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Knives out for Karpowership R200bn energy deals

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Civic organisations are up in arms over the National Energy Regulator of SA’s (NERSA’s) decision to grant three electricity generation licences to the Karpowership companies, to operate powerships in the ports of Saldanha, Ngqura (Coega) and Richards Bay.

This week, the Green Connection and the Organisation Undoing Tax Abuse (Outa) launched separate court applications against the energy regulator in the Pretoria High Court, asking the court to set aside the decision to offer the licences to the floating gas power stations in SA.

Turkey-based Karpowership is a builder, operator and owner of a fleet of powerships.

In February 2020, minister of mineral resources and energy Gwede Mantashe made a determination that 2 000MW of emergency generation capacity should be procured through the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).

NERSA concurred with this determination in May 2020.

The Department of Mineral Resources and Energy issued a request for proposals and, on 18 March 2021, the department announced seven preferred bidders, including the three Karpowership SA companies.

The Karpowership projects would together provide 1 220MW of gas-fired generation capacity.

According to Outa, the projected costs of the Karpowership projects, including fuel supply, over a 20-year period, are reported to be more than R200 billion.

It says the ships housing the gas-fired power generation capacity (powerships) are supplied with gas from floating storage and regasification units (FSRUs), which are in turn supplied with imported liquefied natural gas (LNG) from international suppliers on purpose-built LNG carrier ships.

‘Cavalier attitude’

Outa notes the powerships and FSRUs would anchor permanently in the three harbours for the duration of the planned 20-year contract.

The organisation’s application is in terms of the Promotion of Administrative Justice Act.

The application is supported by an affidavit by Outa executive director advocate Stefanie Fick and a confirmatory affidavit from a specialist consultant supporting the views on the negative economic impact and lack of consideration of far more viable alternatives.

“It is submitted that NERSA has displayed a cavalier attitude towards statutory compliance and public concerns throughout its decision-making process to award generation licences to Karpowership,” says Fick.

“By doing so, it has failed to properly exercise its mandate in terms of the ERA [Electricity Regulation Act] and fulfil its oversight functions of a regulator without the necessary independent checks and balances to ensure the interests of electricity suppliers are balanced with the interests of customers, the public and the South African economy.

“The decisions to award the licences to Karpowership for generation at Coega, Saldanha Bay and Richards Bay, respectively, were irrational, unreasonable, and taken without regard to relevant considerations or with regard to irrelevant circumstances.”

Outa believes the normal public procurement processes for new generation capacity and private procurements by electricity customers are now overtaking the RMIPPPP, the so-called “emergency” process.

Among its arguments, Outa says the Karpowership bid price in April 2020 was about R1.50/kWh and NERSA said this would be up to R2.80/kWh from April 2022, but the independent consultant estimates the current price is close to R5/kWh, roughly two to three times the cost of alternative generation methods.

The pricing methodology is such that the Karpowership IPPs could receive “windfall” profits, says the organisation.

It adds that NERSA failed to consider the climate impact of 20-year generation licences for the Karpowership IPPs (which run on fossil fuels) when cleaner, cheaper and faster electricity supply options are available.

“High-capacity factor gas power, as proposed by Karpowership, will mostly not displace CO2 emitting coal power as claimed by NERSA in the RFD [reasons for decision], but will rather displace the amount of future renewable energy that will be built. It will thus result in a higher emitting power sector than what would otherwise have been the case, thereby undermining the country’s efforts to decarbonise its economy,” says Fick.

Hold your horses

Meanwhile, among other grounds of review included in the application, the Green Connection takes issue with NERSA having granted the generation licences even though the Department of Forestry, Fisheries and Environment had refused to grant environmental authorisations for the powerships, and without NERSA taking environmental considerations into account.

The Green Connection is also concerned over the negative climate change, environmental and economic impacts of the Karpowership companies being granted licences to operate over a 20-year period to fill a short-term electricity supply gap.

The Green Connection’s community outreach coordinator, Neville van Rooy, says: “The Green Connection believes it does not make sense for NERSA to grant these electricity-generation licences to the Karpowership companies in these circumstances, and that in doing so, NERSA has put the horse before the cart.”

According to Van Rooy: “Since it was first announced, the whole Karpowership debacle has gone against the spirit of fairness, and we believe the granting of the licences is not in the interest of the people, electricity users or small-scale fishing communities, whose livelihoods could be adversely affected by the negative environmental impacts of the Karpowerships.

“Furthermore, NERSA has granted these licences on the back of public participation processes where critical information was redacted from the documents made publicly available, including the terms of any power purchase agreement with Eskom. It is because of these critical discrepancies and blatant lack of transparency that we have turned to the courts for justice for the people.”

The Green Connection has also filed a supplementary affidavit by energy expert Hilton Trollip in support of its application.

In his economic analysis – a critique of NERSA’s rationale and explanations regarding its decision to grant licences to the Karpowerships projects –Trollip says understanding and trying to assess the economic implications of the Karpowership deals was challenging, since final official agreements and tariff information have been redacted and are not publicly available.

To understand whether Karpowerships are a good economic investment, notwithstanding the environmental and potential subsequent social impacts, Green Connection says it is important to understand the country’s energy systems and how this relates to the calculation of end-user costs.

In a nutshell, it says, electricity generators’ costs are based on its technical and financial performance, thereby affecting the costs to users.

Karpowerships seems to come in at the higher end of the cost spectrum, says the organisation.

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