/ 18 May 2012

South Africa to step on the gas

Changes to legislation governing the energy sector could result in gas playing a bigger role in future.
Changes to legislation governing the energy sector could result in gas playing a bigger role in future.

South Africa will experience an “inevitable dash to gas” to generate electricity, given the short lead times involved in building gas-fired power stations and the continued fall in global gas prices.

This is the view of Mark Pickering of consultancy firm Meridian Economics, who gave a presentation to the portfolio committee on energy during public hearings on the new Independent Systems and Market Operator Bill this week.

His comments came as Energy Minister Dipuo Peters intimated that shale gas fracking could be a resource boon for South Africa. She made the comment at a conference hosted by oil and gas training group Ostrac, according to Business Report.

Pickering said gas-fired power stations had the advantage of being built in smaller units and were not prone to the delays experienced in massive coal-fired projects such as those of the Medupi and Kusile power stations.

“The advantage of gas is that projects can be brought on stream quickly and increasingly the price of gas is delinking from that of oil,” Pickering said.

Procuring nuclear power
The National Planning Commission has pointed out that South Africa has a host of potential domestic gas supplies, including West Coast offshore gas, methane gas, imported liquefied natural gas and the shale gas in the Karoo.

Concerns about the growing cost of procuring nuclear power stations is also leading to delays in decision-making about new power-generation capacity.

The independent systems and market operator, a state-owned enterprise, was one of the institutional frameworks needed to make these critical decisions regarding planning, allocation and the procurement of new entrants into the electricity market, Pickering said.

The Bill is the first step in a series of changes to the laws governing the electricity market. Another is the Electricity Regulation Second Amendment Bill, which is being reviewed by the energy department.

Creating an independent systems and market operator is aimed at increasing competition in the electricity sector by allowing independent power producers to sell to the grid. The operator will be licensed to manage the buying of power from generators, electricity wholesalers and systems operations.

Integrated resource plan
Pickering warned that the Bill as it stood left the planning and allocation functions for power projects in the hands of the energy minister.

He said the ministry did not have the high-level capacity to perform complex technical planning functions. The delays in formulating South Africa’s integrated resource plan, which outlines future electricity generation capacity, was an example of this, he said.

An independent entity with the necessary skills, capacity and flexibility was needed to better plan and allocate power projects, ensuring that the local market was attractive to investors.

Earthlife Africa warned that the electricity regulation Bill would have a big effect on how the operator would work and that it threatened to make planning, procurement and pricing more opaque.

“We are very concerned about the impacts this could have as South Africa is moving to massively ramp up its energy procurement,” Earthlife Africa project co-ordinator Tristan Taylor told the Mail & Guardian. “It is critical that it is open and transparent at every stage of the process.”

Earthlife Africa has warned that the electricity regulation Bill, in particular, may be unconstitutional. The Legal Resources Centre, acting on behalf of Earthlife Africa, said the Bill created sweeping powers and discretion for the energy minister in the procurement and licensing of new energy plants and the transmission and sale of energy.

It said the changes left too few checks and balances in place and undermined the power of the National Energy Regulator of South Africa to ensure fair, equitable, transparent and competitive procurement of energy in accordance with sections 195 and 217 of the Constitution. These sections relate to the basic values and principles governing public administration and procurement.

But the department said previously that it did not believe the amendments placed too much power in the hands of the ministry. Instead, it said, they were intended to align the law with electricity regulations on new generation capacity, which already places many of these functions with the minister.

The department’s spokesperson, Thandiwe Maimane, said it would respond in detail to the concerns when it appeared before the committee again next week.