Tag Archive | independent power producers

New biotechnology strategy on the way

Biotechnology and aspects of economy….

A new South African biotechnology strategy, with a focus on the economy and how biotechnology could be used to create a positive socio-economic impact would soon be launched, department of science and technology (DST) has said.

This has now been cleared by cabinet but very little is known on the actual document being prepared by DST other than it will focus on co-ordination between the various government departments dealing with biomass, bio technology, energy and the environment.

Creating jobs

On the subject of creating biofuels and biomass, the department of energy has told parliamentarians that the main objective of any such exercise, if it was undertaken in the agriculture industry, would be to create jobs.       However, such a move towards the use of biomass would not take place if national food or water security was jeapordised in any way.

This answer was given to the portfolio committee on energy by Muzi Mkhize, chief director hydrocarbons, department of energy (DOE), when briefing parliamentarians on DOE’s current strategy towards biofuels.  He said that in the South African context, a specific requirement of the biofuels strategy was to create a link between first and second economies and the focus was not only on jobs but specifically on creating employment in under-developed areas.

No document on the subject at this stage has reached Parliament.

Earlier articles on this subject:
http://parlyreportsa.co.za//energy/doe-talks-biofuels-and-biomass/
http://parlyreportsa.co.za//cabinetpresidential/biofuels-development-stays-in-limbo/
http://parlyreportsa.co.za//cabinetpresidential/energy-resources-doing-it-better-and-quickly/
http://parlyreportsa.co.za//energy/doe-talks-biofuels-and-biomass/

Posted in Enviro,Water, Facebook and Twitter, Fuel,oil,renewables, Land,Agriculture, LinkedIn, Special Recent Posts, Trade & Industry0 Comments

Biofuels development stays in limbo

Nobody building

sorghumIn a major presentation by the department  of energy (DOE) it became quite evident that governments biofuels strategy was still only a theory and whilst eight biofuels projects had licences either granted in principle or issued in practice, not one plant has yet gone into the building phase to meet government’s target of creating an estimated 25,000 jobs.

Ms Mokgadi Modise, chief director of clean energy at DOE, told the portfolio committee on energy up front that it was acknowledged by DOE that South Africa’s biofuels strategy could not get off the ground unless the state came up first with clear policy regulations and incentives to industry.

Big plans for 2013

Nevertheless, entrants to the industry that had indicated a firm commitment to the biofuels production had provided a cumulative figure to DOE that would exceed the 2013 target they had originally envisaged of some 400m litres, about 2% of the national fuels pool.

She said that whilst this was an encouraging start, there was little hope of any target date being met primarily because no support mechanisms from Treasury were yet put out; no regulations or pricing mechanisms had been established but only talked about and government was still undecided on blending options – the most suitable crops being mainly sorghum, soya, sugar and canola.

Blending issues

The minimum blending level of 5% biofuels into conventional diesel and petrol were set last year, in a gazette published accordingly, she said.

Currently, Modise said, DOE acknowledged that bio-ethanol falls outside the fuel tax net but bio-diesel, if supplied, would not, although manufacturers, would receive their 50% from the fuel levy in this case. Blending options were the six refineries in South Africa and at all the fuel depots, which amounted to 2 large depots for each of the seven oil companies.

Having heard their options, it was assumed by DOE that two of the companies would blend at their refineries and the balance of oil companies would blend at their depots. She gave no names.

On capital investment by the oil companies, she noted that R278m would have to be spent on refinery blending for this to be possible and a minimum of R460m on depot blending.

Looking outside SA

Parliamentarians noted that satisfactory diversification processes seemed to be going on in the liquid fuels industry and there were obviously attempts to create sustainable jobs but they asked what export markets were being created and how was the product going to be transported.

Modise said these issues had not yet been explored by DOE but she needed a joint meeting with the departments of science and technology, the department of agriculture including water department and treasury officials present before any such questions could be answered.

She said feasibility studies were being conducted with the refinery companies in order to establish whether or not they would “buy in” and that the department of science and technology were to supply their research findings by 31 March. A decision had to be taken by the same date on whether or not to exclude maize as a permitted feedstock.

Treasury answers needed

In answer to questions on financing, Modise said that IDC had put R1.5m aside for support but treasury needed play out its support programme on incentives and might make a statement before the national budget took place.

Parliamentarians said that if jobs were to be created in the right areas then Modise and DOE had to ensure that any such incentives must speak to the issue of distance from the market place if growth of agriculture in the “homelands” areas was to be encouraged. Modise said that was the kind of question that DAFF and treasury had to get together on.

On the one major biofuels plant that had been in the newspapers, namely the Craddock facility which had IDC backing, Modise said it still only had a conditional “granted” licence as not all requirements, mainly financial, had been met in order to issue a licence – only a temporary “granting” being considered. There was also a well-developed plan in Port Elizabeth but this was still on hold. A “granted” licence was a strong indication but an “issued” licence gave the right to operate.

Things too vague, says chair

In conclusion, chair Sisi Njikelana said there must be immediate follow up by Parliament on the whole issue of biofuels since DOE had to get beyond just local strategy and move towards the creation of an enabling environment. He had no sense, he said, on finality on manufacturing possibilities or issues, or even a road map on what was happening generally.

Modise responded by saying that DOE needed certain  “triggers” at the stage to happen; for example for the government needed to start talking to SADC for a start to see if the country really should be really working to just a 2% figure of the local market alone; treasury and particularly  agriculture had to provide clarity on policy; and technical issues under debate had to be finalised.

Feedstock,incentives,transport et al

Lance Greyling of the ID said the possibility of creating thousands of jobs in the biofuels industry had started in 2007 and there was still an air of frustration and expectation.   He told DOE that whilst it may seem possible to exceed the originally set target of 400m litres a year, the security of supply of feedstock was still a worrying issue, as was transport to manufacturing points and a proper tax incentives plan, including recovery cost factors to the liquid fuel companies.

Much more work had to be also with the department of rural development and land reform as well, he said, on the issue of getting small holders being able to get crops as well to their market in order to assist in rural development.  The implementation of the whole biofuels strategic plan was far too slow, he said.

Posted in Cabinet,Presidential, Energy, Enviro,Water, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry, Transport0 Comments

IPP 3 delayed until mid-August says DOE

More time needed before next IPP window……..

Announced by the department of energy (DOE) during December, potential IPP power producers now have until 19 August 2013 to submit their bids, thus meaning that the submission date for the third bidding window for independent power producers (IPP) has been postponed again.

As part of the renewable energy IPP procurement programme, which was introduced in August 2011, the submission date had originally been set for 7 May 2013 but DOE says that more time is needed to incorporate lessons learnt from the previous IPP windows.

In addition, DOE says it needs to update requests for proposals according to new matters coming to light

More power from renewables

By giving more time to bidders to consider updated request for proposals, this affords the IPP team, says DOE, more time to consider the preferred bidder process, DOE stating that the country’s overall energy needs programme will require an additional 3200 MW of renewable energy from the three phases or windows of IPP bidding.

IPP targets in technical terms for onshore wind, both types of solar energy, biomass, bio-gas, small hydro and generalise small energy projects are all included in the DOE statement.

Amendments to regulations regarding petroleum products wholesale licences and petroleum products manufacturing licences were also published by DOE in December late.

Posted in Electricity, Energy, Finance, economic, Land,Agriculture, Mining, beneficiation, Trade & Industry0 Comments

Eskom MYPD electricity call is to sustain ratings

 Eskom stands by its MYPD3 asking price…….

Brian Dames, CEO, Eskom, on their Multi-Year Price Determination (MYPD 3) application to the National Energy Regulator of South Africa (NERSA), told parliamentarians of the trade and industry portfolio committee that price increases were necessary. He said that on one hand they had to have a respectable balance sheet to obtain development money whilst on the other hand, Eskom was coming from a background where investment activity had been inactive over the years.

“To keep the lights on”, Dames said, “there is now a cost.”

Electricity currently below cost

He said that because of historical reasons, electricity was currently charged at below cost-reflective levels and was not sustainable. Electricity prices needed now to have a “transition to cost-reflective levels to support a sustainable electricity industry that had resources to maintain operations and build new generating capacity, guaranteeing future security of supply.”

Dames said that Eskom had also recently issued an “interim integrated report” for the six months ended 30 September 2012 setting out a contextual review of the company’s overall performance from 1 April 2012 and in the light of this had presented the NERSA application.

He said that the current MYPD 2 was ending and consequently Eskom had to submit such an application to NERSA to determine the country’s electricity price adjustment for 2013/14.

However, this time Eskom was proposing a five-year determination for MYPD 3, running from 1 April 2013 to 31 March 2018, which would ensure a more gradual and predictable price path for households, businesses, investors and the country as a whole.

Eskom’s five-year revenue request translated into average electricity price increases of 13% a year for Eskom’s own needs, plus 3% to support the introduction of Independent Power Producers (IPPs), giving a total of 16%, representing a total price increase from the current 61 cents per kilowatt-hour (c/kWh) in 2012/13 to 128c/kW h in 2017/18.

Balance sought between needs of Eskom and poor

The impact of the price increase on the economy had been considered in addition to guidance from the President’s State of the Nation Address in which he requested Eskom to consider a price path which would ensure that Eskom and the industry remained financially viable and sustainable, but which remained affordable especially for the poor. Dames said he believed that Eskom’s application achieved an appropriate balance.

In addressing the impact of price increases, Dames said that Eskom believed that poor households should be protected from the impact of electricity price increases through targeted, transparent cross-subsidisation in accordance with a national cross-subsidy framework.

A failure to achieve cost-reflective prices would sooner rather than later impact on South Africa’s economy and its growth prospects, he said.

MPs query what electricity giant has as objective

A number of opposition MPs disagreed and queried the entire cost-reflective process used by Eskom, saying that the tariffs proposed by Eskom rather posed a dangerous threat to economic growth and the future of business in South Africa, as well as job creation.

Whilst Eskom wanted a 4% targeted return in the medium term and 8% in the final year, they said, JSE majors had returned on average 6.6% per year in the last ten years. They asked if Eskom was attempting to build a balance sheet that compared with global corporates just in order to get loans.

The main thrust of certain opposition MPs queries was the sacrifice in growth rate, damage to business development, to job creation. ANC MPs complained of the effect on the poor.

Paul O’Flaherty, finance director at Eskom, said that the only sources of funding available to Eskom were debt; equity injected from Government and operating profit from its revenue. Eskom had requested for an additional equity injection from the state but that was not forthcoming leaving generation of debt to them and raising enough operating profits from its revenue.

He said in terms of depreciation factors on the figures shown, such was regulated by Nersa and that there was no way of getting around the fact that Eskom had to pay its way. According to the cash flow predictions, a trillion rand of revenue would be needed to pay for primary energy costs, employee costs and demand side management, repairs and maintenance.

Eskom must be seen as viable entity for capital programmes

Eskom’s capital program over the next five years included finishing the Kusile power station repayments, plus a further R360bn in debts, which meant that R200bn had to be raised from the market. This had to be done against a successful balance sheet. Eskom got investment status because of Government uplifting, he said. It had to show its cash metrics were moving towards a more sustainable company, he said.

Dames added that Eskom required on its equity a higher return than the sovereign because of the risk involved and in terms of the cost of debt in a normal environment and that the cost of Eskom borrowing was more expensive that the sovereign borrowing. The cost of debt had been arrived at by Eskom working with NERSA as well by as KPMG and the costs included in the MYPD 3 application were appropriate, in his opinion.

Mohamed Adam the legal representative at Eskom said on questions relating to the impact of price increases on the manufacturing sector, that the impact of price increase on the economy had been considered in addition to ensuring that both Eskom and the industry remained financially viable and sustainable, but which remained affordable especially for the poor. There was a threshold at which Eskom would also face which amounted to a tipping point if prices were too low.

Unbundling of Eskom not an option

In conclusion, Mr Dames said that the submission of the MYPD 3 application was the beginning of a public process and he rejected MPs suggestions that Eskom was a monopoly that should be broken up.    He said that any unbundling of Eskom accompanied by the introduction of private participants would fail to bring in lower prices since higher returns would be needed by private generators and distributors.

As to whether Eskom would be willing to supply certain municipal customers,  Dames said that local authorities had a constitutional right to supply the customer within their jurisdiction and  Eskom was unable to supply a number of municipal customers anyway based on their relation to the network. Also municipalities would lose revenue.

Dames said that the growth rates in the MYPD 3 submissions were lower than those required in the New Growth Path and the National Development Plan and whilst the energy reserve margin might be held in the immediate future, it would disappear if new generation capacity was not brought on line after the completion of Kusile and if there was growth. The current build programme did not address all the capacity needs of South Africa into the future.

EIUG figures do not reflect current picture

Dames, in addressing the claim by Energy Intensive Users Group (EIUG) that Eskom’s costs of maintenance were higher than they should be, said a considerable quantity of EUIG’s comments were based on inaccurate figures.

Much in the way of numbers quoted by EIUG were based upon “aspirational targets achieved during the 1990s when Eskom’s power stations were a lot younger”, it was said. The constrained power system now existing did not now allow for such philosophical assumptions. There was a balance which Eskom now needed to strike in practical realities as far as keeping the lights on was concerned.

Posted in Electricity, Energy, Finance, economic, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Final push for renewable energy promised

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Posted in Electricity, Energy, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Hearings completed, debate starts on new ISMO Bill

With hearings over 4 days, the portfolio committee  of energy under Sisa Njikelana heard submissions on the Independent System and Market Operator (ISMO) Bill, legislation that brings to South Africa for the first time a regulatory system for the trading of electricity at a wholesale level and for integration of privately produced power into the national grid.

In addition, the department of energy has reported back to Parliament with its views on these submissions. This will be summated on this website shortly, after circulation of ParlyReport to private clients.

Department of Energy (DOE),  in their own submission during the hearings said that South Africa urgently needed new generation capacity but there had to be “rules of engagement and a level playing field” if the private sector was to be introduced. Consequently government had to ensure that the public still had the benefit of “minimalisation of inevitable tariff increases”.

The purpose of the ISMO Bill was to establish a centralised electricity buying department to separate such a process from Eskom who controlled 90% of the electricity output in SA, thus providing a form of independence from Eskom for independent power producers, DOE said in their introduction.

ISMO would be responsible for an “aggregated wholesale price”, leaving generation licences and allocation of megawatts supplied in terms of the integrated resources plan to be addressed under the Electricity Regulation Act.

In general, all submissions welcomed the introduction of such a Bill, the Energy Intensive User Group expressing concern in their comments as to who exactly was the ultimate owner of the national grid system and the fact that municipalities were included as distributors under ISMO jurisdiction.   The Bill was silent on ISMO rights, they noted, and how potential customers would be shared between Eskom and ISMO and is was important in their view that the Electricity Regulation Act be amended to reflect this since the new ISMO legislation would be rendered inoperable in many respects.

NERSA, the electricity regulator, had a number of critical comments to make, Richard Chauke of that organisation stating that “despatch”, or passing on of power generated is not provided for in the Bill as a licenced activity in terms of the Electricity Regulation Act (ERA), meaning that NERSA would have to commence trading activities on a temporary basis which was not a good plan.

Also, they stated, Eskom’s licence as an operator needed to be amended and separated to allow for independent power producers (IPPs).

NERSA responded to queries as to why the ERA had to be changed, stating in their reply that the ERA was the anchor legislation for the entire process and that matters should follow such a regime where major subjects such as this dealt should be dealt with in an over-arching industry act, particularly not the ISMO which was relevant to IPP supply.

NERSA again emphasised that as it was important in order to ensure equitable and fair despatch of IPP power; that considerable expertise within NERSA would have to be built up in NERSA in the coming months to ensure transparency and this might be achieved by hiring suitably qualified additional staff.

Posted in Electricity, Energy, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

RE producers will take financial pressure off Eskom

The department of energy (DOE) has introduced to Parliament the concept of establishing a licensing entity for independent power producers (IPPs). This would be set aside from Eskom operations but would act as a much needed resource to shore up Eskom’s inability to provide, in terms of its credit rating, sufficient power for all of South Africa.

The ability of licensed IPPs to raise funds separately, particularly for renewable energy resources, will take the pressure away from  Eskom in terms of fund raising, says DOE.

A new Bill, numbered B9 of 2012, allowing independent system and market operators (ISMOs) and setting up an entity, which appears somewhat separated from Eskom to regulate such operators and purchase power, has been tabled in Parliament. Known as the Independent Systems Market Operators (ISMO) Bill, other necessary amendments to anchor legislation such as the current Electricity Regulation Act (ERA) will follow in due course.

Introduced by director general of DOE, Ompi Aphane, the new Bill will assist in providing, through an ISMO board, independent dispatch of power from all ISMO generating facilities to the sole purchaser, Eskom, “in an efficient manner in order to minimize costs’.  Muzi Mkhize, director general, hydrocarbons, described the new Bill “as establishing an autonomous state owned company, mandated to buy power from generation.”

He said that co generation projects will not require government guarantees and thus electricity from such projects “may come at a lower tariff when compared to costs generated by the Eskom build programme”.

The ISMO board, Mkhize told parliamentarians, will assist DOE in planning for “a new generation capacity”. On the basis that the ISMO board does not become involved in power generation itself, the licensing of electricity to distribution and large customers will be enabled independently of Eskom, such licencees being given equal access to the wholesale price.

According to the presentation made, only Eskom will sell electricity to the public. The presentation was made in the form of “electricity wiring diagrams” when describing the electricity generation regime in South Africa, rather than diagrams giving structured industrial relationships. MPs were at a loss to understand this.

In response, Mkhize said, “some of the functions to be performed by IPPs were not licensable activities at present” and therefore the Act would have to be amended at the earliest. However, he told parliamentarians that ISMO, as a body and licensing entity, would have to enter into a contractual arrangement with Eskom for the “execution of functions and contracts to be finalised within three months of the ISMO incorporation date”, i.e. a total staff transfer from Eskom Holdings in order for it to be in operation at the soonest.

The minister of energy, it is proposed, must ensure that ISMO board appointees are representative of the industry and all Eskom Holdings staff employed currently “in the fulfillment of functions contemplated by the establishment of ISMO, including support staff will be transferred to ISMO in terms of the new Bill”.

Mkhize said he believed that such generation licences to be granted and the allocation of MW in terms of government’s renewable energy plans would be addressed under the Electricity Regulation Act amendments. Future electricity tariffs created by the new structuring would require approval from the existing regulator.

The need for independent transmission lines as well was noted, Mkhize said, and this was to be addressed in due course.

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