Nersa’s secret U-turn on Eskom gas generation
Energy regulator Nersa recently decided to concur with Minister of Mineral Resources and Energy Gwede Mantashe’s approval of an Eskom request to build a 3 000 megawatt (MW) gas power station in Richards Bay.
The project is expected to be completed in 2028 at the latest and will generate enough energy to mitigate at least three stages of load shedding.
The approval comes after Nersa rejected the very same request in December because, it argued, Eskom followed the wrong process and did not need its concurrence.
The regulator now sits with two conflicting decisions and will approach the High Court to set aside the first, since Nersa lacks the power to overturn its own decision.
This bizarre turn of events comes after Nersa based its rejection on outdated regulations, according to Nhlanhla Gumede, full-time regulator member for electricity.
Nersa regularly publishes the agenda of its regulator meetings, which are open to the public. The item was on the agenda for its 23 February meeting, but it was decided during the meeting that it should be dealt with behind closed doors. Nersa has not yet published the decision, but Gumede disclosed it when asked during a telephonic interview.
The document Mantashe sent to Nersa for concurrence contained a controversial clause that requires Eskom to buy the gas for the plant from another state-owned company.
Eskom, in its comments to Nersa, objected to this, saying it must buy the gas in a competitive market and that failing to do so will be a contravention of the applicable laws.
It is not yet clear if this clause has survived in the Nersa decision-making process.
Environmental groups have been vehemently opposing Eskom’s plans. The South Durban Community Environmental Alliance (SDCEA) and groundWork, supported by Natural Justice and The Green Connection, earlier challenged the environmental authorisation already issued for the project.
Their application was dismissed, as was their application for leave to appeal, but they haven’t given up. They have now launched a petition to the Supreme Court of Appeal to request that their appeal be heard.
They believe, among other things, that the impact of the plant on climate change has not been properly assessed.
According to Melissa Groenink, project manager at Natural Justice, the groups will also consider whether the review application Nersa must now bring opens another window for them to stop the project by opposing the application.
In the meantime, National Treasury has put the brakes on Eskom’s ability to borrow money and execute new capital projects in power generation.
As part of the condition attached to the R385 billion debt relief package announced in his recent budget speech, Finance Minister Enoch Godongwana has restricted Eskom’s ability to borrow further for the next three years and has limited its spending on new capital projects to those in the area of transmission and distribution.
Gumede said this may not necessarily preclude Eskom from proceeding with the project, if it keeps it off its own balance sheet.
Converting coal power stations to gas
The Central Energy Fund (CEF) in the meantime has its own plans for power generation from gas.
CEF CEO Dr Ishmael Poolo wrote to former Eskom CEO André de Ruyter in December asking that Eskom’s old coal power stations in Mpumalanga be transferred to the CEF to be converted to gas.
It has its eye on Camden, Hendrina, Kriel, Arnot and Komati.
Poolo said the Rompco (Republic of Mozambique Pipeline Company) pipeline that transports gas from Mozambique to South African – in which the CEF has a substantial shareholding – is between 14km and 50km from these power stations and the preparations have been done to increase the gas flow if the conversions go ahead.
The CEF also asks for any land Eskom has available for gas generation.
De Ruyter however was having none of it and informed Poolo in January that Eskom plans to “repower” its old power station for the use of solar and wind power as well as battery storage.
He said studies had found that gas generation on those sites would not be efficient or cost-effective.
In the controversial interview with eNCA’s Annika Larsen that eventually cost him his job, De Ruyter implied that the CEF’s proposal was underhanded and intended to pave the way for importing excess gas that Russia has following the severance of its trade relations with Europe against the backdrop of its war with Ukraine.
Adam Roff, senior analyst at Meridian Economics, is sceptical about the CEF’s plans due to the limited capacity of the Rompco pipeline and the limited expected lifespan of the Mozambique gas source.
He further says different models have shown that South Africa needs 5 000MW to 6 000MW of gas generation up to 2030, but that is only for peak-time use and the quantities of gas consumed will be relatively small.
Consumption will most probably be inconsistent, making the logistics difficult to manage and expensive.
Darryl Hunt, independent energy consultant, says South Africa is heading for an energy crisis due to the scale at which Eskom will be decommissioning its coal fleet and the limited lifespan of the Mozambican gas source.
“It is clear that renewables alone are not enough. Batteries can help up to a point, but still need sunshine to charge.”
Hunt says that to provide energy security even when the sun doesn’t shine for several days, gas will have to play a role.
Gas also has other applications in industry.
“One big plant can make a good contribution,” says Hunt, adding that it could be the catalyst for the creation of the infrastructure needed for the development of a bigger gas industry.
Eskom says it will decide on the funding model for the project, depending on what exactly the Nersa decision entails. It already has the land, and the initial designs and specifications are ready.
It must agree with Nersa about the recovery of the cost before the Eskom board will give the final nod for the new power station and must also obtain a generation licence from Nersa.