- WHAT are KARPOWERSHIPs?
- ISSUES AND CONCERNS
- Karpowership timeline
- April 2022: OUTA's legal challenge
Karpowership: Not as simple as plug-and-play
Government is still promoting Karpowership as the solution to South Africa’s energy crisis.
OUTA believes that the energy crisis is due mainly to historical poor decision-making by government and Eskom and that the Karpowership proposal is out of touch with reality. The unaffordability and secrecy around the proposed deal, plus our politicians’ lack of credibility, raises ongoing questions about this deal. We are concerned that unscrupulous politicians are promoting a scheme to the detriment of the public.
What are powerships and how do they generate electricity?
The Karpowership powerships are floating power plants, which would anchor permanently (for 20 years) in South African ports. They use gas as fuel to generate electricity, which is then fed into the electricity grid.
Liquified natural gas (LNG) is imported on purpose-built LNG carrier ships. They offload LNG via pipelines to floating storage and regasification units (FSRUs), where LNG is heated and converted to gas, and fed via pipelines as fuel for the gas engines on the powership. The power generated by the powerships is fed by transmission lines to substations on the shore, where the electricity is fed into the grid.
The FSRUs use seawater to heat up the LNG to change it from liquid to gaseous state, so they discharge cold water, while the powerships use seawater for cooling and so discharge warm water.
See the illustration below.
Who owns Karpowership?
The Karpowership independent power producers are private entities, owned 51% by the Turkish energy company Karadeniz Holdings and 49% by the South African company Powergroup SA.
Would Karpowership end load shedding?
In 2020, Karpowership was awarded a bid for the generation of 1 220 MW from gas-to-power plants with additional vessels with floating storage and regasification plants. This is enough to eliminate one stage of loadshedding. It is estimated that our country needs approximately 5 000 to 6 000 MW of additional generation capacity to break even. This means that even if Karpowership would hypothetically generate electricity tomorrow, there would still be a short fall of around 4 000 to 5 000 MW of electricity. Karpowership alone will not end loadshedding.
How long will it take Karpowership to start generating electricity?
The time for power to grid is unknown and could be a year or more, depending on availability of all authorisations including environmental, a power purchase agreement with Eskom, the availability of FSRUs (which are in very short supply as a result of demand from Europe), the pipeline infrastructure, and the time required for building the substation bays and connections to the Eskom grid.
Karpowership is responsible for construction and payment of all infrastructure from ship to FSRUs to powerships to grid connection.
How long will South Africa be tied to Karpowership if the deal goes through?
Our government plans a 20-year agreement with Karpowership. Karpowership has previously assisted Asian, African and South American countries hit by natural disasters, unrest and conflict, but these were usually short-term contracts.
Karpowership can alleviate an energy crisis, by about one stage of loadshedding only, but this is a short-term solution only.
What will the impact on the environment be?
The regasification units use seawater to heat up the liquid gas to gas, so discharge cold water, while the powerships use seawater for cooling and so discharge warm water. This leads to patches of hot and cold water, which may affect marine life. For example, nurseries for juvenile fish species, wit stumpnose, could be affected, negatively impacting of livelihoods of local fishers.
The powerships will be noisy. The ships are expected to operate for 16 hours a day for 20 years and the impact of the chronic noise could cause negative impacts both on the marine world and for terrestrial life. The World Health Organization has set an annual average of 40 dB as a maximum background noise level during sleep, but ambient powership noise would be enough to exceed this in several of the proposed locations.
Has Karpowership got the necessary environmental authorisations to generate electricity?
Organisations including the Green Connection and the Eastern Cape Environmental Network and community fishers submitted objections. The Green Connection also submitted a complaint against the consultant. In June 2021, the Department of Forestry, Fisheries and the Environment refused Karpowership’s application for environmental approvals. Karpowership appealed, and Green Connection and others objected again, and Karpowership’s appeal was refused and it was told to go back and redo parts of the environmental impact assessment. NGOs and communities including the Green Connection once again submitted objections, with concerns raised over the reduction of risks in the updated EIA, and the decision is expected in March 2023.
How much will a Karpowership deal cost?
The full 20-year contract for all three powerships is projected to cost more than R200 billion (see here).
What will it cost the public per kWh of Karpowership electricity?
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 an independent consultant estimates the price (as at April 2022) was close to R5/kWh, roughly two to three times the cost of alternative generation methods (see the founding affidavit in OUTA’s application against NERSA, paragraphs 86-102 here). The price of LNG varies day to day depending on the dollar market price of LNG and the rand/dollar exchange rate. Compare this to Eskom’s current average price to standard tariff customers of R1.4648/kWh, which goes up to R1.7380/kWh on 1 April 2023 (see here).
How will the price of gas and a Karpowership deal affect the consumer?
The deal is linked to the international gas price, which is expected to rise due to the international energy crisis. As with all power plants, the loans need to be repaid and the costs will be passed on to South Africa through our electricity tariffs and possibly taxes. Higher gas prices mean even higher electricity tariffs.
One alternative: All those solar PV systems on business rooftops
The fastest, cheapest solution is for Eskom and functioning municipalities to buy power from industrial, commercial and even residential consumers who have installed their own generation solutions.
The City of Cape Town recently announced that it will pay cash for power fed into the local electricity grid by the City’s businesses and residents who self-generate. NERSA approved a rate of 78.98c/kWh for the City to pay power sellers and the City is adding a 25c/kWh incentive tariff on top of this, and expects this to start operating for businesses from June 2023 and for residents soon after. This is cheaper than the rate at which Eskom will have to buy power from Karpowership, and this is a scheme which other metros should also consider.
What is the benefit to Eskom if Karpowership plugs in at South Africa’s ports?
The only tangible benefit to Eskom would be that Eskom itself would not be responsible for the generation of the contracted electricity of 1 220 MW. There will be no physical power station (generation capacity) owned or handed over to Eskom, and only the off-take infrastructure would be left.
The LNG carrier ships, FSRUs and powerships remain Karpowership’s property, while the three locally registered Karpower entities merely generate and sell the electricity to Eskom.
What happens if there is insufficient gas available?
The current conflict between Ukraine and Russia has escalated the price of gas. Should the import market collapse or sanctions be implemented prohibiting the export of LNG and LPG, little to no electricity would be generated. A desire for access to Russian gas could partly explain South Africa’s current cosying up to Russia.
Who will be responsible if Karpowership is unable to generate electricity?
Eskom will use a power purchase agreement to access the electricity generated by Karpowership and then distribute it through the grid. If Karpowership fails to deliver, Eskom may have the right to terminate the agreement and be compensated. Eskom may be left with some monetary compensation, but no means to generate the 1 220 MW. Karpowership can simply pack up and leave.
What will happen if Karpowership packs up and leaves?
There is no fixed infrastructure offered by floating powerships, aside from shore-based terminals which then connect to the national electricity grid.
Why did OUTA institute legal action against NERSA and Karpowership?
NERSA’s process of approving generation licences to Karpowership (the three local entities registered in South Africa) has been flawed by a lack of transparency.
Amongst other things, OUTA argues that the law requires that NERSA acts in the best interests of the country, but OUTA believes that NERSA has failed to do so. The Electricity Regulation Act, which empowers NERSA to issue the licences, requires a fair balance between the interests of customers and end-users, licencees, investors and the public. The National Energy Regulator Act requires that every decision by NERSA be “in the public interest” and “based on reason, facts and evidence”.
Under these circumstances, the approval of the three generation licences issued by NERSA is a far cry from being in the public interest. NERSA is not being transparent about the reasoning behind granting the generation licences. OUTA has since launched an application to compel the production of the full record for NERSA’s decision (see here). At the time Karpowership applied for generation licences and at the time when OUTA launched its application, various legal, financial and environmental processes were still outstanding, rendering the process flawed from the start.
For a full summary of OUTA’s relief and grounds for approaching the court, see the section “April 2022: OUTA’s legal challenge” on this page.
Karpowership is not the solution. If we proceed with that option, that will mean South Africa is tied to the agreement for 20 years. Karpowership buys gas (to generate electricity) in US dollars, and the dollar-rand exchange rate fluctuates. So South Africa will be tied financially to whatever the rate is.
If the agreement falls through, Karpowership can simply pack up and leave, leaving South Africa with no infrastructure to generate electricity (though we would have spent a lot of money by then). At the time when the preferred bidders were nominated, the reasoning was that the power ought to be procured as a matter of urgency. The emergency has since passed, yet Karpowership is STILL on the table.
NERSA's process of licencing the Karpowerships has been flawed by a lack of transparency.
OUTA finds it inexplicable that NERSA granted the Karpowership generation licences while there are so many questions over the process and the Karpowership projects.
On 13 August 2021, OUTA made a formal submission to NERSA, objecting to the Karpowership licences. Our submission is straight forward and sets out why NERSA ought not entertain the application(s) in the first place as many factors and processes are still pending and not yet finalised. We were assisted by energy expert, Chris Yelland. Read the summary and our full submission here.
The concerns we raised include:
• Environmental authorisations were been refused by the Department of Forestry, Fisheries and the Environment (DFFE);
• An internal appeal process by Karpowership is still underway challenging the decision by DFFE;
• The absence of fuel supply agreements;
• The absence of fuel pipeline licences;
• The absence of port authorisations;
• Eskom has not agreed to enter into power purchase agreements;
• There is a possibility of appeal proceedings in the DNG court case challenging the bid awards.
The Karpowerships are to be anchored in Richards Bay, Saldanha Bay and Coega, and are supposed to between them provide 1 220 MW using gas to power plants with additional vessels with floating storage and regasification plants. At prices when the deal was agreed, the 20-year deal could cost up to R218bn.
However, as the deal will be linked to the international gas price, this price is going to rise. As with all power plants, the loans need to be repaid and the costs will be passed on to the people of south Africa through our electricity tariffs. OUTA foresees that the only means for our government to finance such venture is for this load to be carried by the consumer – meaning that we will see even greater electricity tariffs in order to fund this.
18 February 2020: the Minister of Mineral Resources and Energy issues a Determination on the need to procure 2 000 MW of generation capacity from a range of energy technologies, through the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).
25 May 2020: The National Energy Regulator of South Africa (NERSA) concurs with the Minister's Determination.
June 2020: Karpowership is awarded an exemption from having to undertake an environmental impact assessment, under an emergency provision, but in August this is revoked and the Green Scorpions start a criminal investigation into an attempt to bypass the law.
7 July 2020: The Determination is gazetted, with a deadline for connection to the grid of December 2021. The procurer of the new generation capacity is the Department of Mineral Resources and Energy, and the buyer is Eskom.
24 July 2020: Minister of Public Works and Infrastructure Patricia de Lille gazettes the list of projects designated by the Presidential Infrastructure Coordinating Commission as Strategic Integrated Projects (SIPS). The energy projects include the RMIPPP, listed as "Emergency/Risk Mitigation Power Purchase Procurement Programme (2000 MW)". The gazetted notice is here. The issuing of this notice was announced three days later by Minister de Lille and Dr Kgosientsho Ramokgopa, who was at the time the Head of Investment and Infrastructure in the Presidency. Their announcement is here. (Ramokgopa was appointed to this position in November 2019, see here, and appointed on 6 March 2023 as Minister of Electricity, see here, and on 6 May 2023 granted the authority to determine new generation capacity and type of generation needed, see here).
24 August 2020: DMRE issues a Request for Proposals for new generation capacity under the RMIPPPP, with commercial operation required by June 2022, and 28 bids are submitted. See here.
30 September 2021: DMRE’s extended deadline for RMIPPPP regulatory processes.
3 February 2022 : OUTA writes to NERSA and complains about the botched public participation process on the Karpowership gas licence applications, seeking clarity. OUTA's letter is here. No response was received from NERSA.
31 March 2022: DMRE’s further extended deadline for RMIPPP regulatory processes; an indefinite extension is now in place.
26 April 2022: OUTA files an application in the Pretoria High Court to review and overturn NERSA’s decision to award generation licences to the Karpowerships.
6 December 2022: Minister of Public Works and Infrastructure Patricia de Lille gazettes an update to the projects designated by the Presidential Infrastructure Coordinating Commission as Strategic Integrated Projects (SIPS). The energy update includes the Oil and Gas National Program. The gazetted notice is here.
OUTA applies to the high court to overturn NERSA's decisions to licence the Karpowerships
On 26 April 2022, OUTA filed an application for the review and setting aside of the decisions by the National Energy Regulator of South Africa (NERSA) to grant the three Karpowership independent power producer (IPP) generation licences.
OUTA’s application was filed in the Pretoria High Court. The respondents are NERSA, four Karpowership companies, the Minister of Mineral Resources and Energy, the Minister of Forestry, Fisheries and the Environment, and Eskom. The Karpowership companies are Karpowership SA (the holding company) and its wholly owned subsidiaries Karpowership SA Coega, Karpowership SA Saldanha Bay and Karpowership SA Richards Bay. OUTA’s action is directed against NERSA, while the other parties are cited due to their interest in the matter.
This is an application in terms of the Promotion of Administrative Justice Act.
OUTA is asking the high court to review and set aside NERSA’s decisions to award generation licences to the three Karpowership IPPs, and order NERSA to reconsider these decisions.
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.
OUTA believes that the normal public procurement processes for new generation capacity and private procurements by electricity customers themselves are now overtaking the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), the so-called “emergency” process.
“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. 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 regulator without the necessary independent checks and balances to ensure that the interests of electricity suppliers are balanced with the interests of customers, the public and the South African economy,” says OUTA’s Advocate Stefanie Fick in an affidavit supporting the application.
“The decisions to award the licences to Karpowership for generation at Coega, Saldanha Bay and Richard’s Bay respectively were irrational, unreasonable, and taken without regard to relevant considerations or with regard to irrelevant circumstances.”
Fick’s affidavit supporting OUTA’s application includes these points:
On 28 April 2022, OUTA announced the legal action against NERSA over the Karpowerships licence decisions. A link to the media briefing on this is here.
Pretoria High Court case 23017/2022: The court papers of 28 April 2022
OUTA's notice of motion is here.
The founding affidavit by Adv Stefanie Fick is here.
The annexures are here: Annex FA1, Annex FA2-4, Annex 5, Annex 6, Annex 7-11, Annex 12-14, Annex 15-17, Annex 18.
18 May 2022: NERSA notice of intention to oppose OUTA's application is here.
20 May 2022: Eskom files notice of intention to abide by the decision of the high court. However, Eskom reserves its right to oppose this application at any stage. This notice is here.
20 May 2022: The Karpowership independent power producers (respondents 2 to 5) file a joint notice to oppose OUTA's application. This notice is here.
Getting copies of documents for the case
28 April 2022: OUTA's notice of motion in the application of 28 April 2022 called for NERSA to provide within 15 days copies of all documents relating to the decisions to grant Karpowership the generation licences, together with the reasons for the decisions.
17 June 2022: NERSA provides a redacted record.
12 December 2022: OUTA files a notice in terms of Rule 30A calling on NERSA to produce the full record of its decision in terms of Rule 53. A copy of the notice can be found here.
23 January 2023: OUTA files an application to compel NERSA to produce the full and unredacted record in the review proceedings. A copy of the application can be found here.
30 January 2023: The first to fifth respondents (NERSA and Karpowership) file notice of intention to oppose OUTA's application to compel. The notices are here (NERSA) and here (Karpowership).
21 February 2023: NERSA files its answering affidavit to OUTA's application to compel. This affidavit is here.
6 March 2023: OUTA files a notice in terms of Rule 35(12) and (14) in the application to compel, calling for a copy of NERSA's policy and guidelines on the treatment of confidential information. The notice is here.
28 March 2023: Karpowership files its answering affidavit to OUTA's application to compel. This affidavit is here and the annexures here.
21 April 2023: Karpowership files a signed notice of counter application. A copy is here.
25 April 2023: OUTA files a second notice in terms of Rule 35(12) and (14) in the application to compel. A copy is here.
9 May 2023: NERSA files a reply to OUTA's notice in terms of Rule 35(12) and (14). See here.
24 May 2023: OUTA files a replying affidavit in the application to compel. See here and the annexures here, here, here and here.