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Anticipating that South Africa’s proposed gas power projects will cost up to $3.7 billion, the Department of Energy (DoE) announced it will reveal a list of preferred bidders for the projects by the end of March 2017. DoE had issued an Independent Power Producer (IPP) program as the basis for the procurement of two projects totalling 3,000 MW.
Winning bidders will build South Africa’s first integrated LNG-to-power project which will comprise a floating storage and regasification unit and a nearby gas-fired power station as well gas storage facilities and transmission pipelines. Seeking to promote gas power projects, government aims to diversify South Africa’s energy mix and shift away from burning emission-intensive coal.
A separate IPP procurement process will be undertaken at a later stage for a 1,000 MW project at Coega in the Eastern Cape and 2,000 MW project at Richards Bay in KwaZulu-Natal. Demand for LNG in KwaZulu-Natal is estimated to be 0.2 mtpa within five years, while on the Eastern Cape it is estimated to be 1.3 mtpa over the same period.
Exxon, Shell among the bidders
Bidders for both gas-to-power projects are required to set up private sector special purpose vehicle (SPV) for each project. The SPV will be responsible for the design and development, project finance and the supply of LNG. Exxon Mobil and Royal Dutch Shell are among more than 100 bidders for these gas power projects.
“Successful bidder will develop the project and take all reasonable construction, operational and commercial risk,” the DoE pointed out. Moreover, bidders will be required to set aside at least 35% equity for local partners, including South African state-owned companies.
DoE aims for 35% plant load factor
All electricity to be generated from the IPPs will be bought by Eskom under a 20-year Power Purchase Agreement (PPA) – giving project developers some certainty about their future rate of return. Project calculations by DoE have been undertaken based on a 35% load factor for the power plants.
Though the ministry’s Preliminary Information Memorandum (PIM) does not disclose any detail on load factor requirements, it states that “agreements will have to be flexible to provide for the expected growth in the gas market.” Further detail will be provided in a Request for Qualification (RFQ) which will be issued in November.
Financing is another stumbling block for IPPs in South Africa. Prospective debt capital providers are waiting for more information about government’s preferred procurement model. Standard Bank has signed interest in funding gas power projects, but some others cautioned that that for a $100 million power plant bid at least 5% of the total cost was spent on bringing it to financial close, and not every project was feasible.
