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Issue 131, Oct 2024

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Roundup of major energy and electricity news and developments in South Africa: 30 Sep to 13 Oct 2024

1. Scepticism over timing of Transnet’s LNG plans for Richards Bay.

2. Relook at onshore and offshore wind energy opportunities in South Africa.

3. Official launch of the National Transmission Company of South Africa (NTCSA).

4. Credit guarantee and tariff plans to attract new investment in the transmission grid.

5. NERSA committee recommends granting of trading licences to four electricity traders.

6. Breakdown of Eskom application to NERSA for a price increase of 36% on 1 April 2024.


To see an archive of all energy and electricity sector roundups to date, please visit www.eebi.co.za/news

1. Scepticism over timing of Transnet’s LNG plans for Richards Bay.

 

Transnet's ambitious plan to bring a liquefied natural gas (LNG) import terminal online at Richards Bay by 2027 is facing growing scepticism from industrial gas users in South Africa. The project, aimed at addressing the looming gas supply shortage and supporting decarbonisation efforts, is part of a joint venture between Transnet Pipelines and Vopak, with a projected capacity of 2-million tonnes per annum in its first phase. Transnet Pipelines CEO Sibongiseni Khathi expressed confidence in fast-tracking the project to meet a new deadline in early 2027. However, industrial gas users, represented by the Industrial Gas Users Association - Southern Africa (IGUA-SA), remain unconvinced. At a recent meeting on 4 October 2024, users expressed doubts about the feasibility of Transnet’s timeline, given the complex infrastructure needed, including pipelines and regassification facilities. Many industrial gas users are instead pursuing alternative arrangements with Mozambique’s Matola Gas Company (MGC) to secure an earlier gas supply. This scepticism extends to concerns that state-owned enterprises in South Africa often over-promise and under-deliver. Energy and Electricity Minister Kgosientsho Ramokgopa recently emphasised that Matola’s gas supply project would be the initial focus, with Transnet’s project following only later, potentially by 2030. Environmental concerns are also mounting, with groups opposing gas-to-power projects at Richards Bay, citing their potential to exacerbate air quality issues. With these hurdles in mind, stakeholders are questioning whether Transnet's accelerated timeline is realistic, or whether it reflects broader challenges in South Africa’s energy transition plans.

 

2. Relook at onshore and offshore wind energy opportunities in South Africa.


South Africa is re-examining its wind energy potential, both onshore and offshore, to diversify its energy mix and support a just energy transition. In Mpumalanga, traditionally a coal hub, the Danish-South African project “Wind Atlas of South Africa Phase 4” (WASA4) is mapping wind resources to identify renewable energy opportunities. This initiative, backed by the Danish Energy Agency and other local institutions, aims to attract wind energy investments by validating wind data in Mpumalanga, a region with abundant grid capacity. WASA4 is part of broader efforts to transition from coal, with potential cost benefits as grid infrastructure is already established. On the offshore front, South Africa's untapped marine wind potential is receiving renewed attention. Although offshore wind projects are typically more expensive and complex, they offer long-term benefits such as job creation, infrastructure development, and opportunities for local manufacturing. Preliminary findings from the World Bank suggest that South Africa has significant offshore wind potential, with scenarios projecting between 5 GW and 40 GW by 2050, depending on investment and government support. The success of offshore projects hinges on strategic planning and regulation. While South Africa lacks specific policies for offshore wind, the roadmap currently being developed could guide the country toward integrating up to 25% of offshore wind in its energy mix by 2050. Building the necessary infrastructure, addressing environmental concerns, and fostering local industry will be crucial to this energy transition, positioning South Africa as a leader in renewable energy in Africa, on both land and sea.


3. Official launch of the National Transmission Company of South Africa (NTCSA).


After commencing trading on 1 July 2024, the NTCSA was officially launched on 7 October, marking a significant step in reforming the country’s energy sector. Over the next five years, NTCSA plans to connect 30 GW of utility-scale renewable energy projects to the grid as part of its ambitious Transmission Development Plan (TDP), with an allocated budget of R112bn. The NTCSA Transmission Development Plan, TDP2023, plans the construction of nearly 14,000 km of new 132, 275, 400 and 765 kV transmission lines in the next ten tears, allowing 53 GW of new power generation to be connected to the grid, primarily from IPPs. This development is crucial for unlocking renewable energy potential, particularly in the Northern Cape, Eastern Cape and Western Cape where the grid congestion is experienced. Interim CEO Segomoco Scheppers emphasised the importance of public-private partnerships to deliver on these ambitious goals. The NTCSA is actively working on innovative funding mechanisms to engage the private sector without burdening the fiscus. Scheppers also highlighted the company's goal to create a transparent and competitive energy trading platform, which would allow multiple energy generators to enter the market, increasing competition and driving down costs for consumers. While South Africa's transmission grid expansion has previously been delayed, NTCSA indicated that, with coordinated efforts and new investments, the grid will be expanded to bring 11 GW of new capacity online by 2027. As a wholly owned subsidiary of Eskom for the next five years, NTCSA will play a pivotal role in the country transition towards a greener, more resilient energy future, addressing long-standing capacity issues and boosting energy security.


4. Credit guarantee and tariff plans to attract new investment in the transmission grid.


South Africa is advancing efforts to boost private sector investment in its transmission grid, addressing urgent infrastructure gaps while reducing government debt liabilities. The National Treasury is designing a new model to encourage private participation in the sector through a credit guarantee vehicle, backed by the World Bank's Multilateral Investment Guarantee Agency (MIGA). This approach will de-risk projects without placing the burden of explicit government guarantees on the state, allowing private investors to shoulder more risk in exchange for mechanisms that lower financing costs. The country’s transmission infrastructure faces a significant backlog, with Eskom requiring R400bn to build 14,000 km of new lines. Eskom's financial position prevents it from financing this alone, driving the need for private investment. The National Transmission Company of South Africa (NTCSA), operationalised in July, will oversee grid investment and facilitate partnerships with private entities through a build-operate-transfer (BOT) model. For this to succeed, tariffs must reflect the true cost of transmission to ensure attractive returns for investors. However, the National Energy Regulator of South Africa (NERSA) has historically not approved cost-reflective tariffs, complicating private sector involvement. NTCSA is engaging with NERSA to unbundle Eskom’s tariffs into distinct charges for generation, transmission, and distribution, ensuring transparency and predictability in revenue flows. This tariff reform is critical for attracting private investment. The Treasury plans to pilot this credit guarantee model by the end of the fiscal year, supporting a larger drive to involve private sector financing in public infrastructure, a cornerstone of President Cyril Ramaphosa’s economic reform agenda.

 

5. NERSA committee recommends granting of trading licences to four electricity traders.


The National Energy Regulator of South Africa’s (NERSA) electricity subcommittee has recommended the approval of trading licences for four companies: GreenCo Power Services, Discovery Green, Green Electron Market, and CBI Electric Apollo. These recommendations come despite objections raised by Eskom during public hearings in July 2024. Eskom argued against issuing these licences, citing concerns that allowing multiple traders in the same distribution area would violate existing rules, which prohibit two or more licensees from supplying electricity in the same region. Eskom also raised concerns about "cherry-picking" of customers by these traders, as they are focused on supplying only large power users, leaving residential and small businesses unsupported. This selective customer base could undermine cross-subsidisation, which helps balance costs across different consumer groups. Despite these objections, NERSA’s subcommittee dismissed Eskom's claims, clarifying that the restrictions apply to distribution licences, not trading licences. Since electricity traders rely on existing infrastructure to buy and sell power, they would pay distributors such as Eskom or municipalities for using their networks. Hence, no infrastructure or safety conflicts would arise. NERSA also highlighted its obligation to ensure non-discriminatory access to the national grid, emphasising that competition should not be restricted. The committee further noted the importance of a national wheeling framework, which NERSA plans to implement soon. While the subcommittee did not consider GreenCo’s application for import and export licences, it promised to address the matter soon, signalling continued efforts toward market liberalisation and grid access. The recommendation of NERSA’s subcommittee in is expected to be on the agenda for final approval by the NERSA board on 29 October 2024.


6. Breakdown of Eskom application to NERSA for a price increase of 36% on 1 April 2024.


Eskom has applied to NERSA for a 36.1% price hike on 1 April 2024, a move that has stirred significant public concern. An important article by Carol Paton outlines several key factors for this increase, calculated using the multi-year price determination (MYPD) methodology. The largest driver of the increase is an 11.2% rise in coal costs. Delays in the procurement of renewable energy has forced Eskom to rely more heavily on coal, often purchased at high spot prices. Additionally, Eskom seeks a 10.3% increase to cover rising operational costs, including wages, maintenance and IT expenses. These costs have been exacerbated by NERSA’s refusal to fully cover them in previous applications, causing a sharper year-on-year rise. Eskom is also requesting a 7.9% increase for its return on assets (ROA), seeking to gradually align tariffs with its true costs. This move is indicated by Eskom as essential to avoid further government bailouts once the R254bn in debt relief from National Treasury ends in 2026/27. Another 5.7% increase is attributed to special pricing agreements with large industrial customers, which help sustain certain energy intensive customers but necessitate higher costs for the bulk of customers. Further justifications include a 2.6% rise due to unpaid municipal and consumer debt, and a 1.6% increase related to the carbon tax, set to take effect in 2026. Smaller contributions come from international electricity purchases (0.4%) and environmental levies (0.1%). However, there are offsets, such as a 2.3% reduction in Independent Power Producer (IPP) payments, a 1.2% decrease in depreciation, and a 0.2% reduction in regulatory cost recoveries. NERSA will now assess whether these increases are justified given their potential impact on consumers and the economy.

EE Business Intelligence


EE Business Intelligence strives to be a positive formative influence on policy, economic, social, regulatory, standardisation, training and business development in the energy, electricity sectors of Africa. Its activities and services include thought leadership, analysis, research, consulting, special assignments, business intelligence, strategic event facilitation and management, and public, corporate and media speaking engagements and commentary.

Independent Energy Pool (IEP Global)


Independent Energy Pool (IEP Global) is a business-to-business energy pool, allowing energy users and energy traders to buy and sell electricity. IEP's ecosystem allows transacting of electricity in a balanced and standardised environment. The pool incorporates the ability to trade renewable energy certificates, as well as the tracking and reporting of ESG criteria.

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