2 February 2023 at 3:13 pm
Article originally published in Business Day Live
Karpowership projects could have serious implications for the funding of SA’s Just Energy Transition Partnership
In desperate situations it is tempting to accept any proposal that offers to relieve the pain. But short-term solutions can be costly and may take years and even decades to undo. And so it may well be with allowing floating gas powerships from Turkey into our ports.
Last year I wrote that a long-term contract with KarpowershipSA would be a financial and climate albatross around the country’s neck (“Karpowership projects risk being another Medupi”, August 11 2022). Like many other commentators, I worried about the cost associated with these contracts over the 20-year period of the Risk Mitigation Independent Power Producer Programme (RMIPPP) — R220bn at the time — and urged that we not allow load-shedding to be exploited to tie SA into this expensive long-term contract.
Since then, load-shedding has worsened exponentially. The idea of contracting KarpowershipSA for a shorter period — five- and 10-year contracts have been mentioned — to deliver power from its gas powerships is gaining traction, alongside suggestions of declaring the electricity crisis a national disaster. These ideas come from politicians eager to be relieved of the pressure of load-shedding ahead of next year’s elections, and by others keen to tide us over until we can access cheaper renewable energy to improve SA’s long-term energy security.
It is worth noting that the total power the state would purchase from KarpowershipSA under the RMIPPP is only 1220MW. While every MW counts, a Karpowership contract alone will not bring an end to load-shedding; nor will any contract with KarpowershipSA result in power being delivered overnight.
To be clear, load-shedding has become a calamity of epic proportions. It is causing untold suffering for everyone living in SA, particularly small businesses and families that don’t have the protection of savings and cash reserves.
Important questions must be asked about this proposed shorter contract. First, how much more will a five- or 10-year contract cost than the original price tag submitted by KarpowershipSA? The IPP Office documentation on the RMIPPP is at pains to motivate why the programme called for 20-year contracts, saying that without the certainty of such a term “the prices of these projects could have as much as tripled.”
Given that the KarpowershipSA bid was already far more expensive than renewable energy projects, this increase would have significant implications for the fiscus and raises questions about value for money, as required by the Public Finance Management Act.
Then there is the cost of liquefied natural gas (LNG). It turns out that the original request for proposals under the RMIPPP relied on an artificially low LNG price. Since then the price of LNG has risen dramatically. Questions about the risks posed by the variable and volatile cost of this fuel, including the foreign exchange implications — even over a five- or 10-year duration — must be answered. All of these additional costs will, of course, be passed through to consumers, already staggering under the weight of the Eskom tariffs.
What of the developers that lost out to KarpowershipSA in the RMIPPP on the basis of price? Surely, under the PFMA the IPP office would have to run a new open procurement process? At the very least the bids that would then be cheaper than the Karpowership revised price for a five- or 10-year contract should be reconsidered — in the interest of fairness, but also in the public interest of getting value for money.
What happens at the end of the five- or 10-year period? In a number of countries where Karpowership operates the company’s power-purchase agreements have been extended by significant periods after initial contract periods of one, two or five years. Given the dragging of feet involved in completing the last REIPPP bid rounds, how does one avoid perverse incentives to slow down the procurement of cheaper renewable energy to replace power from the powerships? Can SA’s energy governance systems, tarnished by state capture, manage this? Already, questions have been posed publicly about the delay in facilitating the purchase of diesel by Eskom, and whether this delay is designed to enable the KarpowershipSA deal.
Implications for JETP
Finally, how will the funders in the $8.5bn Just Energy Transition Partnership, designed to support SA’s just transition from fossil fuels, respond if the country continues to use public funds for fossil fuel projects — even for a five-year period? Would any gas powership deals put these and future critical concessional loans at risk?
A contract with KarpowershipSA, even for a limited period, would not bring an end to load-shedding. It would, however, create a significant new fiscal obligation that would be extremely costly for consumers, environmentally hazardous and may risk SA’s ability to attract critical climate finance.
We already know the solution to load-shedding. It lies primarily in flexible, dispatchable renewable energy that will make electricity accessible and affordable, that won’t kill people with air and water pollution, and will help us mitigate the impacts of climate change. Let us not be distracted by risky propositions that will constrain us in future, and instead concentrate on doing everything in our power to enable the proper solutions that will give us the clean, affordable, reliable energy South Africans deserve.
• Fourie is executive director at the Centre for Environmental Rights.