eskom and municipal network operators and is administered by NERSA. Some suggest that Eskom’s application may also have been motivated by a desire by the national electricity utility to secure preferential grid access for its own renewable energy projects after Eskom’s head of generation, Bheki Khumalo, announced plans to build, own and operation a fleet of renewable energy generation plants. In announcing its decision, NERSA said Eskom had not identified the specific customers or classes of customers it intends to discriminate against, or the term of the intended discrimination. NERSA also said Eskom did not present objectively justifiable and identifiable differences regarding such customers. Energy and Electricity Minister Kgosientsho Ramokgopa appeared to support NERSA’s decision, indicating in a media briefing that he leans to the principle of “first ready, first served” in order to bring power to the grid quickly and resolve the energy crisis without restricting the market, while ensuring fair rules for everyone.
3. Sasol to appeal judgement declaring NERSA's gas pricing methodology unlawful.
On 24 July 2024, Sasol indicated its intention to appeal a judgement by the North Gauteng High Court, Pretoria, that ruled in favour of the Industrial Gas Users Association – Southern Africa (IGUA-SA) in an action challenging the methodology used by National Energy Regulator of South Africa (NERSA) in setting the maximum regulated gas price that Sasol charges traders and industrial users in Gauteng, Mpumalanga and KwaZulu-Natal. This follows a temporary restraining order by the Competition Tribunal preventing Sasol from increasing its gas prices above R133.34 per GJ for six months from May 2023 in an earlier action brought by IGUA-SA before the Competition Commission. In the latest judgement, the Gauteng North High Court ordered that NERSA’s methodology and decision dated 31 March 2021 to approve Sasol’s maximum gas prices for the period from March 2014 to June 2023 was unlawful and set aside, and the matter was sent back to NERSA to for a new lawful decision. The court found that NERSA’s use of international benchmarking as a method to determine Sasol’s gas price was not reasonable in the context of South African gas, where Sasol’s monopoly gas price to users is totally disconnected from its costs. Gas users contend that a proper pricing methodology should consider the marginal costs that Sasol incurs for the gas molecules, plus a fair use-of-system cost and a fair return on assets employed. After an earlier judgement reversing NERSA's 2013 and 2017 price determinations, Sasol was ordered to refund customers about R1.7bn. The company said said retrospective adjustments of the previous decisions caused great prejudice to its business operations.
4. Scandal involving refurbishment of PetroSA’s offshore gas assets for Mossel Bay.
Following a contract of R3.7bn billion controversially awarded to Russia's Gazprombank Africa for the refurbishment and return to service of PetroSA's shuttered onshore gas-to-liquids facility in Mossel Bay, Petro SA awarded a much bigger contract in December 2023, estimated at R21.6bn, to an unknown entity, Equator Holdings (Pty) Ltd, to finance and refurbish PetroSA's offshore gas infrastructure. A startling exposé by investigative journalist Susan Comrie of amaBhungane has revealed that the deals involving Equator fell apart after the company was unable to show PetroSA that it had secured sufficient financial resources for the refurbishment project. There were also concerns about the dodgy company Equator had contracted as its technical partner, after the contracted company was placed in final liquidation some weeks after having been appointed. It now transpires that Equator Holdings too has been ordered by the Johannesburg High Court to be wound up after failing to come up with the money for one of its operations, the third division Limpopo soccer team trading as Tshakhuma Tsha Madzivhandila (TTM) Football Club, to pay its players. This let alone the billions of rands needed for the PetroSA job. The saga reveals a surprising degree of negligence and/or incompetence in the vetting processes of PetroSA in the awarding of such large contracts. An informed senior corporate investment bank executive observed, however, that when things look like sheer incompetence, a slightly deeper dive may reveal a layer of corruption.
5. Gas condensate discoveries off southern Cape coast abandoned by TotalEnergies.
Hot on the heels of the scandal involving the refurbishment of PetroSA’s offshore gas wells feeding its shuttered gas-to-liquid fuel facility in Mossel Bay, a formal media release from French oil and gas giant Total Energies announced that it was exiting the consortium formed to develop the 11B/12B (Brulpadda and Luiperd) gas fields off the southern Cape Coast in which it had a 45% interest. TotalEnergies also indicated its withdrawal from offshore exploration in Blocks 5/6/7 where it held a 40% interest. The reasons have been variously attributed to technical difficulties in developing the gas fields in the treacherous deep waters off the southern Cape coast, and to the development of the gas fields not being commercially viable. There are also suggestions of South African energy policy uncertainty, and the apparent inability or unwillingness of PetroSA and/or government to conclude a long-term gas offtake agreement on mutually acceptable terms. The exit of TotalEnergies follows exits by CNR International (a subsidiary of Canadian Natural Resources Limited) with a 20% interest, and Qatar Petroleum with a 25% interest, leaving only Main Street 1549, a South African consortium with a 10% interest. The withdrawals deal a significant blow to PetroSA’s ambitions to restart its Mossel Bay gas-to-liquids plant in Mossel Bay, to the DMRE's ambitions for PetroSA to become the core of a new South African National Petroleum Company (SANPC), and for Eskom to transition its Gourikwa diesel-driven open-cycle gas turbine (OCGT) power plant near Mossel Bay to a combined-cycle gas turbine (CCGT) plant fuelled by natural gas.
6. Eskom had sufficient generation reserve capacity to place 2000 MW in “cold reserve”.
Eskom data monitored by EE Business Intelligence has confirmed a further stunning reduction in unplanned outages (UCLF) within Eskom's fleet of coal-fired power stations for Week 30, ending Sunday 28 July 2024 that has exceeded all expectations. This resulted in a corresponding dramatic increase in Eskom’s energy availability factor (EAF), which for the first time in 3.5 years has seen the EAF for the week at just above 70%. At a media briefing on Monday 29 July 2024, Energy and Electricity Minister Kgosientsho Ramokgopa, gave effusive praise to Eskom’s head of generation, Bheki Nxumalo and his team. The minister advised that Eskom now had about 4000 MW of generation reserve capacity, a far cry from the shortage of about 6000 MW during the Stage 6 load shedding for much of 2023. Khumalo further indicated that about 2000 MW of coal-fired generation plant had since been placed in “cold reserve”. This means that the capacity from the relevant coal-fired generators was not immediately needed, and had been shut down for the time being, but in a condition that allows the generators to be fired-up and brought back online again within a few days, if needed. If this improvement can be sustained, there is every reason to believe that there may be no further load shedding this year, although Minister Ramokgopa and President Ramaphosa have both cautioned that there is no room for complacency, and that “we are not out of the woods yet”.
7. Energy poverty and inequality prompts major review of tariffs, pricing and subsidies.
Massive electricity price increases by Eskom and municipal electricity distributors at multiple times the inflation rate for a number of years, together with the application of fixed components for prepaid electricity customers (most notably the recent R230 per month fixed charge by the City of Johannesburg), are having a devastating impact on poor and indigent households. This prompted Energy and Electricity Minister Kgosientsho Ramokgopa to announce, at a media briefing on 29 July 2024, that he would be initiating a major review of the electricity pricing methodology, electricity tariffs, cross subsidies and government poverty relief measures to ensure appropriate access to and affordability of electricity by the poor. Minister Ramokgopa made particular reference to funds disbursed by National Treasury to municipalities to provide a minimum of 50 kWh of free basic electricity (FBE) to the 10-million indigent households in South Africa, only 2-million of whom actually receive any FBE, while 80% of the FBE funds are misappropriated by municipalities and used for purposes never intended. He indicated that this review would be done in consultation with the relevant role-players including National Treasury, COGTA, NERSA, SALGA, Eskom and municipalities. Minister Ramokgopa also mentioned that care must be taken to ensure that new entrants engaging in trading of electrical energy do not threaten the sustainability of Eskom and municipal network operators who have significant service delivery obligations to the poor.
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