Energy is one of the sectors of our economy most closely watched by local and international investors.
This heightened interest is unlikely to let up in 2018, thanks to plans by the government to invest ZAR234 billion in energy infrastructure over the next three years.
Energy industry players will take their cue in investment decision-making from the Integrated Resource Plan (IRP) 2016, which is expected to be updated by the Department of Energy (DoE) in the first quarter of this year.
The finalisation of the IRP 2016 is going to be one of the highlights of 2018, as it is expected to determine our country’s energy mix. It is expected that government will set the tone for continuation of the policy to reduce reliance on coal-generated power in favour of cleaner energy and the decarbonisation of our electricity industry. The IRP 2016 should clarify investment opportunities and open up the energy sector to new investment.
The IRP is an instruction book for South Africa’s future electricity planning, which is updated regularly to take into account shifts, up and down, in electricity demand. Furthermore, the document is also a guide to recommendations around power generation technologies that will be used to meet the demand.
Since the promulgation of the old IRP (2010-2030), there has been a decline in energy demand due to a slowdown in South Africa’s economy. At the same time, the cost of renewable energy, particularly solar PV, solar CPS, and wind has fallen considerably due to competitive bidding by the independent power producers (IPPs).
In the old IRP (2010), it was projected that South Africa required more than 56 000MW of new electricity capacity by 2030 to meet demand.
The IRP 2010 further stated that about 18 000MW (17% of SA’s energy mix) of new electricity capacity needed to be in the form of renewable energy in line with South Africa’s international commitment to reduce its carbon emissions by 34% by 2020 and 42% by 2025.
However, the draft IRP 2016 sees electricity production ramped up significantly by 2050 in response to increased demand by consumers. The draft document projects that South Africa will require an electricity capacity of 129 GW by 2050 to satisfy consumption.
The draft IRP 2016 also maps out an energy mix by 2050 consisting of: 15 GW from coal; 20,3 GW from nuclear; 13,3 GW from open-cycle gas turbines; 21,9 GW from combined-cycle gas turbines; 17,6 GW from solar PV; 37,4 GW from wind; 2,5 GW from the Inga hydro-electric project; 250 MW from landfill gas; and 500 MW from demand response.
In the context of infrastructure more broadly, the resolution of the scarcity of safe, drinkable water and the backlog in the provision of sanitation services also presents prospects for investors.
The investors, contractors, and water industry-focused suppliers will be scouting for opportunities to participate in the rollout of water infrastructure across the country over the next three years. The rollout is estimated to cost about ZAR125 billion.
The ZAR125 billion is part of the estimated ZAR947.2 billion public-sector infrastructure spending over the next three years that will be driven mainly by state-owned companies. About 77% of the infrastructure funds will be used to expand power-generation capacity, upgrade and expand the transport network, and improve sanitation and water services.
Gas IPP programme
The eagerly-awaited finalisation of the IRP 2016 next year will provide direction to investors on plans by government to establish a gas market in South Africa. The process will involve the invitation to IPPs by the DoE to submit bids for the development and operation of gas-fired power stations, which will feed 3 126MW of electricity into Eskom’s national grid.
The gas procurement programme will be similar to the Renewable Energy Power Producer Procurement Programme (REPPPP), whereby gas IPPs will produce and sell gas-generated electricity to power parastatal Eskom through 20-year power purchase agreements (PPAs).
The elevation of natural gas and liquefied natural gas (LNG) as key sources of power generation will also involve the rolling out of production and distribution infrastructure that is necessary for the establishment of the gas market. This infrastructure will encompass gas-fired power stations, pipelines, and terminals.
The natural gas will be transported from gas fields in Mozambique into inland terminals and production facilities in South Africa. At the same time, the LNG will be brought by ships to terminal facilities at the ports of Ngqura, near Port Elizabeth in the Eastern Cape, and Richards Bay, north of Durban in KwaZulu-Natal.
SENER is working on onshore, liquefied natural gas virtual distribution system, and off shore solution, floating storage regasification units (FSRUs) depending on specific infrastructure needs of the country.
With South Africa having stated its plans to significantly reduce carbon emissions as part of its commitment to the Paris Agreement, the industry is responding by playing its role in promoting energy efficiency through investing in research and development (R&D) to bring to market new technologies.
We are developing a prototype of a hybrid solar energy plant that will combine concentrated solar power (CSP) technology and photovoltaic (PV) solar technology into a single technology platform.
CSP is seen as expensive, but it is very effective in producing solar energy 24 hours a day and during the night when the sun is down. On the other hand, PV solar energy is cheaper to produce and PV plants are known for being effective in producing electricity during the day. We have combined the best of both worlds by maximising on CSP’s night production capabilities and PV’s cost effectiveness to bring down costs while boosting production.
The CSIR, South Africa’s world renowned research organisation, has thrown its weight behind renewable energy, which it believes is the best form of energy to replace old coal-fired power stations, most of which will be decommissioned in 2050.
In March last year, the CSIR made a submission to the DoE in response to the IRP 2016, arguing that renewable energy should make up about 70% of South Africa’s energy mix by 2050.
With renewables making up 70% of the country’s energy portfolio, the research organization points out that this portfolio will be the cheapest to operate; will emit less CO2 emissions; utilize less water; and above create more jobs in the energy sector.
A Green Jobs Report released in 2012 by two government development agencies, the Industrial Development Corporation and the Development Bank of Southern Africa, estimated that renewable energy has the potential to generate 130 000 new direct jobs by 2025, mainly across the entire renewables value chain, which comprises manufacturing of components and equipment, construction of renewable energy plants, installation, operations and maintenance.
In a nutshell, the renewable energy sector has a potential to create jobs while providing cheap electricity to the consumers.
Transport and Logistics
Transport and logistics is another area that has been earmarked for investment to improve the national transport infrastructure network, enhance the mobility of people and goods, reduce transport costs, and facilitate regional trade.
Over the next three years, the government and state-owned companies plan to spend ZAR327.7 billion on transport and logistics infrastructure. This investment accounts for about 34% of overall infrastructure expenditure (ZAR947.2 billion).
SENER has provided a wide range of infrastructure services and technologies covering urban mobility, railway, ports, airports – which can be deployed to benefit the South African economy.
For instance, we have designed from scratch railway, ports, and airports infrastructure for clients around the world and in some cases optimized existing infrastructures to make them efficient and cost-effective. We also provide transport and logistics-related technologies that can be used in road traffic information management and luggage handling and sorting.
Safe, drinkable is increasingly a scarce resource in South Africa and investors are keen to get involved to find a solution to the problem, in partnership with the government.
Severe water shortages, due to drought and ageing infrastructure in places like the Western Cape, Gauteng, and the Eastern Cape will give impetus in 2018 to the need to provide reliable water supply to communities and businesses. I expect to see the government implementing with vigour the spending of the ZAR125.3 billion over the next three years to expand water and sanitation services.
The government has indicated that the money will be used to develop and rehabilitate water infrastructure, including dams, canals, water treatment works, reservoirs and pipelines to connect households.
Siyabonga Mbanjwa, Regional Managing Director of SENER Southern Africa, a global engineering and technology group operating in the Power, Oil and Gas sector