Energy Department says 20-year contracts for floating powerships will keep prices down

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  • The Department of Mineral Resources and Energy has defended using 20-year power purchase agreements in a programme aimed at quickly easing the country's electricity supply constraints, saying they will keep costs down. 
  • Energy analysts have questioned the length of the agreements, in particular with regards to Turkish company Karpowership, which has bid to moor five powerships and three gas ships at SA harbours.
  • A top departmental official likened the 20-year agreements to paying off a bond, saying the projects would be unaffordable if the contact lengths were shorter.  

Top officials from the Department of Mineral Resources and Energy have sought to defend the 20-year power purchase agreements SA is offering companies to quickly ease electricity supply constraints – including a group that supplies floating powerships.

Energy analysts have questioned the need for SA to enter into a 20-year agreement with Turkish company Karpowership, which has been named a preferred bidder in SA's "Risk Mitigation IPP Procurement Programme" (RMIPPPP) which is seeking to fast-track new power production.

The bulk of the RMIPPPP's 1 845 MW in new energy capacity is set to be provided by Karpowership, which has bid to moor a total of five powerships and three gas ships at three SA harbours.

On Tuesday, MPs from across the political spectrum asked the department why the contracts would last for 20 years, given that the floating powerships are usually berthed for between three to five years in other locations around the globe.

Karpowership's proposal

According to three draft environmental impact assessments reports, Karpowership is aiming to

* moor one powership and one additional ship used for LNG, known as a floating storage regasification unit (FSRU) at the port of Saldanha Bay;

*moor two powerships and one FSRU at the port of Richards Bay; and 

* moor two powerships and one FSRU at the port of Port of Ngqura within the Coega Special Economic Zone.

The department's deputy director general, Jacob Mbele, said that the contracts would allow the powerships, and all other successful bidders, to defray costs over 20 years and keep prices low. 

"The [20-year agreements] enable projects to recover deployed capital as well as operating costs at a rate and pace that does not make it unaffordable to buyer and therefore the end user," said Mbele.

He likened the project to paying off a bond on a house over 20 years, rather than five years.

Mbele added he could "confidently say" that the prices would be four to five times higher if the contracts only lasted five years.

The house price analogy did not impress the DA's James Lorimer, however, who said that after paying off a bond a homeowner owns the house. The ships, on the other hand, are being leased and will sail away once the contract is complete.

Hilton Trollip, research fellow in the Global Risk Governance Programme at the University of Cape Town, previously told Fin24 that the ships would provide "good value" if they had been leased for three years. During this time, he argued that SA could construct permanent onshore gas turbines. 

Financial close 

Karpowership and the other preferred bidders have not yet been awarded the contracts. They first have to receive environmental authorisation and regulatory approval from the National Ports Authority, the SA Maritime Safety Authority and SA's energy regulator, Nersa.

If successful, the contracts will be signed at the end of July.

The committee on Tuesday was not provided with data on projected costs. As a result, its chairperson, Sahlulele 'Zet' Luzipo, asked the department to include information about prices at a follow-up meeting next week.

Some MPs also had questions around the public participation process. Luzipo said these questions would also hold over.

Key Dates for the Karpowerships

* Late February: Publication of draft environmental impact assessments (EIA).   

* 31 March: 30-day public comment period closes.

* 26 April: Due date for submission of final EIA reports to Department of Forestry, Fisheries, and the Environment.

* 22 June: Date by which department needs to grant or refuse authorisation. 

* End of July: Signing of contracts if all approvals have been met. 

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