R40bn for new coal power projects

The Department of Energy unveiled yesterday coal independent power producers (IPPs) Khanyisa and Thabametsi as the preferred bidders to build two coal-fired power plants that will add 863.3 megawatts (MW) of electricity to the country’s system in the next five years. Khanyisa and Thabametsi are part of the department’s coal base load IPP procurement programme. The programme, which will be in two bid windows, allows private firms to produce electricity from coal, an area dominated by Eskom. It is similar to the renewable energy independent power producer procurement (REIPPP) programme, which has resulted in the procurement of a total of 6 376MW in six bid windows. Of the 6 376MW, 2 200MW has been connected to the grid. The department said more than R40.1 billion of debt and equity had been committed to the mooted coal projects in Mpumalanga and Limpopo.

The first plant under the programme would begin commercial operation in December 2020, it said. Minister of Energy, Tina Joemat-Pettersson, said yesterday that the bidders had the backing of Korean, Japanese and Saudi Arabian investors. Marubeni Corporation of Japan is the lead developer of the Thabametsi IPP, while Korea Electric Power Corporation (Kepco) is its co-developer. The Development Bank of Southern Africa, the Industrial Development Corporation and the Public Investment Corporation will also provide funding, according to the department. Exxaro’s Greenfield Thabametsi mine will supply coal for the IPP project. In the bid process, the Department of Energy required the bidders to have a minimum South African participation of 51 percent, 30 percent black ownership and a weighted broad-based black economic empowerment contributor status level of five for locally based shareholders. It said the two projects would create 6 613 jobs during construction and 13 524 jobs during operation.

Thabametsi is scheduled to commence operations in March 2021, while Khanyisa’s scheduled commercial operations date is December 2019. The department has stipulated the risks that the private sector players will shoulder. These include risks of capital cost, operating costs overruns and costs associated with delays during construction. The Khanyisa IPP would use existing coal dumps, Pele Natural Energy executive ­director Obakeng Moloabi said. Pele is a shareholder in Khanyisa. Power plant developer and owner ACWA Power, of Saudi Arabia, leads the Khanyisa consortium. ACWA has interests in renewable energy projects that are part of the REIPPP programme. The Khanyisa power station will be located on the site of Anglo American Thermal Coal’s Kleinkopje colliery in Emalahleni. Commenting on the risks that the IPPs would carry, Moloabi said: “The consumer should not be exposed to risks that arise because companies have not appropriately priced. “So it is appropriate that the risk sits with the companies.”

Eskom has expressed its support for the roll-out of coal IPPs, “and so desires that they reach commercial operation before 2022 to make a meaningful contribution”. But in an article published in Business Report on Monday, Eskom group executive for generation, Matshela Koko reiterated the power utility’s reluctance to sign additional power contracts from renewable energy IPPs. “Eskom is duty bound to protect the consumer from pass-through costs linked to Bid Windows 1 to 3.5,” Koko said. “This can be achieved by not signing the remaining renewable IPPs, including Bid Window 4.5, then ring-fencing all costs linked to Bid Windows 1 to 3.5 and funding them separately. “This will serve as a crucial first step towards protecting South African electricity consumers from high tariffs,”Koko said.