The South African government's Independent Power Producer (IPP) Office will release a request for information (RFI) in March for possible domestic gas-to-power projects, as a precursor to a possible 3 000 MW tender that should arise before year-end.
IPP Office head Karen Breytenbach indicated on Friday that the RFI would be used to inform a future request for proposals (RFP), which could be released into the market during the third quarter of the year.
The IPP Office had already released an RFP for the procurement of 1 600 MW of coal baseload capacity from private developers and had been engaging with companies that had purchased the documentation for R200 000. That engagement was likely to change aspects of the tender, possibly even the 1 600 MW cap, which was well below the 2 500 MW allocation outlined in a 2012 Ministerial determination.
Speaking at a gas forum organised under the aegis of the South African National Energy Association, Breytenbach indicated that the IPP Office was working to implement all the Ministerial determinations, which themselves were guided by the Integrated Resource Plan 2010-2030.
The office had already been widely lauded for its role in procuring nearly 4 000 MW of renewable-energy projects through three competitive bidding rounds, with work under way to finalise a fourth bid window. There were currently 32 renewables projects, with a collective capacity of 1 500 MW, already operational.
But Breytenbach acknowledged that the gas IPP programme included the additional dilemma of how and where to source gas, with South Africa having limited domestic production capacity at present and inadequate gas-transportation infrastructure.
The expectation was that any gas-to-power programme would have to be premised on the importation of liquefied natural gas (LNG). However, this would require the development of an import terminal or terminals, as well as pipelines to link IPPs with their primary-energy source.
The IPP Office was convinced that a 3 000 MW programme would offer a sufficient demand-side “anchor” for the creation of the import capacity. But a government decision would be required to unlock not only the IPP investments, but also the associated transmission infrastructure.
Such a decision would also seek to balance the requirement for immediate gas supply with a desire to stimulate upstream exploration and development of domestic prospects, conventional and unconventional. The model would also need to take account of the potential foreign exchange risk associated with long-term LNG import contracts.
“We aim to take the path of least regret,” Breytenbach said, while stressing that government had decided to move ahead, despite the many uncertainties surrounding gas supply.
She also revealed that the National Treasury and the South African Reserve Bank were applying their minds to mitigating the exchange-rate risk of long-term gas imports.
The Eskom war room, which is being overseen by Deputy President Cyril Ramaphosa, also viewed the development of a gas-to-power sector as urgent and discussions on stimulating the sector, initially through imports, were reportedly progressing within the forum.
The current expectation was that the State would need to take responsibility for developing the import infrastructure and talks were reportedly under way between government and a number of State-owned companies, such as Eskom, PetroSA, Transnet and the Central Energy Fund, about how best to finance, build and operate an LNG terminal and associated infrastructure.
There were also serious discussions under way on the potential to convert the expensive open-cycle gas turbines in the Western Cape from diesel to gas, which would potentially add to the anchor demand.
Breytenbach warned, though, that government had limited “fiscal space” to directly support all the components required to develop the gas economy and indicated that the eventual model would need to put as little strain on budgetary resources as possible.
Besides the procurement programme, potential investors were also eagerly awaiting the publication of the Gas Utilisation Master Plan, or Gump, which was viewed as critical to providing better visibility to potential opportunities. Breytenbach said that the main Gump document was well advanced and revealed that it included an implementation plan.
“The National Treasury and the Department of Energy believe gas should play a role in the electricity mix. There will be an IPP procurement programme and we will anchor the gas imports with the IPP programme. From that anchor, we believe gas will then enter the market and will then start forming part of industrial development,” Breytenbach outlined.