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South Africa: Eskom’s New Gas Power Station Gets Green Light

South Africa: Eskom’s New Gas Power Station Gets Green Light

Following court approval to rescind its own decision against the project, the National Energy Regulator of South Africa (Nersa) now concurs with a determination for Eskom to build a new 3 000MW gas power station in Richards Bay.

A treasury ban on additional debt however complicates matters and environmental groups are also determined to block the project.

Nevertheless, Eskom hopes to proceed and deliver the first power to the grid before the end of 2028.

The utility has been preparing for the project for a long time and submitted an application to build a new combined-cycle gas power station in Richards Bay to Minister of Mineral Resources and Energy Gwede Mantashe in January 2022. Mantashe’s approval, with the concurrence of Nersa, is a legal requirement for Eskom to be allowed to go ahead with such a project.

After requesting more information, Mantashe gave it the green light and forwarded the application to Nersa for concurrence in July last year.

Public participation process

Nersa followed a full public participation process during which the Energy Intensive User Group supported the proposal as providing energy to the system operator to balance intermittent solar and wind energy.

These renewable technologies will have an increasing role in the South African energy mix – in line with the Integrated Resource Plan and following President Cyril Ramaphosa’s scrapping of the licensing threshold to encourage independent power producers to invest in generation capacity.

Meridian Economics objected, saying gas generation does not make economic sense and the Minerals Council expressed concern about the cost.

It argued that gas will have to be imported and paid for in US dollars. The volatility of the exchange rate will therefore be reflected in the electricity price.

Decision rescinded

In December Nersa decided not to concur, citing technical reasons, as it held the opinion that Eskom had followed the wrong legal process.

Two months later, on 23 February, the regulator reconsidered the matter behind closed doors and decided to concur after all.

Since it does not have the legal powers to change its own decision, it then approached the high court to rescind the first decision, leaving its more recent decision to concur with the minister’s decision standing.

In an affidavit submitted to court, Nersa full-time regulator member Nhlanhla Gumede said the about-turn came after the director-general of the Department of Mineral Resources and Energy raised his concern with Nersa chair Thembani Bukula that Nersa made a mistake.

Nersa’s legal division considered the suggestion and agreed, and on 25 April the court granted the Nersa application and scrapped the first decision, paving to way for Eskom to proceed with the project.

Much had however transpired since Eskom submitted its application more than a year before, including the offer by National Treasury to take over R254 billion of Eskom’s more than R400 billion debt.

No fresh debt permitted

One of the conditions is that Eskom will not be allowed to incur further debt for new electricity generation in the next three years. This means the project cannot be done on the utility’s own balance sheet.

Eskom says it is currently engaging National Treasury for an alternative approach and “public private partnership of IPP [independent power producer] model or derivatives thereof will be the most likely mechanisms for the project”.

See Also

The utility says its immediate focus will be to clarify its role in terms of the final determination.

“Following this, and pending National Treasury support, an appropriate funding model will be developed, followed by a detailed business case and the appropriate procurement process,” Eskom said.

It foresees a development period of two years and three years for implementation, which means commercial operation can be expected before the end of 2028.

Environmental battle ahead

Eskom will still have to defend the project against further onslaught by environmental groups.

An earlier application by the South Durban Community Alliance for the Environment and groundWork for the environmental approval for the project to be reviewed and set aside was dismissed and the organisations were denied leave to appeal. They however approached the Supreme Court of Appeal directly and were granted access earlier this month.

Melissa Groenink, programme manager for Natural Justice, which also supports the litigation, expressed the organisation’s relief that the appeal will now go ahead.

“A gas power plant has the potential to have worse climate change implications than a coal-fired power station when considering the full lifecycle of the power generation process,” she said.

“While we have an electricity crisis on our hands, this power plant is not the answer. The climate crisis is real and will cripple our livelihoods in time to come.”



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