How emergency tender favoured power ships
• Full extent of the deal is dawning on South Africans
Of the eight winning projects for the government’s emergency power tender, the three Turkish power ships owned by Karpowership have attracted the greatest scrutiny by far. But debating which is the best or the worst of the projects misses the point. The root of the problem is that the design of the tender has guaranteed that only costly solutions would win.
Of the eight winning projects for the government ’ s emergency power tender, the three Turkish power ships owned by Karpowership have attracted the greatest scrutiny by far.
It may be for the simple fact that it won most of the tender, known as the Risk Mitigation Independent Power Producer Procurement Programme. From ships docked at Coega, Saldanha and Richards Bay, it will supply 60% of the total 1,800MW procured under the programme.
The preferred bidder and supplier of the ships, Karpowership, has been inundated with critiques ranging from the climate impact of the solution to the unknown future gas costs and foreign exchange rates.
Karpowership insists it played by the rules, engaging with the programme on the same terms as other bidders and with its published evaluation price including a fuel price forecast across the life of the contract, comparable to the other preferred bidders.
The weighted average price of the energy will be R1.575 per kWh — half the price of running diesel generators but triple the cost of wind and solar energy.
The cheapest is ACWA Power’s battery, solar and diesel offering, at R1.46/kWh. The most expensive is the Mulilo Total Coega project, which uses solar and liquidfied natural gas at R1.88/kWh. The power ships are between these amounts.
But debating which is the best or the worst of the projects misses the point. The root of the problem is that the design of the tender has guaranteed that only costly solutions would win.
Though the department of mineral resources & energy insists that the tender was technology agnostic, most experts who have seen the bid documents say its design favoured gas.
RESTRICTIONS
The department says bidders were asked to provide solutions for system requirements identified by Eskom’s transmission systems operator.
Eskom’s Sikonathi Mantshantsha says its systems operator did provide input at the start of the programme, specifying that the new capacity must be dispatchable, available within specific time periods that cover both morning and evening peaks, and must be grid code compliant.
Mantshantsha says Eskom did not specify the technology to be used or the term of the agreements, which, at 20 years, is among the most controversial aspects of the bid. But there is little explanation for a number of arbitrary restrictions that served to keep a number of cheaper options out of the running.
“The design of the tender was fatally flawed,” says University of Cape Town professor Anton Eberhard. “It has moved away from accepted practice of optimising the national system as a whole and is requiring individual technologies or combinations of technologies to provide a complete solution.”
Energy expert Clyde Mallinson said the department treated each project “as if it was an island unto itself, almost as if it wasn’t connected to the grid. The project must on its own be able to deliver between 5am and 9.30pm”. That means a solar installation with battery storage did not meet the criteria if it needed to refill the battery from the Eskom grid at night.
“The argument was that they don’t want projects filling it up from Eskom at night cheaply, and then selling it back to Eskom in the daytime, expensively,” said Mallinson.
“I would argue that you should be allowed to put your surplus solar energy into the grid in the daytime and then top up at night from the grid as long as you didn’t exceed what you would put in during the day. But they said no, you’re not allowed to do that.”
An option such as using excess energy from a wind project to fill up battery storage at a solar project was also not permitted as the grid was required to transport the surplus power.
“If they were allowed to talk to each other using the grid, the battery at the wind site and the battery at the solar site could probably be half the size, and lower cost,” said Mallinson. “And what it boiled down to is that it made it awkward for wind and solar and storage to bid at what could and would have been a far more competitive process.”
Imagine if the same approach was adopted for a large nuclear or coal plant and they had to provide guaranteed backup capacity when they are out of service, said Eberhard. “This would obviously be expensive and wasteful.”
Mallinson agreed: “The rules they made were literally as silly as saying Eskom can only have a pumped hydro scheme that is linked to a coalfired power station.”
Still, some solar and wind made it into the Risk Mitigation Independent Power Producer Procurement Programme mix.
But that’s a Pyrrhic victory, Mallinson said. “If they were allowed to make full use of the interconnectivity offered to them by the grid, they wouldn’t have just competed [with the gas projects], they would have whacked them.”
The full horror of the situation is beginning to dawn on beleaguered SA power users: not only will the government procure the pricey power for a whopping 20 years, but it does not even go far enough to plug SA’s yawning and economically devastating energy gap.
The DA’s Kevin Mileham said a number of events must take place before power purchase agreements are signed.
The department has set a hard deadline to reach financial close at end-July, but that requires that various licences and approvals — including environmental authorisations — be in place. “I can’t see any of those being completed by that time. That’s an unrealistic expectation,” he said.
Once the projects have lenders on board and reach financial close, Eskom will be approached to sign the power purchase agreements.
At that time Mantshantsha said the Eskom board will consider the proposed transactions, satisfying itself that all legal and regulatory requirements have been met. “Eskom’s board will base its decision on, among other things, compliance to law and regulations, specifically the Electricity Regulations on New Generation Capacity and the SA Grid Code”.
In addition, he said, approvals are required from the national energy regulator for cost recovery for the future costs of these projects, as well as approval of generation licences for the bidders and approval in terms of the Public Finance Management Act.
A court case launched by a disgruntled bidder, DNG Power, has called the bidding process into question and, if successful, could upend the programme.
Eberhard said it would be best if the projects were unable to reach financial close by the deadline, and the department asked all qualified bidders for new tariffs for solar, wind and battery combinations allowing for the sale of surpluses to third parties and for specified gas load factors that the system actually needs.
While the Risk Mitigation Independent Power Producer Procurement Programme will provide only about 10TWh of the 30TWh that the country needs to plug its energy gap, if the strange restrictions that make gas competitive are removed, Mallinson said the government could procure 30TWh at 40% of the cost of the programme — and a third of it could still be dispatchable to meet Eskom’s needs.
“If we procured 30TWh of wind and solar and storage, we could do that [at] 62c [per kWh] instead of R1.58.”
The situation is embarrassing, he said. “It’s a systemic failure that we are unable to get our power situation sorted when the solutions are so clear and so simple.”