Karpowership: Not as simple as plug-and-play

Government is still promoting Karpowership as the solution to South Africa’s energy crisis.

OUTA believes that the energy crisis is due mainly to historical poor decision-making by government and Eskom and that the Karpowership proposal is out of touch with reality. The unaffordability and secrecy around the proposed deal, plus our politicians’ lack of credibility, raises ongoing questions about this deal. We are concerned that unscrupulous politicians are promoting a scheme to the detriment of the public.

Would Karpowership end load shedding?

• In 2020, Karpowership was awarded a bid for the generation of 1 220 MW from gas-to-power plants with additional vessels with floating storage and regasification plants. This is enough to eliminate one stage of loadshedding. It is estimated that our country needs approximately 5 000 to 6 000 MW of additional generation capacity to break even. This means that even if Karpowership would hypothetically generate electricity tomorrow, there would still be a short fall of around 4 000 to 5 000 MW of electricity. Karpowership alone will not end loadshedding.

How long will it take Karpowership to start generating electricity?

• The time for power to grid is unknown and could be a year or more, depending on availability of all authorisations including environmental, a power purchase agreement with Eskom, the availability of FSRUs (which are in very short supply as a result of demand from Europe), the pipeline infrastructure, and the time required for building the substation bays and connections to the Eskom grid.

• Karpowership is responsible for construction and payment of all infrastructure from ship to FSRUs to powerships to grid connection.

How long will South Africa be tied to Karpowership if the deal goes through?

• Our government plans a 20-year agreement with Karpowership. Karpowership has previously assisted Asian, African and South American countries hit by natural disasters, unrest and conflict, but these were usually short-term contracts.

•  Karpowership can alleviate an energy crisis, by about one stage of loadshedding only, but this is a short-term solution only.

What will the impact on the environment be?

• The regasification units use seawater to heat up the liquid gas to gas, so discharge cold water, while the powerships use seawater for cooling and so discharge warm water. This leads to patches of hot and cold water, which may affect marine life. For example, nurseries for juvenile fish species, wit stumpnose, could be affected, negatively impacting of livelihoods of local fishers.

• The powerships will be noisy. The ships are expected to operate for 16 hours a day for 20 years and the impact of the chronic noise could cause negative impacts both on the marine world and for terrestrial life. The World Health Organization has set an annual average of 40 dB as a maximum background noise level during sleep, but ambient powership noise would be enough to exceed this in several of the proposed locations.

Has Karpowership got the necessary environmental authorisations to generate electricity?

• Organisations including the Green Connection and the Eastern Cape Environmental Network and community fishers submitted objections. The Green Connection also submitted a complaint against the consultant. In June 2021, the Department of Forestry, Fisheries and the Environment refused Karpowership’s application for environmental approvals. Karpowership appealed, and Green Connection and others objected again, and Karpowership’s appeal was refused and it was told to go back and redo parts of the environmental impact assessment. NGOs and communities including the Green Connection once again submitted objections, with concerns raised over the reduction of risks in the updated EIA, and the decision is expected in March 2023.

How much will a Karpowership deal cost?

• The full 20-year contract for all three powerships is projected to cost more than R200 billion (see here).

What is the benefit to Eskom if Karpowership plugs in at South Africa’s ports?

• The only tangible benefit to Eskom would be that Eskom itself would not be responsible for the generation of the contracted electricity of 1 220 MW. There will be no physical power station (generation capacity) owned or handed over to Eskom, and only the off-take infrastructure would be left.

• The LNG carrier ships, FSRUs and powerships remain Karpowership’s property, while the three locally registered Karpower entities merely generate and sell the electricity to Eskom.

What happens if there is insufficient gas available?

• The current conflict between Ukraine and Russia has escalated the price of gas. Should the import market collapse or sanctions be implemented prohibiting the export of LNG and LPG, little to no electricity would be generated. A desire for access to Russian gas could partly explain South Africa’s current cosying up to Russia.

Who will be responsible if Karpowership is unable to generate electricity?

• Eskom will use a power purchase agreement to access the electricity generated by Karpowership and then distribute it through the grid. If Karpowership fails to deliver, Eskom may have the right to terminate the agreement and be compensated. Eskom may be left with some monetary compensation, but no means to generate the 1 220 MW. Karpowership can simply pack up and leave.
  

What will happen if Karpowership packs up and leaves?

• There is no fixed infrastructure offered by floating powerships, aside from shore-based terminals which then connect to the national electricity grid.

Why did OUTA institute legal action against NERSA and Karpowership?

• NERSA’s process of approving generation licences to Karpowership (the three local entities registered in South Africa) has been flawed by a lack of transparency.

• Amongst other things, OUTA argues that the law requires that NERSA acts in the best interests of the country, but OUTA believes that NERSA has failed to do so. The Electricity Regulation Act, which empowers NERSA to issue the licences, requires a fair balance between the interests of customers and end-users, licencees, investors and the public. The National Energy Regulator Act requires that every decision by NERSA be “in the public interest” and “based on reason, facts and evidence”.

• Under these circumstances, the approval of the three generation licences issued by NERSA is a far cry from being in the public interest. NERSA is not being transparent about the reasoning behind granting the generation licences. OUTA has since launched an application to compel the production of the full record for NERSA’s decision (see here). At the time Karpowership applied for generation licences and at the time when OUTA launched its application, various legal, financial and environmental processes were still outstanding, rendering the process flawed from the start.

• For a full summary of OUTA’s relief and grounds for approaching the court, see the section “April 2022: OUTA’s legal challenge” on this page.

Karpowership is not the solution. If we proceed with that option, that will mean South Africa is tied to the agreement for 20 years. Karpowership buys gas (to generate electricity) in US dollars, and the dollar-rand exchange rate fluctuates. So South Africa will be tied financially to whatever the rate is. 

If the agreement falls through, Karpowership can simply pack up and leave, leaving South Africa with no infrastructure to generate electricity (though we would have spent a lot of money by then). At the time when the preferred bidders were nominated, the reasoning was that the power ought to be procured as a matter of urgency. The emergency has since passed, yet Karpowership is STILL on the table.

NERSA's process of licencing the Karpowerships has been flawed by a lack of transparency.

OUTA finds it inexplicable that NERSA granted the Karpowership generation licences while there are so many questions over the process and the Karpowership projects.

OUTA's concerns

On 13 August 2021, OUTA made a formal submission to NERSA, objecting to the Karpowership licences. Our submission is straight forward and sets out why NERSA ought not entertain the application(s) in the first place as many factors and processes are still pending and not yet finalised. We were assisted by energy expert, Chris Yelland. Read the summary and our full submission here.

The concerns we raised include:

• Environmental authorisations were been refused by the Department of Forestry, Fisheries and the Environment (DFFE);

• An internal appeal process by Karpowership is still underway challenging the decision by DFFE;

• The absence of fuel supply agreements;

• The absence of fuel pipeline licences;

• The absence of port authorisations;

• Eskom has not agreed to enter into power purchase agreements;

• There is a possibility of appeal proceedings in the DNG court case challenging the bid awards.

The Karpowerships are to be anchored in Richards Bay, Saldanha Bay and Coega, and are supposed to  between them provide 1 220 MW using gas to power plants with additional vessels with  floating storage and regasification plants. At prices when the deal was agreed, the  20-year deal could cost up to R218bn. 

However, as the deal will be linked to the international gas price, this price is going to rise.  As with all power plants, the loans need to be repaid and the costs will be passed on to the people of south Africa through our electricity tariffs. OUTA foresees that the only means for our government to finance such venture is for this load to be carried by the consumer – meaning that we will see even greater electricity tariffs in order to fund this.

18 February 2020: the Minister of Mineral Resources and Energy issues a Determination on the need to procure 2 000 MW of generation capacity from a range of energy technologies, through the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).

25 May 2020: The National Energy Regulator of South Africa (NERSA) concurs with the Minister's Determination.

June 2020: Karpowership is awarded an exemption from having to undertake an environmental impact assessment, under an emergency provision, but in August this is revoked and the Green Scorpions start a criminal investigation into an attempt to bypass the law.

7 July 2020: The Determination is gazetted, with a deadline for connection to the grid of December 2021. The procurer of the new generation capacity is the Department of Mineral Resources and Energy, and the buyer is Eskom.

24 July 2020: Minister of Public Works and Infrastructure Patricia de Lille gazettes the list of projects designated by the Presidential Infrastructure Coordinating Commission as Strategic Integrated Projects (SIPS). The energy projects include the RMIPPPP, listed as "Emergency/Risk Mitigation Power Purchase Procurement Programme (2000 MW)". The gazetted notice is here. The issuing of this notice was announced three days later by Minister de Lille and Dr Kgosientsho Ramokgopa, who was at the time the Head of Investment and Infrastructure in the Presidency. Their announcement is here. (Ramokgopa was appointed to this position in November 2019, see here, and appointed on 6 March 2023 as Minister of Electricity, see here, and on 6 May 2023 granted the authority to determine new generation capacity and type of generation needed, see here).

24 August 2020: DMRE issues a Request for Proposals for new generation capacity under the RMIPPPP, with commercial operation required by June 2022, and 28 bids are submitted. See here.