South Africa’s mining and manufacturing industry has been hit repeatedly by sharp increases in electricity tariffs. With President Zuma’s plans for new nuclear thwarted, South Africa’s future energy mix is seen shift towards renewables and flexible gas generation. An LNG-to-Power IPP Programme envisages some 1GW of new gas power capacity to be constructed at South Africa's Coega port, with another 2GW to be built at Richards Bay.
New nuclear had for long been presented by Zuma’s ruling ANC party as a panacea to high electricity prices and frequent shortages of power supply that crippled South Africa’s heavy industries. Declining global commodity prices and increasing electricity prices have had a detrimental impact on the mining and manufacturing industry, which have experienced sluggish growth.
However, as the economy of South Africa shifts towards the services sector, demand for electricity has dropped and other options come into play:
Falling costs of renewable energy technologies, regulatory reforms, market restructuring, coupled with the risks and delays associated with base-load coal and nuclear power will largely determine the future of the electricity sector in South Africa.
Incentives for LNG-to-Power projects
As of late, Government in Pretoria reiterated promises to expand the gas sector – industry players, however, still wait that such words will be followed by concrete action. With a glut of cheap LNG available on global markets, South Africa’s energy industry is seeking to realise flexible gas-fired power project, ideally fuelled via adjacent LNG regas terminals.
Government policy aspires to realising a massive shift in South Africa’s fuel mix and has set out incentives to promote a switch from diesel to cleaner-burning natural gas for power generation.
The LNG to Power IPP Programme, announced in summer 2016 by the Department of Energy in August, envisages construction of some 1 GW of new gas fired generation capacity is to be constructed at South Africa's Coega port, with the remaining 2 GW to be built at Richards Bay.Successful bidders at auction will develop, finance, construct and operate a gas-fired power generation plants at each of the two ports, South Africa's department of energy said on its website.
They also have to put in place the gas supply chain to fuel the plant with gas from imported LNG, with the LNG to Power IPP Programme providing “the anchor gas demand on which LNG import and regasification facilities can be established”, as electricity is to be sold on a long-term contract basis to state utility Eskom.
Bidders for 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. Siemens said it is one of the competitors; having entered a bid for the development of 3 GW of new LNG-fired generation.