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Forestry, Fisheries and the Environment Minister Barbara Creecy reports that the Climate Change Response Fund announced by President Cyril Ramaphosa in his State of the Nation Address (SoNA) has been established to support the development of early-warning systems, as well as for adaptation projects to improve the climate resiliency of infrastructure amid the growing threats posed by extreme weather events.

Addressing the Presidential Climate Commission (PCC) in Johannesburg, Creecy said that there was also potential to use the fund as a "channel" for financial resources that could be made available to developing countries following the recent operationalisation of a loss and damage fund.

The loss and damage fund was established at the recent COP28 climate talks, held in the United Arab Emirates, where initial funding commitments of $700-million were announced.

In his SoNA speech, Ramaphosa highlighted several recent climate-related disasters, including "devastating wildfires in the Western Cape, destructive floods in KwaZulu-Natal, unbearable heatwaves in the Northern Cape, persistent drought in the Eastern Cape, and intense storms in Gauteng".

He said the Climate Change Response Fund would be established to help "build our resilience and respond to the impacts of climate change" but did not provide further details, including on where it would be housed and how it would be funded.

Creecy told the PCC that consideration was being given to hosting the fund either at the Development Bank of Southern Africa or the Industrial Development Corporation, but provided no timeframe from its implementation.

She confirmed that government would set aside some resources to capitalise the fund but indicated that the intention was to also crowd-in private finance in a manner similar to the Solidarity Fund that was set up during the Covid-19 pandemic.

Resources secured for the fund would be used to strengthen the country's early-warning systems for detecting extreme weather events, with Creecy noting that there were growing domestic and international examples of how the use of such systems had been effective in preventing the loss of life.

Proceeds would also be directed towards adapting infrastructure to make it more resilient to events such as wildfires and floods, as well as to safeguard water and food security in the aftermath of weather-related disasters.

Such adaptation efforts, the Minister added, could also help ensure that climate-related loss and damage did not become a "bottomless pit" for municipalities and provinces, which currently relied on disaster-management allocations to finance relief efforts.

Creecy also indicated that the Climate Change Response Fund would complement the Just Energy Transition Implementation Plan (JET-IP), which was focused on climate mitigation investments rather than adaptation.

Ramaphosa announced in his SoNA that financing pledges for the JET-IP had increased from about R170-billion to almost R240-billion, amid growing calls for the proceeds to be used specifically for energy-related or upliftment projects. The bulk of the JET-IP transfers to date having been directed to the National Treasury in the form of policy loans that have been used to lower the overall cost of borrowing.

Engineering News editor Terence Creamer discusses South Africa's gas cliff and the warning of a likely 'day zero' in the coming two years, as well as the possible risks associated with some for the proposed solutions.

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The former head of South Africa's Independent Power Producer (IPP) Office, Karen Breytenbach, believes there is a compelling case for the injection of private sector investment to accelerate the roll-out of new electricity grid infrastructure, as has been proposed by Electricity Minister Kgosientsho Ramokgopa.

She cautions, however, that significant consultation is still required to ensure that any institutional and regulatory frameworks developed to support such investment are sensitive to the risk posed by the natural-monopoly character of such infrastructure, as well as the commercial realities of funders and potential investors.

Breytenbach is currently a consultant but worked in the public sector for years, where she emerged as a specialist on the structuring of public-private partnership (PPP) transactions and rose to prominence for the central and pioneering role she played in facilitating the entry of IPPs into the South African electricity sector since 2010.

Speaking at a South African Independent Power Producer Association event in Johannesburg, she reported that she had been drawn in to evolving discussions within government, the National Electricity Crisis Committee and Eskom on the potential to open the transmission market to private sector participation.

Having assessed international PPP models in the sector, she had concluded that it was possible to open the market to private investors to help accelerate the building of the new powerlines and substations required to enable new wind and solar generators, especially in provinces such as the Eastern, Northern and Western Cape where IPPs were facing significant grid-connection difficulties.

Some of the constraints could be eased in the short term through grid optimisation initiatives, including curtailment, with Eskom's recently published curtailment addendum to the Generation Connection Capacity Assessment having already unlocked 3 470 MW of additional grid capacity to connect wind generators, including 2 680 MW in the Western Cape and 790 MW in the Eastern Cape.

The emerging National Transmission Company South Africa is also being encouraged to investigate and invest in other grid-enhancing technologies and storage to ensure that optimal use is made of the existing grid ahead of the development of new capacity.

Ramokgopa, meanwhile, has announced that government plans to establish an independent transmission project office, located either at the Development Bank of Southern Africa (DBSA) or the Industrial Development Corporation (IDC), to procure new transmission capacity using some form of build, operate and transfer model.

He has argued that Eskom requires support to accelerate the implementation of its Transmission Development Plan, which envisages the building of 14 000 km of new powerlines by 2032, alongside 170 transformers, with a capacity of 105 865 MVA, as well as 40 capacitors and 52 reactors.

Much of the investment is planned for construction only after 2027, however, with only 3 400 km of powerlines projected to be installed between the current financial year and 2028.

The back-end nature of the investment profile has been heavily criticised by powerline and substation suppliers, which have warned that they may not survive the current downturn to participate in the future investment surge, with some key suppliers and construction companies having already entered business rescue.

Breytenbach reported that government was paying priority attention to the issue and said she was convinced that a private sector participation model would emerge in time, but that some key decisions might be delayed until after South Africa's national and provincial elections.

Progress thereafter would depend on both the creation of institutional capacity within the public sector to oversee procurement and regulatory ap...

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The 128 MW Oya Energy hybrid project, which will combine variable renewables and batteries to produce dispatchable electricity daily between 5:00 and 21:30 for injection into South Africa's loadshedding-prone grid, reached financial close on Tuesday, February 13.

The project was named as a preferred bidder for a 20-year power purchase agreement (PPA) under South Africa's Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), which was launched as a so-called emergency procurement round in 2020 for some 2 000 MW.

The bulk of the allocation was awarded to three powership projects at Coega, Richards Bay and Saldanha Bay, but these ran into immediate legal and environmental problems, which resulted in serious delays to the RMIPPPP as a whole.

In December, Eskom announced that the grid connection budget quotes for the three Karpowership projects, along with another hybrid project that included gas and batteries, had officially expired, finally releasing scarce grid capacity that had been reserved for the projects.

The expiry meant that only hybrid projects bid under the RMIPPPP - which many described as having been tailored for gas-to-power, given the dispatchable profile stipulated and a rule disallowing the hybrid projects from charging their batteries using the grid - eventually advanced to financial close, with three Scatec solar-battery projects having entered into commercial operation on December 11 last year.

The Oya Energy Hybrid Project, which will be developed on a single location on a site that spans the Western and Northern Cape provinces, between the towns of Ceres and Sutherland, combines 155 MW of solar photovoltaic and 86 MW of wind with a 92 MW/242 MWh lithium-ion battery energy storage system to produce the dispatchable electricity required under the PPA.

The power station will be jointly owned and operated by ENGIE (35%), G7 Renewable Energies (20%), Meadows Energy (22.5%) and Perpetua Investment Holdings (22.5%), with RMB having acted as the sole mandated lead arranger and bookrunner for the project.

ENGIE country manager Mohamed Hoosen described the project as "an innovative first-of-its-kind power solution", while G7 CEO Dr Kilian Hagemann argued that it represented "the blueprint for a carbon neutral, 100% renewable future power grid".

The project, the investment value for which has not been disclosed, falls within the Komsberg Renewable Energy Development Zone and will be constructed by a joint venture comprising Power Africa and SinoHydro.

It is scheduled to will reach commercial operation in the last quarter of 2025.

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The Industrial Gas Users Association - Southern Africa (IGUA-SA) is warning of a gas supply 'day zero' for several large and small manufacturing enterprises and says that urgent decisions will be required within the coming four months if South Africa is to avoid a looming "gas cliff" within the coming 30 months.

Speaking during an EE Business Intelligence webinar convened to understand the outlook for gas energy security and the potential role for gas-to-power (GtP) in improving the outlook, IGUA-SA executive officer Jaco Human said the looming shortfall had arisen on the back of Sasol's announcement last year that it will be halting supply to downstream consumers from 2026. This, partly because it had failed to find sufficient reserves to replace an anticipated tapering of supply from southern Mozambique and partly because Sasol plans to use the remaining gas to displace coal at its own operations to support its decarbonisation.

IGUA-SA members, which include some of South Africa's largest manufacturing enterprises that collectively employ 65 000 people and have yearly combined revenues of over R300-billion, currently consume some 40 PJ/y of gas to produce everything from steel, glass and aluminium products to food and beverages.

Human suggested the most realistic supply option to be the importation and re-gasification of liquefied natural gas (LNG) at a new terminal, which is proposed for development at the Matola harbour in Maputo, Mozambique, given its relatively advanced state of development when compared with a proposed terminal at the Port of Richards Bay, in KwaZulu-Natal.

However, there were still significant timing risks, with a final investment decision on the $350-million terminal dependent on several offtaker and related infrastructure developments, including a tie-in to the existing Rompco pipeline, a connection between the Rompco and Lilly pipelines, as well as a GtP anchor offtaker.

"We literally have four months to switch on the landing lights on the development of gas infrastructure to substitute the shortfall in supply from 2026 onwards," Human asserted, warning of manufacturing and job casualties should these fail to materialise.

He also insisted that domestic gas demand could be sustained despite the inevitable price disruption that would arise from a switch from Mozambican gas to LNG but acknowledged that it would not be a pain-free transition, with some enterprises still likely to close.

Gigajoule CEO Jurie Swart said the Matola terminal, which could be built in partnership with TotalEnergies, was technically "shovel ready", as was an associated GtP project, but that offtaker commitments and policy decisions were still required to ensure financial close.

Rompco CEO Mlandzeni Boyce reported that the commercial viability of a tie-in project to connect the proposed Matola LNG terminal to the existing Mozambique-to-Secunda pipeline was under evaluation, with a front-end engineering design technical package having been completed in June last year.

"But Rompco will not take a final investment decision until bankable gas transmission agreements are concluded," Boyce stressed, adding that it would also seek adjustments to the tariff architecture to allow for distance-based tariffs.

POWER ANCHOR?

Swart made the case for LNG's price competitiveness relative to the fuel alternatives available to South African manufacturers, but also argued strongly for an anchor customer in the form of a GtP plant operating in Mozambique at a high capacity factor and selling power to South Africa.

The proposed solution would require a cross-border power purchase agreement and, thus, implied a major change to South African energy policy.

Such an outcome would likely prove controversial considering developments in the South African electricity market, where an inaugural GtP p...

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Eskom says the Electricity Pricing Determination Rules (EPDR) approved by the National Energy Regulator of South Africa (Nersa) in December cannot be implemented for the 2025/26 financial year as proposed by the regulator, owing to the time it takes to prepare, adjudicate and approve such applications. In addition, the utility has questioned whether the rules are implementable at all given how far they deviate from established standards used globally for determining electricity tariffs.

Following a period of public consultation, Nersa approved the EPDR late last year. These tariffs are applicable for all licensees providing electricity to customers.

The prevailing multiyear price determination (MYPD) framework and methodology has been used to determine Eskom's yearly allowable revenue since 2006. That allowable revenue is then divided by approved sales volumes for the period to determine average tariffs. The detailed Eskom tariffs to be charged in any given year are then determined by the Eskom Retail Tariff and Structural Adjustment methodology. For municipalities, Nersa is required to base tariffs on the cost of supply framework.

Nersa says the revision to the way tariffs are determined has been informed by changes under way in the electricity supply industry, including the emergence of new participants in generation and trading and the unbundling of Eskom.

Tariffs, it argues, will no longer be aggregated and will instead be determined for each licensed activity along the value chain - including generation, transmission, distribution and trading - based on the fixed costs, variable costs and customer-specific costs allowed by the regulator.

Nersa has already acknowledged the potential difficulties in transitioning from the MYPD to the EPDR and has outlined two possible routes, described as Plan A and Plan B, for introducing the new framework. It has also noted that the MYPD was introduced even though the methodology was not fully finalised in 2006.

However, Eskom GM for regulation Hasha Tlhotlhalemaje does not believe the EPDR is implementable at all and argues that neither Plan A nor Plan B can be implemented in 2025/26 as proposed, as neither plan fully accounts for the time it takes Eskom to prepare a submission and meet the relevant legislative requirements.

These timing requirements have been reinforced in recent court judgments and orders, which have stipulated that only a methodology that is in place 18 months ahead of a new tariff adjustment can be applicable. That being the case, the new rules and associated methodology would have to have been approved by September 2023 for it to be implemented for the 2025/26 tariff period, which starts on April 1 next year.

Furthermore, Tlhotlhalemaje argues that the EPDR approved by Nersa in December is not a complete set of rules, but rather an approach to determining tariffs based on individual customer profiles and not the system profile.

"This is not possible and has not been implemented anywhere in the world and we think it will result in complete chaos," she says.

While asserting that it will take Eskom at least two years to adjust to any new approach, she argues that it could take even longer for other industry participants, such as independent power producers (IPPs) and traders, given that they have had little experience of Nersa's tariff processes.

"Before this can be implemented - and assuming it is implementable - a complete understanding of the process and requirements is needed.

"This is not included in the rules at the moment."

She notes, too, that because all licensees will be expected to provide Nersa with information before tariffs can be determined, practical tools, such as clear forms and formulas, are also required and such documentation has not yet been published or consulted.

"If Nersa wishes to chan...

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Electricity Minister Kgosientsho Ramokgopa has move to defend the statement made by President Cyril Ramaphosa in his State of the Nation Address (SoNA) on Thursday night that "the end of loadshedding is finally within reach". This, despite South Africa rapidly descending into Stage 6 loadshedding only hours after the conclusion of the speech and the prospect of ongoing high levels of power disruptions until at least Wednesday.

Speaking as a hastily convened briefing - moved to Sunday instead of the Monday morning initially scheduled for the Minister's regular update on the implementation of the Energy Action Plan - Ramokgopa refused to accept that the President's statement had caused any embarrassment.

Instead, he argued that the SoNA statement was in line with both his repeated assertions that the "corner had been turned", as well as a fact-based analysis of loadshedding trends, which he even went as far as to suggest pointed to Eskom "outperforming" against its summer plan that warned of ongoing loadshedding at Stage 4.

"So, I really don't understand what is meant by [the SoNA statement being] embarrassing," he remarked in response to a question posed by Engineering News.

He then highlighted that Eskom and government had regularly noted the "inherent risk" of periods of intense loadshedding given the commitment that "no corners would be cut" on planned maintenance or safety, notwithstanding the propensity for unplanned outages across the poorly maintained and aged coal fleet.

Claims of sabotage made by ANC secretary-general Fikile Mbalula were downplayed, but not entirely dismissed, with Ramokgopa indicating that Eskom continued to investigate any suspicious incident with the help of the law-enforcement agencies. But he also expressed confidence in the Eskom leadership, management and workers and their commitment to ending loadshedding.

Eskom head of generation Bheki Nxumalo indicated that the rapid deterioration that led to a series of changes to the intensity of loadshedding after the President's address - initially from Stage 2 to Stage 3 at 22:00, then to Stage 4 at 2:00 and then later to Stage 6 - had been triggered by the failure of two 800 MW-apiece units at Medupi and high levels of boiler tube leaks across nine power stations, which collectively reduce supply by 4 400 MW.

One of the Medupi units was removed from service as Ramaphosa was wrapping up his address, because of a chain used to help remove ash from the boiler had failed. A second Medupi unit tripped soon afterwards, resulting in unplanned outages spiking to above 17 600 MW and the declaration of Stage 6. Planned outages stood at above 6 700 MW at the time of the declaration, while partial load losses were above 6 200 MW.

Ramokgopa indicated that the intensity of loadshedding should reduce materially by Wednesday and immediately following the Sunday briefing, Eskom announced Stage 5 loadshedding, despite unplanned breakdowns of above 17 500 MW and planned maintenance of more than 6 800 MW.

Eskom said the modest de-escalation in loadshedding was facilitated by Eskom having "successfully replenished its pumped storage dam levels", as well as the return of some other generation units.

Nxumalo insisted the generation business remained focused on achieving an energy availability factor of 65% by the end of its financial year on March 31, and denied that the target had been to achieve an average EAF of 65% for the entire 2023/24 period.

The EAF has been on a declining trend for several years and dropped to a dismal 54% last year, well below even the disputed EAF recovery targets set by the Eskom board. The net result was South Africa's worst-ever year for loadshedding.

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Volkswagen Group Africa (VWA) will hopefully this year receive the final confirmation on the production of a third model at the Kariega plant, says MD Martina Biene.

This third model will add to production of the Polo and Polo Vivo at the Eastern Cape production site.

Biene emphasises that this third model will be "on top" of the other two models, and that it will not replace any existing production units.

The third model is expected to be a small, more affordable sports-utility vehicle (SUV), slotting in under the T-Cross.

A possible fourth model could potentially be a half-ton bakkie.

Biene says the third model will also be an internal combustion engine (ICE) vehicle, and not an electric vehicle (EV), as the uptake of EVs has been "very slow" in South Africa, with zero government support to boost the sale of this new technology.

She adds that a swing to EV production at Kariega could potentially see Volkswagen lose its leading position in the local market, and "we don't want that to happen".

"If we produce EVs here, we need strong local demand."

Biene says she also expects the ramp-up to the phase-out of ICE vehicles in Europe in 2035 - a big export market for VWSA - to be less steep than originally anticipated, providing the company some breathing room with Polo exports.

VWSA expects to still produce and export the current Polo and Polo Vivo until 2029.

The Polo Vivo is exported to some sub-Saharan African markets, while the Polo is exported to numerous markets abroad.

VWA produced 140 430 vehicles last year - 7 182 more than in 2022.

Production is expected to grow by 10 000 units this year on the back of expanded Polo numbers.

Polo exports already increased by 3 500 units last year, to 101 557 units.

Combined domestic Volkswagen and Audi sales reached 67 411 units last year.

The Vivo was the group's best-seller, at 23 904 units, up 15% on 2022 numbers.

Looking ahead, Biene says VWA will introduce the new and refreshed T-Cross, Tiguan, Touareg and Crafter models this year.

The ID.4 EV will also make its debut as part of a test fleet, which should give VWA the opportunity to test the local appetite for EVs.

Looking at the South African new-car market for 2024, VWA is positive that sales could increase by 6.4% compared with last year, to 370 000 units.

Engineering News editor Terence Creamer discusses some of the key themes that emerged during President Cyril Ramaphosa's final State of the Nation Address of the current administration and how these affect the economy and business.

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President Cyril Ramaphosa used his final State of the Nation Address ahead of upcoming elections to reiterate government's commitment to reforms in the country's failing power and logistics sectors, including one that would open the electricity transmission sector to private investors.

Speaking against the backdrop of almost daily power disruptions, South Africa's worst-ever year for loadshedding in 2023, and a precipitous collapse in the freight rail service, which was constraining key commodity exports, Ramaphosa described the power and logistics crises as the "most important constraints on economic growth".

Ahead of the speech, Business Unity South Africa called on the President to signal government's commitment to opening up space for greater participation by the private sector in building, operating, and maintaining critical logistics networks and generating energy.

The organisation also called for a clear acknowledgement of the partnership between government and business in the areas of energy, logistics and crime and corruption.

In his address, Ramaphosa listed a series of collaborative initiatives under way through the National Energy Crisis Committee to tackle loadshedding and even expressed confidence that "the worst is behind us and the end of loadshedding is finally within reach" - a claim that was met with audible scepticism from opposition lawmakers.

Included in his list was a series of initiatives to facilitate new private generation, as well as the financial support extended to Eskom last year under a R254-billion debt-relief package, which Ramaphosa said was helping the utility fund much-needed maintenance.

Also highlighted was the connection of 2 500 MW of utility-scale wind and solar following the revival of the public renewable-energy programme five years ago, as well as the procurement of projects with a combined capacity three times that, some of which were already under construction.

The President also noted that 120 utility-scale private generation projects were under development following the removal of the licensing requirement for such facilities.

The doubling last year in the capacity of solar photovoltaic installed on household and business rooftops was lauded as a success, even though most of these investments were made in response to extreme power disruptions. The installed base is now estimated to be above 5 000 MW.

Without specifically referencing the grid constraints that were preventing new generators from connecting to the network, the President said that 14 000 km of new transmission lines would be built to accommodate more renewable energy.

"To fast-track this process, we will enable private investment in transmission infrastructure through a variety of innovative investment models," he announced.

Further reforms - including a major legislative overhaul outlined in the Electricity Regulation Amendment Bill, currently serving before lawmakers - would facilitate a future "competitive, sustainable and reliable" electricity supply industry.

While insisting that the transition away from coal would proceed at a "pace, scale and cost that our country can afford and in a manner that ensures energy security", he also highlighted the economic potential associated with the green economy.

"With our abundance of solar, wind and mineral resources, we are going to create thousands of jobs in renewable energy, green hydrogen, green steel, electric vehicles and other green products."

Ramaphosa also noted that financing pledges for the country's Just Energy Transition Investment Plan had increased from about R170-billion to almost R240-billion and announced the establishment of a Climate Change Response Fund to "build our resilience and respond to the impacts of climate change".

On the freight logistics crisis, the President insisted that action was...