“Through the Looking Glass” – A “Bird’s Eye” view on the Future of South Africa’s Energy Landscape post the COP 26 Conference in Glasgow

Open-Ed

The COP 26 Conference (“COP 26”) held in the United Kingdom (“UK”) in Glasgow in November 2021 was a momentous event in the trajectory of South Africa’s just energy transition process. At COP 26, the South African government formed a long-term partnership with the governments of France, Germany, the UK, the United States of America (“USA”), and the European Union (“EU”) through the Just Energy Transition Partnership (“JETP”) to support South Africa in its vision for a net-zero carbon economy by 2050, while simultaneously increasing sustainability in job creation.

The JETP culminated in the pledging of an amount of $8.5 billion by the EU and the governments mentioned above, which will be used to contribute to the financing of South

Africa’s just energy transition process. Since then, developments in South Africa’s energy landscape particularly within the renewables, hydrogen, and nuclear sectors have significantly catalysed.

Considering these developments, this article will provide a bird’s eye view on the position of South Africa’s energy landscape in the near future. Preceding this discussion, we will also provide a brief background on the foundational documents and processes that frame South Africa’s just energy transition process.

The National Development Plan (“NDP”) and the Integrated Resources Plan (“IRP”)

South Africa’s just energy transition process stems from the objectives set out in the NDP and the IRP. The NDP envisages that by 2030, South Africa will have an adequate supply of electricity and liquid fuels to ensure that economic activities and welfare are not disrupted by electricity shortages and that at least 95% of the South African population will have access to grid or off-grid electricity.

The IRP, on the other hand, promotes the NDP’s objectives by setting out a co-ordinated plan for power generation expansion to meet South Africa’s demand for electricity by pursuing a diversified energy mix that reduces its reliance on fossil fuel combustion. Apart from natural gas, this mix comprises energy resources such as renewables, hydrogen and nuclear.

Renewables

In April this year, the South African Department of Mineral Resources and Energy (“DMRE”) requested proposals from independent power producers (“IPPs”) to supply an additional

2,600 megawatts (“MW”) of renewable energy consisting of 1,600 MW of onshore wind energy and 1,000 MW from solar photovoltaic (“PV”) plants as part of Bid Window 6 of the Renewable Energy Independent Power Producer Procurement Programme (“REIPPPP”).

However, in July this year, as the demand for energy capacity exponentially rose, South Africa’s President, Mr Cyril Ramaphosa, announced that 5200 MW, instead of 2600 MW of energy capacity is to be procured under Bid Window 6.

By way of background, the REIPPPP was promulgated in 2011 by the DMRE. It falls under the umbrella of the NDP and IRP serving as a mechanism to reduce South Africa’s dependence on coal-fired power plants and limit the daily interruption to the country’s power supply to avoid excessive pressure on the country’s national grid, commonly termed by the South African population as “loadshedding”.

In addition, it is a competitive tender process requesting IPPs that can efficiently secure funding for the construction and development of renewable power plants by means of debt and equity, to invest in South Africa’s energy market by supplying new energy capacity to the national grid. Bidders with the highest combined price and economic development scores are selected as the preferred bidders within the renewable energy technology framework (such as wind, solar and gas) underpinning the applicable tender to supply the allocated energy capacity for the relevant bid round.

To date, the DMRE and South Africa’s state-owned utility, Eskom, have successfully launched and completed 4 Bid Windows for the construction and supply of large-scale renewable energy capacity (including battery-energy storage systems), as well as an emergency round which was termed the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP). The 5th Bid Window is currently scheduled for financial close by the end of September 2022.

Bid Window 6 is not only another step in alleviating the lack of energy security in South Africa but has been designed to stimulate the country’s socio-economic status and boost growth in environmental sustainability.

In July this year, the President also announced the country’s plans to abolish the capacity threshold of 100 MW for embedded generation projects completely. While new generation projects will not require licenses, they will need to register with the National Energy Regulator of South Africa (“NERSA”) and comply with the technical requirements for grid connection and environmental legislation. The President further stated that the timetable for regulatory approvals for such projects will be shortened, including waiving, or streamlining any required approvals. Finally, a single point of entry will be established for all new project applications.

The abovementioned developments will not only generate investment opportunities for local and international developers of wind and solar projects but will materially assist in reducing the strain on the country’s energy supply, as the new projects are rolled out.

Additional information regarding solar and wind energy resources

As Eskom was for many years one of the world’s most efficient, reliable, and low cost generators of electricity, access was not required to South Africa’s abundant solar and wind resources.

However, subsequent gross mismanagement of Eskom’s business has dramatically changed matters, and opened up new and material generation opportunities.

In July 2022, it was announced that construction is due to start on a new hybrid solar PV and battery energy storage facility in the Northern Cape Province of South Africa, which will be one of the world’s largest such projects, containing some 2 million solar panels, and some 10 km in width. This is in addition to numerous other solar powered facilities due for construction in South Africa. Onshore wind facilities are also proceeding well, and there will be future and material opportunities for the development of offshore wind facilities.

Hydrogen

Through the implementation of the Hydrogen Society Roadmap (“HSRM”), which was announced by the Department of Science and Innovation’s (“DSI”) Minister, Dr Blade Nzimande, on 17 February 2022, the South African government aims to propel South Africa’s goal of a just and inclusive net-zero carbon economy by 2050. To do this, the HSRM outlines high-level action plans that will be implemented by the government to build a viable green hydrogen market.

Some of these action plans and the developments to date will be outlined below:

Creation of an export market for South African Hydrogen while increasing the role of Green Hydrogen.

South Africa currently contributes to approximately 2% of the global demand for hydrogen by producing grey hydrogen through its leading liquid fuels producer, Sasol. It has an enabling export infrastructure that can be used and enhanced for supplying domestic and international markets with green hydrogen.

The HSRM specifically references the NBI Report on “Decarbonisng South Arica’s Power System”, which indicates that the country could potentially produce green hydrogen at a globally competitive price by 2030 due to its wealth of renewable energy resources. The use of green hydrogen in South Africa’s power sector also has the potential to replace natural gas in electricity generation and storage, thus stimulating a local demand of 1.4 mega tonnes in green hydrogen by 2050.

On the other hand, South Africa is a mineral intensive country in that it holds 75% of the world reserves of platinum group metals (“PGM/s”). PGMs such as platinum, ruthenium and iridium are essential elements in fuel cell catalysts and electrolysers for green hydrogen production.

The HSRM identifies PGM beneficiation as a key economic opportunity and a driving force for advancing hydrogen and fuel-cell research, development, and innovation. The country has a window of opportunity to develop PGM-based components for hydrogen production to meet the demands of other countries that have developed policies to integrate hydrogen in their economies.

Opportunities also exist to supply pure hydrogen into domestic and international markets using South Africa’s existing gas-to-liquids facility operated by the Petroleum Oil and Gas Corporation of South Africa (PetroSA). Since the infrastructure required for this is similar to existing natural gas networks, these networks can be adapted to produce and supply green hydrogen.

In May 2022, at the annual African Mining Indaba held in Cape Town, Anglo American Platinum unveiled a prototype of the world’s largest hydrogen-powered mine haul truck, designed for operation at its Mogalakawena PGM’s mine in South Africa.

The Platinum Valley Initiative (“PVI”) – South Africa’s Hydrogen Valley

The DSI has formed a partnership with the South African National Development Institute (SANEDI), Anglo-American Platinum, Bambili Energy and global energy player, ENGIE Southern Africa through the PVI to develop a hydrogen valley in South Africa. The PVI is a hub-based approach that focuses on developing catalytic green hydrogen hubs which will constitute South Africa’s hydrogen valley.

These hubs have been identified based on their potential for a high concentration of future hydrogen demand and their capacity to produce hydrogen through renewable energy. They will be located in Johannesburg, Durban/Richards Bay and Mogalakwena/Limpopo and will host 16 pilot projects in-order to pioneer South Africa’s hydrogen valley.

Moreover, to support the upscaling of hydrogen consumption in the transport sector, a “Hydrogen Corridor” will be established from Limpopo through Johannesburg to Durban that will assist in shifting heavy-duty diesel trucks to new technology of heavy-duty fuel-cell trucks.

Ultimately, the South African government’s commitment to leveraging the benefits of a hubbased approach could result in cost savings through shared infrastructure investments, improvement in the cost competitiveness of hydrogen production through economies of scale which will also have a positive impact on vulnerable communities through job creation and reduced power purchase costs.

Boegoebaai – a Global Hub for future fuel

South Africa’s leading energy and chemicals company, Sasol, has partnered with the Gauteng Provincial Government and the Northern Cape Economic Development, Trade and Promotion Agency through a memorandum of agreement to develop a facility for green hydrogen and ammonia at Boegoebaai, which is a port on the Northern Cape Coast, with an existing hydrogen production plant.

The facility to be established at Boegoebaai has been designated as a Strategic Integrated Project (“SIP”) in terms of the Infrastructure Development Act of 2014 by the Minister of Public Works and Infrastructure, Patricia de Lille. Projects designated as SIPs are regarded as being prioritised for implementation and can follow an expedited path to delivery with specified and shorter time frames for regulatory processes.

The existing hydrogen production plant at Boegoebaai, the facility’s strategic location and its classification as an SIP demonstrate its potential as a feasible site for the facility’s development. The plan is that the facility will occupy 60 000 hectares of land adjacent to the existing hydrogen production plant and will support a 30 gigawatt (“GW”) solar and wind farm that will be 6 times South Africa’s current installed renewable energy capacity, and 5 GW of electrolysis.

Nuclear

The expansion of the nuclear power sector in South Africa has been uncertain over the decades, particularly after the Pebble Bed Modular Reactor project was abandoned in 2010 due to lack of financing after 12 years of pursuit, and after the Western Cape High Court set aside and declared invalid the intergovernmental nuclear cooperation agreements with Russia, the USA and South Korea, along with approvals by NERSA of two ministerial determinations regarding the procurement of 9600 megawatt electrical (“Mwe”) of nuclear capacity in 2017.

However, South Africa’s energy landscape may be privy to a new dawn of nuclear power in the near future. In April this year, the DMRE’s Minister Gwede Mantashe announced that it will request proposals for the building of new nuclear capacity in South Africa, where it will consider repurposing and retrofitting the base load coal fleet with advanced and innovative baseload nuclear energy systems that can be deployed inland, which will also provide an opportunity for reskilling and retention of the existing coal workforce.

This announcement stemmed from the DMRE’s announcement in May 2020 to implement a roadmap for the procurement of 2500 Mwe of new nuclear capacity, where small modular reactors are to be considered for procurement. This resulted in the DMRE issuing a Request for Information, during June 2020, to test the market appetite for 2500 MW of nuclear energy, which received positive responses from 25 companies that expressed their interest in this programme.

To further emphasise South Africa’s commitment to addressing the integration of nuclear power to reduce loadshedding, in July this year Eskom submitted an application to the National Nuclear Regulator (“NNR”), known as the “safety case” to extend the operational life of the Koeberg Nuclear Power station located in Cape Town (South Africa’s only nuclear power plant that generates 5% of the country’s electricity and a project in which the author was involved in advising the prime French contractor), beyond its current 40-year licence term by 20 years to 2045, which will boost the power station’s capacity by at least 10%. The safety case is currently under thorough analysis by the NNR, and the outcome is yet to be published to the South African public.

Conclusion

Although an undeniable fact still looms over the South African government’s shoulders i.e., Eskom’s’ unsustainable debt of approximately R400 billion, outstanding to a combination of lenders, during July 2022 it was announced that South Africa’s National Treasury is finalising a plan to fund or refinance a material portion of Eskom’s debt, to place Eskom on a more sustainable financial footing.

The availability of the country’s renewable resources has laid the foundation to implement a hybrid power system for the co-existence of base load resources, which includes renewable resources such as wind, solar, and hydrogen, as well as non-renewable resources such as nuclear fuels that will complement each other, and intended to be economical, reliable, and where possible eco-friendly.

In addition, businesses and investors are now permitted to generate electricity on a large scale, due to the abolition of the threshold of 100 MW. This will assist all large users of electricity including in particular the mines and large automobile manufacturers. As one example, Ford has initiated a major renewable energy project to generate 35% of the power required by its manufacturing plant at Silverton, Pretoria, as a first phase.

For the time being, Eskom will retain monopoly distribution rights, and parties wishing to supply power into the national grid will need to put in place offtake agreements with Eskom.

Moreover, the developments set out in this article are certainly progressive, and the South African government can be commended for its attempts to steer the country’s energy system to stabilisation through the means of the just energy transition process. However, in the eyes of the South African consumer, one can only try to remain optimistic with the hope that “light” will ultimately prevail over the country’s “darkness”.

Authors: Vaughn Harrison (Attorney at Thomson Wilks Inc. in alliance with the DWF Group) and Lucrecia Sadhaseevan (Associate at Thomson Wilks Inc. in alliance with the DWF Group).

Vaughn’s contact details:

  • Phone: +27 (0) 11 784 8984
  • Cell: +27 (0) 83 461 9385
  • Email: vaughn@thomsonwilks.co.za
  • Address: 1st Floor Pebble Beach Building, Inanda Greens Business Park, 54 Wierda Road West, Sandton. 

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