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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...

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Steel producer ArcelorMittal South Africa (AMSA) has deferred the wind-down of its long-products business by six months amid widespread concern regarding the detrimental impact of the closure on downstream industry and jobs and following consultations with government and other affected stakeholders during which several short-term interventions were agreed.

The deferral announcement was made despite AMSA reporting a R1.89-billion loss for 2023, which represented a dramatic R4.5-billion negative swing from earnings of R2.6-billion in 2022.

CEO Kobus Verster announced the JSE-listed group's decision to close the longs business on November 28, citing several structural impediments to sustainable operations, and he again warned that these structural constraints had not been removed by some of the short-term interventions currently being pursued during the deferral period.

He also indicated that should there be insufficient progress on any of the elements, AMSA would move to reverse the deferral decision, possibly even prior to the six-month period elapsing.

The deferral was agreed following meetings with Trade, Industry and Competition Minister Ebrahim Patel, as well as Transnet, industry associations, organised labour, affected suppliers, community forums and downstream customers.

AMSA reported that several short-term initiatives were being progressed because of these consultations, including:

engagements with Transnet leadership on improving port and rail service efficiencies to narrow the current cost gap;

ongoing discussion with government on its scrap policy, which AMSA cited as a key reason for why its integrated mills could no longer compete, with government's decision not to extend the export ban on steel scrap in December viewed as the first step in addressing what AMSA has described as an artificial cost advantage to lower-quality scrap-based steelmakers;

the expediting of demand-side opportunities to improve capacity utilisation in the absence of economic growth, including import replacement as envisaged in the Steel Masterplan;

ensuring the enforcement of trade protection measures;

an agreement with key customers to longer-term volume commitments and localisation; and

working with key suppliers, service providers and organised labour to reduce the cost structure of the longs business.

The JSE-listed group would also apply for an additional working capital facility of up to R1-billion, which could be used to support continued operations during the deferral period.

"The timing of the deferral is subject to these in-principle agreements being commercially and contractually concluded," Verster said, stressing that there was still a risk that the agreements might not be translated into commercial contracts.

These risks were evidenced by the group's decision to proceed with its Section 189 retrenchment talks with labour in relation to the longs business, where some 3 500 people are currently employed directly or indirectly.

AMSA has also made proposals to its unions regarding ways to contain costs to sustain the longs operations, including suggestions ranging from retrenchments, to "punitive" wage decreases for longs employees, to cost sharing across all AMSA employees.

Verster rejected suggestions that AMSA was being talked into a deferral by government as a pre-election ploy, saying that the group had been convinced during its consultations with stakeholders that there was a plausible pathway for salvaging the business, and that it was, thus, giving those prospects a "decent shot".

He reported that there appeared to be a genuine commitment from both government and Transnet to implementing the short-term remedies, which could then open the way for the longer-term initiatives required to provide the longs business with an "end game" that did not involve a permanent clo...

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Standard Bank chief economist Goolam Ballim does not anticipate "material fiscal slippage" in the 2024 Budget, despite expenditure pressures associated with the upcoming elections, as well as calls for additional support for Transnet, whose underperformance alongside ongoing power cuts and water disruptions continue to throttle growth and investment.

Delivering his yearly economic outlook, Ballim acknowledged that there was likely to be some fiscal slippage relative to the forecasts provided by Finance Minster Enoch Godongwana in his Medium-Term Budget Policy Statement.

However, he did not anticipate a major deviation on the revenue side from what was communicated in October, while on expenditure he highlighted recent statements by the Minister in which government's commitment to "fiscal containment" had been reiterated.

In addition, Ballim did not anticipate an announcement of additional support for Transnet beyond the R47-billion guarantee facility announced in December, as any debt-relief or capital injection was likely to be linked to a decision on harnessing the Gold and Foreign Exchange Contingency Reserve Account; one that was unlikely to be made in time for the February Budget.

Nevertheless, the political climate, including election uncertainty and ongoing problems relating to the performance of State-owned enterprises, would continue to "bedevil" the growth and investment outlook and eclipse other factors such as geopolitical tensions and high interest rates. Standard Bank is forecasting a moderation in the average inflation rate to 5% this year and cumulative rate cuts, starting from the second quarter, reducing the repo rate to 7.25% by year-end from 8.25% currently.

The political headwinds could ease during the second half of the year, with Standard Bank anticipating an easing in the intensity of loadshedding, together with visible momentum on reforms designed to address the prevailing logistics crisis.

The bank's election base case is for the governing African National Congress (ANC) to dip below 50% for the first time in the democratic era and it has ascribed a 65% probability to the ANC securing between 45% and 50% of the votes, from 57.5% in 2019.

It has assigned only a 10% probability to the ANC securing more then 50% of the vote and a 25% probability to the ANC's share falling to about 40% and requiring a coalition with a bigger party, which Ballim said would be a binary choice between the Democratic Alliance or the Economic Freedom Front.

The bank's analysis pointed to the ANC facing major difficulties in retaining its leadership position in provinces such as Gauteng, KwaZulu-Natal, the Free State and the Northern Cape.

The election is likely to lead to a 0.2 percentage point fall in gross domestic product (GDP) for the year, which was relatively small when compared with the bank's estimate that power disruptions lopped two percentage points of growth in 2023 and Transnet between 0.5 and one percentage point.

Ballim expected loadshedding to continue to weigh on GDP in 2024, reducing growth by a percentage point. But he argued that South Africa might have reached a turning point on the electricity front, owing to increased generation from Kusile and Medupi, as well as the investments made in rooftop solar and distributed generation.

Transnet, which he dubbed 'Eskom 2.0', would continue to clog South Africa's trade arteries, but reform momentum should build later in the year, while water was emerging as 'Eskom 3.0'.

Overall, Standard Bank is forecasting growth of only 1.2% for 2024, with fixed investment still leveraged towards closing infrastructure backlogs rather than growth projects.

"I think the year will end more optimistically: power; momentum in Transnet; inflation better controlled; real incomes that will be positive; general upward momentum w...

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Volkswagen Group Africa (VWA), formerly Volkswagen Group South Africa, is investing R55-million to procure 3 MW in additional solar energy for its assembly plant in Kariega, in the Eastern Cape, says MD Martina Biene.

The panels will be installed on the car ports in the employee car park.

VWA production director Ulrich Schwabe says this means the local arm of the German vehicle maker will have 6.3 MWp in solar energy installed by the end of this year, in an investment totaling R89-million, across its facilities in Kariega, as well as in Centurion and Sandton, in Gauteng.

"Our expectation is that, in 2024, we would have installed more than 6 MW," notes Schwabe. "This means that, around lunch time, we can cover 50% of our electricity needs in production. And this is just a first step."

He notes that VWA has the ambition to become carbon neutral by 2030.

Schwabe adds that VWA has also been forced to rent a backup diesel generator plant for the Kariega plant for the next two years, starting in March, with a capacity of 16 MW.

This comes at an additional cost of R130-million, with the daily diesel costs for the generator carrying a R1.6-million price tag.

The generator will provide power to the plant during loadshedding and other outage periods.

VWA's plant is not exempt from loadshedding, and experiences it from level five and upwards.

Schwabe says the generators are to provide security of energy supply when the sun is not shining, as well as at night.

"Last year we were hit quite hard, with 23 shifts lost, or 11 production days.

"As the now sole supplier of the Polo, our order book is completely full for the next two years. We can now securely run the plant for the next two years. This answers the trust the brand has given us.

"It is not a cheap exercise, but it is much better than losing trust and not being a reliable supplier," says Schwabe.

VWA currently produces the Polo and Polo Vivo for the local and export markets.

Biene announced this week that VWA will become the sole supplier of the Polo to all global markets, except China, from June this year.

"We have proven that we can do it, and this makes us very proud."

VWA last year exported 101 557 Polos from Kariega - 3 500 more than in 2022.

The expectation is that the Eastern Cape plant will see a 10 000-unit production increase this year on the back of the added Polo numbers.