One of the two bidders for the first round of South Africa’s Coal Baseload Independent Power Producer Procurement Programme (CBIPPPP), Marubeni, of Japan, expects the evaluation of bids to begin in April, following an initial delay in the Independent Power Producer (IPP) Office receiving the necessary approvals from government to proceed.
Marubeni Middle East and Africa Power is a co-developer of the 600 MW Thabametsi IPP project, situated near Lephalale, in Limpopo, which would be developed to produce power from coal supplied by Exxaro’s greenfield Thabametsi mine.
Engie, formerly GDF Suez, originally led the project development, but a few months ahead of the bid submission date of August 28 the French group’s board decided not to pursue the project.
Holding a 24.5% stake in the development, Marubeni requested, and received, a bid extension to November 2 and subsequently teamed up with Kepco, of Korea, which took up the remaining 24.5% available to foreign equity participants. The CBIPPPP bid documentation stipulated that domestic companies held at least 51% of the equity and the South African equity partners in Thabametsi included the Public Investment Corporation and various black economic-empowerment firms.
The other bidder for the initial CBIPPPP round, during which government would seek to procure 1 000 MW, was the ACWA Power-led consortium, which aimed to develop the 300 MW Khanyisa discard-coal project, in Mpumalanga – a project initially promoted by Anglo American.
Speaking at a Fossil Fuel Foundation (FFF) event on Thursday Marubeni Middle East and Africa Power VP Yousuf Haffejee said he anticipated that the IPP Office might be in a position to name preferred bidders as early as May.
The office, which had overseen the successful Renewable Energy Independent Power Producer Procurement Programme, was currently prioritising the evaluation of the latest renewable-energy bids before turning its attention to the CBIPPPP evaluation.
The IPP Office was also expected to initiate a gas-to-power programme later in the year, which would probably proceed ahead of the second CBIPPPP bid window. A total of 2 500 MW had been allocated for procurement under the coal programme.
Haffejee indicated that Thabametsi and Khanyisa were the only two projects capable of meeting the IPP Office’s “onerous” requirement of having all site-related environmental authorisations secured ahead of bidding. Bidders were also required to have secured their coal, limestone and water supplies, as well as a grid-connection agreement with Eskom.
The Thabametsi IPP bid was premised on fluidised-bed technology, which would be built on an engineering, procurement and construction basis by Doosan, of Korea.
The IPP Office had set a ceiling price of 82c/kWh, supported by a 30-year power purchase agreement. However, Haffejee stressed that this tariff was itself premised on an exchange rate of R11.47 to the US dollar. The rand had since weakened materially, which was likely to influence the final price, as well as the project capital costs.
The anticipated capital cost could be as high as R30-billion in light of the recent weakening in the rand against the US dollar, with the bid itself having involved costs running into the tens of millions of rand.
Haffejee expected the exchange rate to emerge as the biggest challenge in moving the project to financial close, particularly in light of the fact that it was based on a “100% rand-based tariff”. From a debt-funding perspective that meant it could only draw on South Africa’s five large commercial banks and local development finance institutions.
“At the moment our single biggest issue, if we are selected as a preferred bidder, is how to secure the additional rand funding from the current project size to a project size based on a far weaker rand,” Haffejee said, noting that the exchange rate at financial close, which could be in the final quarter of 2016, would determine the tariff.
However, other FFF conference participants also raised possible coal quality and technology challenges, not with specific reference to the Thabametsi project, but with regards the CBIPPPP initiative as a whole.
University of the Witwatersrand Professor Rosemary Falcon, who is South African Research Chair in Clean Coal Technology, stressed the importance of matching coal quality with the process plant.
She highlighted material differences in the behavioural characteristics of coal found in the South African coalfields when compared with those in Europe and North America. There were even marked differences, she added, from one South African coalfield to another.
“A clear understanding of the differences between the coalfields and the need for deeper levels of characterisation are required in order to ensure optimal combustion performance and minimum environmental impact,” Falcon argued.
SRK Consulting principal geologist Lesley Jeffrey added that while fluidised-bed technologies offered scope for using coal resources hitherto regarded as unsuitable for power generation, these above-surface resources would need to be thoroughly drilled and sampled to ensure that the coal was indeed suitable and had not been degraded.
Mitsubishi Hitachi Power Systems Africa sales head David Milner also questioned whether, in the context of tightening emission standards, the IPP Office’s focus on a ceiling price was appropriate.
“The focus should be on achieving the highest efficiency and the lower carbon emissions,” he argued, noting that, from 2017, subcritical coal projects could no longer benefit from Organisation for Economic Cooperation and Development export funding.
Separately, Earthlife Africa Johannesburg, represented by attorneys at the Centre for Environmental Rights (CER), indicated that it was considering a legal challenge after Environmental Affairs Minister Edna Molewa decided against setting aside the environmental approval of the proposed Thabametsi coal-fired power station.
Instead, the Minister had reportedly given the project developers six months to conduct a climate change impact assessment and a palaeontological impact assessment.
“This is the first time that the Minister has required a climate impact assessment for an environmental approval for a coal-fired power station,” CER said in a statement, describing it as a “significant victory”.
Nevertheless, the CER remained concerned that the Minister had not prescribed the scope of the assessments, nor had she made it clear whether the authorization, which had been suspended by the appeal, remained suspended pending the outcome of the assessments.
“Most importantly, by requiring these additional impact assessments, the Minister has conceded that material impacts were not assessed before the approval was granted, which is contrary to the requirements of the National Environmental Management Act. We believe that the Minister’s decision to uphold the authorisation, despite these deficiencies, makes it subject to review by the High Court,” the CER said, adding that it would write to the Minister to request clarification.