An Economically Viable Solution to the South African Electricity Crisis?

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Deleted: ... [1] Formatted: Font:Calibri, 17 pt, Bold MOZAMBICAN GAS – AN ECONOMICALLY VIABLE SOLUTION TO THE SOUTH AFRICAN ELECTRICITY CRISIS?

MSc (50/50) RESEARCH PROJECT Formatted: English (UK) Formatted: English (UK)

Prepared by

Stuart Brown

797467

Submitted to

School of Chemical and Metallurgical Engineering, Faculty of Engineering and the Built Environment, University of the Witwatersrand, Johannesburg, South Africa

Supervisor(s):

Dr Diakanua Nkazi

24 August 2016 Deleted: Marc Formatted: English (UK)

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Table of Contents Formatted: Line spacing: 1.5 lines

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Declaration Formatted: English (UK)

I Declare that this research report is my own unaided work. It is being submitted for the Deleted: to Formatted: English (UK) degree of Master of Science (Engineering) to the University of Witwatersrand, Johannesburg. It has not been submitted for any degree or examination to any other University

______Stuart Brown – 797467

______day of ______year ______

Acknowledgments

My thanks and appreciation to Dr Nkazi for persevering with me as my advisor throughout the time it took me to complete this research and write the dissertation. The program at the School of Engineering was one of the most important and formative experiences in my life.

I must acknowledge as well the many friends, colleagues, students, teachers who assisted, advised, and supported my research and writing efforts.

Dedication

To my Family and friend who provided me with unwavering support throughout this entire process.

Keywords

Economics of Using Mozambique Gas, Mozambique, Mozambique Gas, Mozambique Gas Cost, Mozambique Gas utilised for Power in South Africa, South African Power Shortage, Gas to Power South Africa. Moved (insertion) [1] Formatted: Font:12 pt, Not Bold, English (UK)

Table of Contents Formatted: English (UK)

1. INTRODUCTION 13

1.1 Problem Statement 14

1.2 Purpose of this Report 15

2. LITERATURE REVIEW 16

2.1 Natural Gas 16 2.1.1 Natural Gas Characteristics 16 2.1.2 Different Forms of Natural Gas 17 2.1.3 Benefits of Using Natural Gas 17 2.1.4 Global Movement toward CO2 Reduction 18 2.1.6 Global Gas Demand and Supply 96 2.1.7 Natural Gas Pricing 96 2.1.8 Gas Value Chain 20 2.1.9 Natural Gas in SA 20

2.2 South African Electricity Outlook 21 2.2.1 South African Power Crisis 21 2.2.2 Deterioration of the Reserve Margin 21 2.2.3 Explaining the Supply Crisis 22 2.2.4 Declining Power Available for Distribution 22 2.2.5 Expected Demand Growth 23

2.3 South Africa’s New Build Policy 24 2.3.1 IRP 2010 – 2030 24 2.3.2 IRP 2010 – 2030 Update (2013) 25 2.3.3 Stance On Gas IRP 2010-2030 Update 26 2.3.4 Imminent Capacity Expansions 27

2.4 Significant Gas Discoveries in Mozambique 28

2.5 Constraints and Risk of Gas for South Africa 28

2.6 Opportunities for the Adoption of Gas in South Africa 29

3. GAS POWER GENERATION 32

3.1 Types of Gas Power Stations 32 3.2 Natural Gas Vs Liquefied Natural Gas 33 3.3 Comparison to Other Forms of Power Generation 34 3.4 CO2 Intensity 35 3.5 Cost of Producing Power from Gas 36 3.6 Load Factors 37

4. ANALYSIS OF SOUTH AFRICAN ELECTRICITY MARKET 38

4.1 Market Regulation and Competition 40 4.2 Eskom Company Profile 40 4.3 Current Power Mix 41 4.4 Capacity Availability 43 4.5 Decommission Schedule 44 4.6 New Build Programme 47 6

4.7 CO2 Intensity 52 4.8 Electricity Supply / Demand Forecast 53 4.9 Current Cost of Power 55

5. GAS IN SOUTH AFRICA 56

5.1 Policy 56 5.2 Key Stakeholders 58 5.3 Upstream Production 59 5.4 Gas Consumption 59 5.5 Potential Gas reserves of South Africa 60 5.6 Infrastructure 61 5.7 Drivers for Natural Gas Growth in South Africa 62

6. ANALYSIS OF MOZAMBICAN GAS RESERVES 63

6.1 Occurrence and Estimation of Natural Gas in Mozambique 63 6.2 Mozambican Gas Industry SWOT 65 6.3 Upstream Exploration 66 6.4 Upstream Production 68 6.5 Trade – Gas 68 6.6 Policy 69 6.7 Mozambique Gas Infrastructure 69 6.8 Price Benchmarks of Mozambican Gas 69

7. COST OF MOZAMBICAN GAS IN SOUTH AFRICA 73

7.1 Palma – Johannesburg Pipeline 73 7.2 LNG Imports 73

8. METHODOLOGY - LEVELISED COST OF ENERGY 75

9. RESULTS AND DISCUSSIONS 79

9.1 Analysis and Interpretation 79 9.1.1 Levelised Cost of Energy for Range of Gas Prices 79 9.1.2 Comparison of Levelised Cost of Energy to Other Forms of Electricity Generation 81

9.2 Medium Term Opportunities 82 9.2.1 Cost Savings 83 9.2.2 Other Benefits 83 9.2.3 Additional LNG Opportunities 84

9.3 Long Term Opportunities 84 9.3.1 Price of Gas to Displace Coal 85 9.3.2 Price of Gas to Displace Nuclear 85

10. CONCLUSION AND RECOMMENDATIONS 87

10.1 What is the Big Gas Scenario? 87

10.2 Implementation 87

10.3 Capital Cost Savings 88

10.4 Shale Gas Opportunity 88

10.5 Downstream Gas Opportunities 88

10.6 Recommendations: 89

Moved (insertion) [2] List of Figures Formatted: Font:12 pt, Not Bold, No underline, Font color: Auto, English (UK) Figure 2.1: Natural Gas Value Chain 15 Formatted: TOC 4 Formatted: No underline, English (UK)

Figure 2.2: Energy Supply Mix 20

Figure 3.1: Basic Principles of Turbines 26

Figure 4.1: Geographical illustration of South African Electricity Supply Mix 37

Figure 4.2: Supply/Demand Balance Forecast: 48

Figure 5.1: Gas Production and Consumption Forecast 54

Figure 5.2: Main gas transmission and distribution lines on South Africa: 56

Figure 6.1: Mozambique Gas Map 58

Figure 6.2: Cost Factors Determining Price Benchmarks: 64

Figure 6.3: Mozambique Minimum Wholesale Gas Price: 64

Figure 6.4: Gas Fields Within Areas 1 and 4 65

Figure 9.1 Gas Price and Levelised Cost of Energy Relationship 73

Figure 9.2: Levelised Cost of Energy as per IRP 2010 – 2030 Update 2013 74

Figure 9.3: Levelised Cost of Energy at various Gas Prices 75

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List of Tables Formatted: No underline, English (UK)

Table 2.1: Power Availability in Gigawatt-hours 25

Table 2.2: Energy Supply Mix 27

Table 2.3: IRP 2010 -2030 Updated Base Case 2013 28

Table 3.1: Comparison of various power generation technologies: 35

Table 3.2: Fossil Fuel CO2 Emissions per Btu 36

Table 3.3: Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants 37

Table 4.1: South African Power SWOT Analysis 40

Table 4.2: Eskom SWOT Analysis 42

Table 4.3: Eskom Total Installed Capacity 43

Table 4.4: Eskom Decommissioning Schedule 46

Table 4.5: Average Availability Capacity 49

Table 4.6: South African Power Projects Database: 49

Table 4.7: Cost of Electricity: 56

Table 5.1: Policies and Plans for the Development of Gas and Cleaner Energy 57

Table 5.2: Key rationale for the adoption of gas across various policies and plans 58

Table 6.1: Discovered and Undiscovered Gas Resources Mozambique 64

Table 6.2: Mozambican Gas Industry SWOT: 66

Table 7.1: Cost Components of Mozambican LNG delivered to Saldanha 73

Table 9.1: Conversion of MMBtu to Gigajoules 80

Table 9.2: Gas Input Cost and Total Levelised Cost of Energy 80 Formatted: Font:12 pt, Not Bold, No underline, Font color: Red, English (UK) Formatted: Line spacing: single 10

ABREVIATIONS Formatted: English (UK) Moved (insertion) [4] Btu – British Thermal Unit (unit of energy require to raise the temperature of water) Formatted: English (UK)

CCGT – Combined Cycle Gas Turbine

Formatted: English (UK), Subscript CO2 - Carbon Dioxide Formatted: English (UK)

GJ - Gigajoules

GW - Gigawatt (One thousand Megawatts)

GWh - Gigawatt hour

IPP - Independent Power Producer

IRP - Integrated Resource Plan kW - Kilowatt (One thousandth of a Megawatt)

KWh – Kilowatt Hour

LNG - Liquefied Natural Gas

MMBtu – 1 Million British Thermal Units (standard measure of natural gas)

NERSA - National Energy Regulator of South Africa; alternatively, the Regulator

OCGT - Open Cycle Gas Turbine Formatted: Font:MS Mincho, English (UK)

Formatted: Font:MS Mincho, 12 pt, Not Bold, No underline, Font color: Auto, English (UK) Formatted: Left Formatted: Line spacing: single Deleted: Section Break (Next Page) Page Break ... [3]

Abstract Formatted: No underline, English (UK) Deleted: : Mozambican Gas – An Economically Viable Solution to the South African Electricity Crisis? Formatted: No underline, English (UK) Formatted: English (UK)

The recent significant discoveries of gas in Mozambique could provide a much needed solution to the South African electricity crisis, but at what cost? This research report seeks to determine the economic viability of utilising Mozambican Gas to produce electricity by using data from the Integrated Resource Plan 2010-2030 Update of 2013 in a levelised cost of electricity model.

The Mozambican gas fields are yet to be developed and the final price at which gas will be available is unclear, but a price range determined by ICF international in a study for the World Bank is assumed for the purposes of the study, with the results yielding a range levelised cost of energy.

The results of the levelised cost determine that Mozambican gas can be utilised to provide an economical solution to the south African electricity crisis, but the price at which gas is available will determine the type of generation, either peaking power, mid- merit and or baseload generation.

Moved (insertion) [5] ... [4] Formatted ... [5] Deleted: ... [6] Moved up [2]: 1. INTRODUCTION ... [8] Formatted ... [7] Formatted ... [9] Deleted: : Over Section Break (Next Page) ... [18] the past 8 years South Africa has been experiencing an electricity crisis with few options at Moved up [4]: Btu – British Thermal Unit (unit of energy ... [19] Formatted hand to solve the increasing problem of electricity shortages that results in devastating effects ... [12] Deleted: Section Break (Next Page) on economic growth. Imminent new coal fired capacity that will gradually come online over Section Break (Next Page) Section Break (Next Page) the next few years will provide some relief on the electricity system but by no means will Moved up [5]: INTRODUCTION these pants solve the electricity crisis (Mckinsey, 2015). Deleted: : ... [11] Deleted: Development of Gas and Cleaner Energy ... [13] Deleted: Main gas transmission and distribution lines on Insufficient power supply is causing serious economic growth constraints within the country Formatted ... [17] Deleted: : ... [16] with Deloitte estimating that load shedding “shaved 0.5% off GDP growth costing the Deleted: a crippling economy R11.3 billion” (Deloitte, 2015). The South African economy is severely coal intensive Formatted ... [10] Formatted ... [14] with 70% of primary energy and 85% of all electricity production derived from coal (Deloitte, Formatted ... [15] 2015). The heavy reliance on coal for electricity generation means South Africa contributes Moved up [3]: List of Tables Formatted ... [20] disproportionally to global greenhouse gas emissions. Data from the world resource institute Formatted ... [23] th suggests that South Africa was the 17 largest contributor of greenhouse gases while being Formatted ... [21] Deleted: : ... [22] the 33rd largest economy in the world (Deloitte, 2015). Formatted ... [24] Deleted: is resulting Formatted South Africa faces challenges in safeguarding its energy security going forward and to try and ... [25] Deleted: the economy and understand these challenges and possible solutions, the South African Government has Formatted ... [26] Deleted: crafted a long term energy strategy called the Integrated Resource Plan 2010-2030 which is ... [27] Formatted ... [28] “built on sensible principles of diversification” (Mckinsey, 2015). The long term Deleted: they Formatted implementation strategy (the Integrated Resource Plan 2010-2030) seeks to realise a new mix ... [29] Deleted: . of coal, nuclear, natural gas hydropower and renewables in order to diversify the electricity Formatted ... [30] supply mix in order to meet growth in demand while trying to reduce the carbon intensity of Formatted ... [31] Deleted: Inadequate the economy. Formatted ... [32] Deleted: ) ... [33] Formatted ... [34] The Integrated Resource Plan 2010-2030 which is a comprehensive long term diversification Deleted: database plan will take time to implement. Recent developments in the Gas Sector in the region could Formatted ... [35] Deleted: gasses present a very attractive opportunity to diversify the primary energy mix cost effectively while Formatted ... [36] achieving reduced emissions targets, this is what this paper seeks to determine. Deleted: Formatted ... [37]

Deleted: ... [38] Formatted ... [39] Deleted: implement 13 Formatted ... [40]

Deleted: while Formatted ... [41] Formatted ... [42] 1.1 Problem Statement Formatted: No underline, English (UK) Deleted: :

Formatted: No underline, English (UK) The security and sustainability of electricity supply is essential for any developed economy, Formatted: English (UK) Formatted: Space Before: 0 pt, After: 0 pt, Adjust space however “determining the appropriate level of supply security is a trade-off between the between Latin and Asian text, Adjust space between Asian text and numbers costs involved in improving power system reliability and the losses to the economy and Deleted: & customer welfare associated with power outages” (Wilson and Adams, 2006). To ensure Deleted: ) Formatted: English (UK) electricity supply one must take into account the growth in demand for energy, types of Formatted: English (UK) resources available, lead time of infrastructure, environmental impact and considerations, Formatted: English (UK) Deleted: multidimensional the global political landscape, together with the ultimate capital cost and variable costs of the Formatted: English (UK) different types of technology. Deleted: all this while taking into consideration environmental & development goals. Formatted: English (UK) Selecting the technology is a multi-dimensional task. One has to balance the lead time of Deleted: Formatted: English (UK) construction to meet a constantly changing demand profile while ensuring adequate reserve Moved (insertion) [6] margin in capacity supply that allows for fluctuations in demand and downtime for Formatted: English (UK) Deleted: . maintenance. Inadequate planning, poor execution and slow reactions to energy policy and Formatted: English (UK) infrastructure development can lead to catastrophic consequences for any economy. South Deleted: The Formatted: English (UK) Africa has tumbled from a state of cheap and abundant electricity supply in the late 1980’s, Deleted: is that to emergencies being declared in 2008, 2014 and 2015 resulting in rolling black-outs or more Formatted: English (UK) Deleted: . commonly referred to as “load shedding” (Trollip, et al., 2014). Formatted: Font color: Red, English (UK) Formatted: English (UK) Deleted: according the As result growth expectations for Africa’s most advanced economy has revised downwards Formatted: English (UK) with power shortages sighted as the main reason, South Africa's power supply crisis poses the Deleted: . Formatted: English (UK) biggest obstacle to growth (International Monetary Fund, 2014). Deleted: Formatted: English (UK) Formatted: English (UK) A country's economy and its energy use, particularly electricity use, are linked. In the same Formatted: English (UK) way energy use is linked to growth, electricity constraints or “load shedding” comes at a great Deleted: ... [43] cost to economy. Chris Yelland, an energy expert has reported that “Stage 1 load shedding Formatted: English (UK) Deleted: ) ... [44] resulting in 10 hours of blackouts per day for 20 days a month results in losses of R20 billion Formatted: English (UK) per month” (Yelland, 2015). South Africa is becoming economically uncompetitive, the Formatted: English (UK) Deleted: fighting increased scarcity of electricity combined with escalating cost of energy has serious Formatted: English (UK) implications for the economy, such as: Increased uncertainty, higher input costs, increased Deleted: job Formatted: English (UK) inflation and job losses. This is Important in a country that is struggling to achieve Formatted: English (UK) employment growth, where the unemployment rate sits at 25% (Mckinsey , 2015). Deleted: ) Formatted: English (UK) 14

The significance of this is that the electricity problem is not only the inconvenience of having Deleted: then Formatted: English (UK) the lights go off every now and then. It is the view of the author that Consistent, reliable and Deleted: , affordable electricity is needed to achieve and sustain economic growth. New capacity Formatted: English (UK) Formatted: English (UK) decisions are vital to ensuring the sustainable delivery of electricity while choice of technology Deleted: ... [45] will determine the price of that energy. Therefore, the South African Government needs to Formatted: English (UK) ensure that all scenarios are thoroughly investigated in order that the correct investment Deleted: The Formatted: English (UK) decisions are made timeously to avoid a catastrophic shortage of electricity.

1.2 Purpose of this Study Formatted: No underline, English (UK) Deleted: Report:

Formatted: No underline, English (UK) This project aims to determine whether Mozambique’s gas resources have the ability to Formatted: English (UK) provide, reliable, cost effective and efficient energy source for the South African market. This Deleted: Gas Formatted: English (UK) study will seek to achieve the following objectives: Deleted: & Formatted: English (UK) § Investigate Gas Power Generation technologies to understand the advantages and Deleted: paper Formatted: English (UK) disadvantages, in order to determine suitability for the South African market Formatted: English (UK)

§ Investigate the South African energy sector by looking at Deleted: : Formatted: English (UK) o Current and future electricity supply and demand o Capacity and different types of electricity generation

o Current carbon emissions Deleted: Determine current Formatted: English (UK)

§ Analyse Mozambique’s newly discovered gas resources and reserves. Deleted: & Formatted: English (UK)

§ Assess the economic and sustainable use of Mozambique’s gas resources and Formatted: English (UK)

investigate the benefit of using Mozambique’s gas resources for power generation. Deleted: Investigate Formatted: English (UK)

Formatted: English (UK) § Develop a levelised cost model to determine the economics of utilising Mozambican Deleted: develop Formatted: English (UK) gas to generate power for the South African market.

Formatted ... [46] Deleted: : Formatted ... [47] Formatted 2. LITERATURE REVIEW ... [48] Formatted ... [49] Deleted: : Formatted ... [50] 2.1 Natural Gas Formatted ... [51] Formatted ... [52] Deleted: form Natural gas is a hydrocarbon primarily made of methane (CH4) that is formed from the Formatted ... [53] Deleted: PWC “decomposition and pressurisation of algae, plankton and other organisms and organic Formatted ... [54] material” (Price Waterhouse Coopers, 2015). These organisms collect on the bottom of seas Deleted: Seas and lakes and are buried by sediment over several millennia, as they are driven deeper into Formatted ... [55] Deleted: Lakes the earth crust they are subjected to colossal heat and pressure where they break down to Formatted ... [56] form hydrocarbons (Price Waterhouse Coopers, 2015). Deleted: millenniums Formatted ... [57] Deleted: . Natural gas is being utilised as a feedstock more extensively on a global scale, because it is Formatted ... [58] Formatted ... [59] seen as an attractive alternative to crude oil and coal (Mckinsey , 2015). Since it burns cleaner Deleted: since it is an appropriate alternative for power generation, industrial heating and as an industrial Formatted ... [60] Deleted: and feedstock for chemical and liquid fuel products. Due to its clean burning characteristics, Formatted ... [61] combined with the recent advances in extraction, and distribution technology and methods, Deleted: ... [62] Formatted ... [63] natural gas consumption is increasing by 1.7% per annum (Price Waterhouse Coopers, 2015) Deleted: PWC making it the fastest growing fossil fuel by consumption globally. Formatted ... [64] Deleted: :

Formatted ... [65] 2.1.1 Natural Gas Characteristics Deleted: : Formatted ... [66] Deleted: “shapeless Natural Gas has the following characteristics (Price Waterhouse Coopers, 2015): Formatted ... [67] Deleted: ;

Formatted ... [68] o Shapeless without volume constraints Deleted: odourless Formatted o Odourless, colourless and tasteless ... [69] Deleted: & o Non-corrosive Formatted ... [70] Deleted: : o A mix of hydrocarbon gasses mainly made up of methane (CH4) Formatted ... [71] o Lighter than air, allowing leaks or emissions to quickly dissipate onto the upper layers Deleted: non of the atmosphere, making it less likely to form explosive mixtures in the air Formatted ... [72] Deleted: ; o Efficient Formatted ... [73] o Abundant Deleted: a combustible Formatted ... [74] o Lowest combustion greenhouse emission factor for fossil fuel. Deleted: primarily Formatted ... [75] 16 Deleted: ; Formatted ... [76] Deleted: lighter Formatted ... [77] Deleted: ; Formatted ... [78]

Formatted ... [79] Formatted ... [80]

Formatted ... [81] Formatted ... [82]

Deleted: : Formatted: English (UK) 2.1.2 Different Forms of Natural Gas Formatted: English (UK) Deleted: Extracted Formatted: English (UK) Once extracted and processed, natural gas is marketed, transported and utilised in 3 forms, Formatted: English (UK) Deleted: namely, Formatted: English (UK) Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: 1, 2, 3, ... + Start at: 1 + Alignment: Left + Aligned at: 0 cm + Indent at: 0.63 cm 1. Natural gas, Natural state as extracted after extraction and processing, Deleted: Gas Formatted: English (UK) 2. Compressed Natural Gas, pressurised to 200 – 250 bars Deleted: . Formatted: English (UK) Formatted ... [83] 3. Liquefied Natural Gas (LNG), when natural gas is super cooled into a liquid at about - Deleted: ... [84] Formatted: English (UK) o 162 C, Formatted ... [85] Deleted: ) ... [86] Formatted: English (UK) 2.1.3 Benefits of Using Natural Gas Deleted: 162 degrees Celsius. Formatted: English (UK) Deleted: : Price Waterhouse Coopers (2015) has identified the following as the benefits of using natural Formatted: English (UK) gas: Deleted: Water House Formatted: English (UK) Formatted: English (UK) o Natural gas is one of the safest, cleanest and most efficient forms of non-renewable Deleted: “ Formatted: English (UK) hydrocarbon energy Deleted: ; o Natural gas can serve as an efficient alternative for petrol, diesel and coal and has a lower Formatted: English (UK) Deleted: ; GHG emission and carbon footprint Formatted: English (UK) o Construction lead times for gas infrastructure are significantly lower than coal and nuclear Deleted: Capital costs and construction Formatted: English (UK) power stations Deleted: ; o Processes Natural Gas is virtually sulphur free, which means that corrosion resulting from Formatted: English (UK) Formatted: English (UK) sulphur dioxide is non-existent and factory equipment therefore requires less Deleted: ; maintenance and lasts longer Formatted: English (UK) Formatted: English (UK) o Natural Gas is a preferred hydrocarbon energy source as it is versatile, clean burning, safe Deleted: ; and economical and thus can be used directly across a number of sectors and industries Formatted: English (UK) Formatted: English (UK)

Deleted: Gas provides grid stability in a potentially ... [87] Formatted: Indent: Left: 0.63 cm, No bullets or numbering Formatted: English (UK), Highlight Formatted: English (UK) 17

Formatted ... [88] Deleted: : Formatted: English (UK) 2.1.4 Global Movement toward CO2 Reduction Deleted: and Formatted: English (UK) The movement toward producing cleaner energy has gained significant momentum, resulting Deleted: . Electricity in policy changes in many countries, one of the most significant being the Kyoto Protocol Formatted ... [89] (Fletcher and Parker, 2007). The “Kyoto Protocol” negotiations were completed in late 1997. Deleted: & Formatted: English (UK) The protocol establishes legally binding, mandatory emissions reductions for the six major Deleted: is a greenhouse gases (Fletcher and Parker, 2007). This agreement signed by 37 industrialized Formatted: English (UK) Formatted: Font color: Red, English (UK) countries that have committed to reduce greenhouse gas emissions by 5% against the Deleted: Electricity average in 1990. Deleted: & Formatted: Font color: Text 1, English (UK) Deleted: green house In 2014 electricity generation and heat production made up 25% of global greenhouse gas Formatted ... [90] Formatted: Font color: Text 1, English (UK) emissions according to the intergovernmental Panel on Climate Change (Intergovernmental Formatted: Font color: Text 1, English (UK) Deleted: Panel On Climate Change, 2014), making it the single largest contributor to CO2 emissions. IPCC Formatted ... [91] Electricity generation being the largest contributor to CO2 emissions means that policy makers Deleted: ... [92] are targeting cleaner forms of electricity generation in order to achieve the goals set out in Formatted ... [93] Deleted: that they can the “Kyoto Protocol”. Eskom’s generation-mix infrastructure, dominated by its 13 coal-fired Formatted ... [94] power stations, has contributed to making South Africa one of the largest carbon emitters Deleted: . ... [95] Formatted: English (UK) amongst developing nations (Bohlmann, et al., 2015). Deleted: . Formatted: Font color: Red, English (UK) Formatted: English (UK) 2.1.5 Global Natural Gas Reserves Deleted: : Formatted: English (UK) Natural Gas is an abundant resource, and it is estimated that recoverable reserves could last Deleted: a very up to another 240 years (Price Waterhouse Coopers, 2015). Natural gas is commonly grouped Formatted: English (UK) Deleted: with estimates into two variations, conventional and unconventional. Conventional natural gas is extracted Formatted: English (UK) by flowing or being pumped to the surface, flowing freely from a conventional rock formation. Deleted: PWC Formatted: English (UK)

Deleted: ... [96] Unconventional natural gas is more difficult to extract because it doesn’t flow freely. Recent Formatted ... [97] Deleted: PWC advances in technology (such a fracking) has made unconventional gas production possible Formatted: English (UK) and more economical. Unconventional gas includes coalbed methane, shale gas, tight gas and Formatted: Font:Bold, English (UK) Deleted: Table 1: gas hydrates (Price Waterhouse Coopers, 2015). Formatted: English (UK) Deleted: PWC Formatted: English (UK) Key Facts about Natural Gas (Price Waterhouse Coopers, 2015) Deleted: ( 18

• Global Annual Natural Gas Consumption is 117tcf Formatted: English (UK) • Annual Natural Gas Discoveries (Average 200-1010) is 134 tcf p.a. Deleted: -trillion cubic feet) Formatted: English (UK) • Proven World Reserve (including unconventional gas) is 6569 tcf Formatted: List Paragraph, Bulleted + Level: 1 + Aligned at: 0.63 cm + Indent at: 1.27 cm • World Technically Recoverable Natural Gas Resources 27900 – 28605 tcf Deleted: Global Annual Natural Gas Consumption ... [98] • Proportion conventional technically recoverable natural gas reserves is 58% Formatted: Font color: Red, English (UK) Formatted: English (UK) • Proportion unconventional technically recoverable natural gas reserve is 42% Deleted: ... [99] • Sub-Saharan % of world gas production in 2013 is 3.2% Formatted: English (UK) Deleted: PWC • Sub-Saharan % of the world’s proven reserves in 2013 is 3.3% Formatted: English (UK) Deleted: : Formatted: English (UK) Unconventional reserves are increasing as technology advances in drilling and extraction Deleted: green house methods enabling economic recovery of these previously unprofitable resources. Natural gas Formatted: English (UK) Deleted: PWC reserves are very highly concentrated in the Middle East and Russia, with 75% of proven Formatted: English (UK) reserves in these areas, while Africa only represents 7.6% of global reserves, with 502 tcf Formatted: English (UK) Deleted: . according to 2013 figures (Price Waterhouse Coopers, 2015). Formatted: English (UK) Deleted: Km Formatted: English (UK) 2.1.6 Global Gas Demand and Supply Deleted: more Formatted: English (UK) Deleted: Km Gas is poised to become the preferred non-renewable energy source as the world moves to Formatted: English (UK) reduce carbon emissions and greenhouse gasses (GHG), demand is expected to grow at 1.7% Deleted: , Formatted: English (UK) compounded annual growth (Price Waterhouse Coopers, 2015). Deleted: Formatted: English (UK) The supply of natural gas continues to grow with increases in pipeline and liquid natural gas Deleted: : Formatted: English (UK) Infrastructure (U.S. Department of Energy, 2015). Where geographical constraints are Deleted: “ Formatted: Space After: 0 pt, Widow/Orphan control, favourable and distances from source to consumption are less than 3 000 km, a pipeline Adjust space between Latin and Asian text, Adjust space between Asian text and numbers makes greater economic sense. Generally, any distances over 3 000 km, Liquefied Natural Gas Formatted: English (UK) tends to be more economically viable (Stanley et al., 2014). Deleted: , unlike oil, is Formatted: English (UK) Deleted: ; and, as such, its price has largely been 2.1.7 Natural Gas Pricing Formatted: English (UK) Deleted: ”

Formatted: English (UK) Natural gas due to its low in density and has traditionally been difficult to transport resulting Deleted: With various new supply projects coming online and to serve in pricing being set in regional markets rather than in a global market (Deloitte, 2015). the growing Asian market it should see Asian prices drop to ... [100] Formatted: English (UK) Because natural gas pricing in set in regional markets, the pricing mechanisms vary from Deleted: states region to region, with the Asian markets being oil linked and the United States markets being Formatted: English (UK) 19 determined by spot rates (Stanley et al., 2014). “There is a strong argument that global prices Deleted: , Formatted: English (UK) will converge to some extent over the medium and long term” (Stanley et al., 2014). With Deleted: various new supply projects coming online to serve the growing Asian market should see Formatted: English (UK) Deleted: Asian prices drop to lower levels, resulting in a convergence of prices (Stanley , et al., 2014). , et al., The convergence is widely accepted, and the impression here is that the Asian prices will reach the USA prices (Putter, 2016) Moved up [6]: 2014). Deleted:

Formatted: English (UK) 2.1.8 Gas Value Chain Formatted: English (UK) Deleted: With various new supply projects coming online and to serve the growing Asian market it should see Asian prices drop to the lower levels, resulting in a convergence of Figure 1 illustrates the natural gas value chain. The value chain is broken down into 3 prices (Stanley , et al., 2014). ... [101] segments i.e. Upstream, Midstream and Downstream. Formatted: English (UK) Deleted: : Formatted: English (UK) Upstream is associated with the explorations and production of gas. Midstream is associated Deleted: , Deleted: & with the transportation and storage of gas. Downstream is associated with the processing Formatted: English (UK) and distribution/marketing of gas products. Formatted: English (UK) Formatted: English (UK) Deleted: , ... [102] Formatted: English (UK) Formatted: English (UK) Deleted: , Formatted: English (UK) Deleted: , ... [103] Formatted: English (UK) Formatted: English (UK) Formatted: English (UK)

Formatted: English (UK) Figure 2.1: Natural Gas Value Chain (Price Waterhouse Coopers, 2015) Deleted: PWC Formatted: English (UK) Deleted: : 2.1.9 Natural Gas in SA Formatted: English (UK) Deleted: “In 2013,

Formatted: English (UK) Natural Gas in South Africa accounted for 2.72% of total primary energy use in 2013 (BP, Deleted: ; Formatted: English (UK) 2015). South Africa produced 41 billion cubic feet (bcf) of dry natural gas and consumed 173 Deleted: was bcf in 2013, with the difference of 132 bcf being imported from Mozambique via pipeline Formatted: English (UK) Deleted: ” (EIA 20

(Energy Information Administration, 2015). South Africa has very limited proven domestic Deleted: ... [104] Formatted: English (UK) reserves, but a large potential upside of unconventional gas with estimated technical reserves Formatted: English (UK) of 390 tcf of shale gas and 12tcf of coal bed methane (Price Waterhouse Coopers, 2015). Deleted: PWC Formatted: English (UK)

Deleted: . (BMI, 2015) The majority of gas produced domestically is from the aging offshore field F-A used as a Formatted: English (UK) feedstock for the Mosgas gas to liquids plant (Business Monitor International, 2015). A more Formatted: Font:Bold, Underline, English (UK) Deleted: A more extensive review of natural gas in South ... [105] extensive review of natural gas in South Africa will be completed in chapter 5. Formatted: No underline, English (UK) Deleted: : Formatted: No underline, English (UK) 2.2 South African Electricity Outlook Formatted: English (UK) Deleted: Economy

Formatted: English (UK) The South African economy is a commodity based economy that relies heavily on large scale Deleted: . ... [106] energy intensive sectors like mining, processing and manufacturing (Bohlmann, et al, 2015). Formatted: English (UK) Deleted: BMI State owned utility Eskom supplies 95% of electricity and generates approximately 45% of Formatted: English (UK) electricity used in Africa (Business Monitor International, 2015) using a total of 23 different Deleted: Mega Watts Formatted: English (UK) power generating assets that have a combined nameplate capacity of approximately 44 000 Formatted ... [107] MW. Deleted: a Formatted: English (UK) Deleted: the 2.2.1 South African Power Crisis Formatted: English (UK) Deleted: rolling blackouts Formatted: English (UK) South Africa has felt a “tight strain of electricity supply” (Bohlmann, et al., 2015), since a state Deleted: & of emergency was first declared in 2008, with load shedding (demand controlling) occurring Formatted: English (UK) Deleted: in 2008, 2014 and 2015. According to the the Business Monitor International (2015) “South Formatted: English (UK) Africa's power sector is in turmoil as supply shortages and rolling blackouts continue to plague Formatted: English (UK) Formatted: English (UK) the country”. This is negatively affecting economic growth as industrial customers are Deleted: . encouraged to reduce their energy usage by state-owned utility Eskom. South Africa has Formatted: English (UK) Deleted: BMI suffered ongoing 'power emergencies' since the beginning of 2014, and warnings of load Formatted: English (UK) shedding have been mooted frequently (Business Monitor International, 2015). Formatted: English (UK), Not Raised by / Lowered by Deleted: Formatted: Font color: Text 1, English (UK) Bohlmann, et al (2015) suggest that Eskom’s inability to meet demand has cost the economy Formatted: Font color: Text 1, English (UK) a total amount equalling 10% total of GDP in 2015. Deleted: (Bohlmann, et al., Formatted: Font color: Text 1, English (UK) 2.2.2 Deterioration of the Reserve Margin Deleted: ). Formatted: Font color: Text 1, English (UK) Formatted: English (UK) Deleted: : Formatted: English (UK) 21

U.S. Energy Information Agency (2015) states that “South Africa's electricity system is Deleted: the Formatted: English (UK) constrained as the margin between peak demand and available electricity supply has been Formatted: English (UK) precariously narrow since 2008”. Reserve margin is the available capacity or supply over and Deleted: ” (EIA, 2015). Formatted: English (UK) above demand. Formatted: English (UK), Pattern: Clear (White)

2.2.3 Explaining the Supply Crisis Deleted: Formatted: English (UK)

Deleted: : According to Bohlmann et al, (2015) Diminished electricity reserve margins, brought on by a Formatted: English (UK) steady increase in demand relative to a stagnant supply, have left the country’s electricity Deleted: “ sector in desperate need of expansion in order to prevent further catastrophe. The post- Formatted: English (UK) Deleted: ” (Bohlmann, et al., 2015). apartheid government has key goals such as social transformation, with access to electricity being a key element of this objective. The Presidency of South Africa (The Presidency , 2015) published a 20-year review report that states states; there has also been a marked Formatted: English (UK) improvement in the percentage of households with access to electricity It increased from just Deleted: The post apartheid government key goals are social transformation, access to electricity is a key element of this over 50 percent in 1994/95 to 86 percent in 2013/14. objective. The Presidency of South Africa published a 20-year review report, in this report it states; “there has also been a marked improvement in the percentage of households with The combination of a growing population together with the amount of households connected access to electricity” “It increased from just over 50 percent in 1994/95 to 86 percent in 2013/14” (The Presidency , to the grid has caused demand to grow at about 3.5% p.a. (Trollip, et al., 2014). Even though 2015). ... [108] Formatted: English (UK) the demand growth was compounding at a severe rate policy makers made no new capacity Deleted: ... [109] plans until 2005 when Eskom made the investment decision for Medupi power plant (Trollip, Formatted: English (UK) Deleted: was planned et al., 2014). According to the the White Paper on Energy Policy of 1998 “unless additional Formatted: English (UK) capacity was added, demand would exceed supply by 2007” (Trollip, et al., 2014), and Deleted: . ... [110] Formatted: English (UK) “investment decision would have to be made in 2000 and construction would need to begin Formatted: English (UK) in 2001 if the systems integrity was to be maintained” (Trollip, et al., 2014) Deleted: white paper Formatted: English (UK)

Deleted: energy policy The result of a late capacity expansion decision by the Government combined with the Formatted: English (UK) Deleted: compounded increase in demand lead to the deterioration of reserve margin and declining , Formatted: English (UK) power available for distribution as a result of excessive pressure placed on the infrastructure Deleted: & combined with poor maintenance (Trollip, et al., 2014). Formatted: English (UK) Deleted: . Formatted: English (UK) Deleted: 2.2.4 Declining Power Available for Distribution ... [111] Formatted: English (UK) Deleted: : The consequence of having diminishing reserve margins is that assets are placed under huge Formatted: English (UK) Deleted: , in 2006 Wilson and Adams wrote pressure to meet demand. “Given that the relatively tight supply demand balance is likely to Formatted: English (UK) 22 persist for the next few years the South African power system will remain potentially Deleted: & vulnerable to any major power station outage either as a result of technical failures” (Wilson Deleted: ... [112] and Adams , 2006). With reserve margins at critical levels in 2008, unplanned maintenance to Formatted: English (UK) Formatted: English (UK) the power grid saw South Africa’s first series of major load shedding hit the country. This was Deleted: blackouts repeated again in 2014 when the coal silo collapsed at the Majuba Power Station (Wilson and Formatted: English (UK) Deleted: station. Adams , 2006). Formatted: English (UK) Formatted: English (UK) Deleted: . The result of reserve margin being under pressure is that planned maintenance at power Formatted: English (UK) plants has been increasingly “rolled over”. This is due in part to a reduced opportunity to take Deleted: plant plants out as the reserve margin has decreased (Wilson and Adams , 2006). With the reduced Formatted: English (UK) Deleted: & reserve margin, the electricity supply, demand balance is so tight that planned maintenance Deleted: ... [113] is being “rolled over” (i.e. postponed) because Eskom cannot take any supply out of the Formatted: English (UK) Formatted: English (UK) system without demand controlling (load shedding).“At the moment Eskom has a policy of Deleted: / trying to ‘keep the lights on’, which means avoiding maintenance on the power stations” Formatted: English (UK) Formatted: English (UK) (Kenny, 2015). When assets are inadequately maintained this often leads to reduction in Deleted: ) ... [114] efficiency as well as an increase in unplanned outages. Formatted: English (UK) Formatted: English (UK)

Deleted: When assets are inadequately maintained this ... [115] Table 2 represents the total volume of electricity available for distribution from 2009-2014. Formatted: English (UK) Deleted: , from From this one can see that effects of inadequate maintenance and over-utilisation of assets, Formatted: English (UK) causing a declining availability of electricity for distribution. Deleted: once Formatted: English (UK) Formatted: English (UK) Table 2.1: Power Availability in Gigawatt-hours (Stats SA, 2014) Deleted: 229'599 Formatted Table 2009 2010 2011 2012 2013 2014 Deleted: 238'272 229 599 238 272 240 528 234'174 233 105 231 445 Deleted: 240'528 GWh GWh GWh GWh GWh GWh Formatted: English (UK) Deleted: 233'105 Deleted: 231'445

2.2.5 Expected Demand Growth Formatted: English (UK) Deleted: : Formatted: English (UK) South African demand forecasts are challenging to determine due to the following factors Deleted: because for (Business Monitor International, 2015): Formatted: English (UK) Deleted: : • Real demand figures are not currently being expressed due to demand control being Formatted: English (UK) exercised by Eskom. Deleted: at Formatted: English (UK) • Higher electricity prices have caused consumers to “cut back” Formatted: English (UK) Formatted: English (UK) 23

• The National Development Plan (NDP) is looking at infrastructure spending to industrialise Formatted: English (UK) Deleted: industrialize South Africa and create jobs (Manufacturing and industrial Industry is energy intensive). Formatted: English (UK) • The South African population is growing as well as increasing average standard of living, Deleted: African Deleted: . increasing number of consumers as well as energy intensity per consumer. Formatted: English (UK) • Technology advances in energy savings could reduce an increase in demand. Deleted: , Formatted: English (UK)

Formatted: English (UK) 2.3 South Africa’s New Build Policy Formatted: English (UK) Deleted: Africa Formatted: English (UK) South African’s electricity capacity expansion program is published by the Ministry of Energy Deleted: More on this will be discussed on chapter 4.8.... [116] Formatted: No underline, English (UK) in a document called the Integrated Resource Plan 2010 -2030 (IRP). The Integrated Resource Deleted: : Plan proposes the “new build fleet for South Africa for the period 2010 to 2030” (Department Formatted: No underline, English (UK) Formatted: English (UK) Of Energy, 2010). “The Integrated Resource Plan (IRP) is a living plan that is expected to be Formatted: Space After: 0 pt, Widow/Orphan control, Adjust space between Latin and Asian text, Adjust space continuously revised and updated as necessitated by changing circumstances” (Department between Asian text and numbers Of Energy, 2010). The report takes into account various inputs and objectives to plan Deleted: ... [117] Formatted: English (UK) electricity infrastructure development that ensures a “cost-optimal solution for new build Deleted: DOE options, which was then “balanced” in accordance with qualitative measures” (Department Formatted: English (UK) Deleted: DOE Of Energy, 2010). Formatted: English (UK) These qualitative measures are matters such as: Deleted: ... [118] Formatted: English (UK) • “Reducing carbon emissions; Deleted: DOE Formatted: English (UK) • New technology uncertainties such as costs, operability, lead time to build etc.; • Water usage; • Localisation and job creation; • Southern African regional development and integration; and

• Security of supply.” (Department Of Energy, 2010). Deleted: (DOE Formatted: English (UK)

2.3.1 IRP 2010 – 2030 Deleted: : Formatted: English (UK)

The IRP 2010-2030 final draft released in March of 2011 takes aims to double capacity by Deleted: try Formatted: English (UK) 2030. Table 3 displays the total capacity per generation technology and figure 2 graphically represents this split Formatted: Font:Not Bold, English (UK)

Table 2.2: Energy Supply Mix (Department Of Energy, 2010) Deleted: 3 Formatted: English (UK) Deleted: DOE Formatted: English (UK) Formatted: English (UK) Formatted: English (UK)

Figure 2.2: Energy Supply Mix Deleted: Formatted: English (UK) (Department Of Energy, 2010) Formatted: English (UK) Deleted: (DOE Formatted: Right In figure 2.2 one can see growing role of renewables and nuclear power, with coal power still Formatted: English (UK) playing an important role. Gas represented by OCGT/CCGT (Open Cycle Gas Turbines / Formatted: English (UK) Formatted: English (UK) Combined Cycle Gas Turbines) has a smaller role to play according to the IRP 2010-2030 with Formatted: English (UK) lack of cost effective sourcing sighted as the problem. The significant regional developments Formatted: English (UK) Deleted: in the gas resource discoveries have not been taken into account in the IRP 2010-2030 as they ... [119] Formatted: English (UK) occurred after the document was formulated. Formatted: English (UK)

2.3.2 IRP 2010 – 2030 Update (2013) Deleted: ): Formatted: English (UK)

As stated above the IRP 2010-2030 is “a living plan that is expected to be continuously revised and updated as necessitated” (Department Of Energy, 2010). In 2013 a review of the IRP Deleted: DOE Formatted: English (UK) 2010-2030 was released that takes into account the “number of developments in the energy Deleted: ... [120] sector in South and Southern Africa” (Department Of Energy, 2013). Formatted: English (UK) Deleted: DOE Formatted: English (UK) The developments that were taken into account in the updated report are as follows: Deleted: where Formatted: English (UK) Formatted: English (UK) • Revision down of electricity demand scenarios due to lowering energy intensity and lower economic growth forecasts. • The recent developments of gas in the region as well as the potential of shale gas 25

• Capital cost of nuclear capacity revised upwards Deleted: Cost Formatted: English (UK) • Uncertainty around future fuel costs, specifically coal and gas. Deleted: Nuclear Capacity Formatted: English (UK)

Taking these developments into account, various recommendations were made: Deleted: and Formatted: English (UK) • The use of Nuclear power (decision) has been delayed. Deleted: where • Regional and domestic gas options need to be perused, with the opinion of the Ministry Formatted: English (UK) Deleted: , the most salient being of Energy that domestic shale exploration needs to be stepped up. Formatted: English (UK) • Regional Hydro projects in Mozambique and Zambia need to be realised. Formatted: English (UK) Formatted: English (UK)

• An analysis of the viability of extending the lifeline of the current assets needs to be Formatted: English (UK) undertaken. Formatted: English (UK)

The result of these developments on the “Base Case” can be seen in Table 2.3: Deleted: table 4 Formatted: English (UK)

Table 2.3: IRP 2010-2030 Updated Base Case 2013 Formatted: English (UK) Deleted: 4 Updated Base Case 2013 Formatted: English (UK) Technology Option IRP 2010 (MW) Base Case (MW) Existing Coal 34746 36230 New Coal 6250 2450 Combined Cycle Gas Turbine (CCGT) 2370 3550 Open Cycle Gas Turbine (OCGT) 7330 7680 Hydro Imports 4109 3000 Hydro Domestic 700 690 Power Schemes 2912 2900 Nuclear 11400 6660 PV 8400 770 CSP 1200 3300 Deleted: ... [121] Formatted: Font:Calibri, Font color: Black Wind 9200 4360 Other 915 640

2.3.3 Stance On Gas IRP 2010-2030 Update Formatted: English (UK) Deleted: :

Formatted: English (UK) The first draft of the IRP 2010-2030 in 2011 identified LNG as the main source of gas available at a price of USD 10 per MMBtu, making it only viable for peaking generation with OCGT.

CCGT are mentioned for their favourable low capital cost as well the the short lead time of Deleted: ... [122] Formatted: English (UK) construction but with fuel costs USD 10 MMBtu, coal is a much more favoured option for Deleted: 10MMBtu baseload electricity generation. Formatted: English (UK)

The development of the Mozambican Gas fields is mentioned in the update but distance from Formatted: English (UK) source is identified as a challenge, and as a result shipping of LNG from Mozambique northern Formatted: English (UK) Deleted: , Rovuma fields is seen as a more viable option than a pipeline. A “Big Gas” scenario is mapped Formatted: English (UK) out by the report but is only considered to be a result of the Karoo shale gas providing cheap Deleted: . ... [123] Formatted: English (UK) fuel cost (gas) at R50/GJ (Department Of Energy, 2013). The IRP 2010-2030 updated report Formatted: English (UK) doesn’t put any real emphasis significance of the Mozambican gas discoveries and possible Deleted: . ... [124] Formatted: English (UK) benefits for the South African energy system.

2.3.4 Imminent Capacity Expansions

Imminent capacity expansions refer to the new capacity that that investment decision has Deleted: This is Formatted: English (UK) been made and is not included on the IPR 2010-2030. Eskom is currently in the process of building this capacity and integrating it into the national grid. Deleted: , more will be discussed on this in chapter 4.6 Formatted: English (UK)

Ingula Pumped Storage Scheme: Formatted: No bullets or numbering

The Ingula Pumped Storage Scheme is located on the little Drakensburg Range on the border Deleted: Formatted: English (UK) on the Kwa-Zulu Natal and Free state provinces. The Pumped Storage Scheme is a combination of two dams that are 4.6 km apart that are each capable of holding 2 million cubic feet of water. The dams are connected by waterways in which the water is channelled through to either generate electricity or utilise excess electricity. Eskom states (Eskom, 2013), Deleted: ... [125] “To generate electricity during times of peak demand, water is released from the upper dam, Formatted: English (UK) passing through the pump/turbines, into the lower dam. During times of low energy demand, the pump/turbines are used to pump the water from the lower dam, back to the upper dam”. Deleted: ” (Eskom, 2013) Formatted: Font:12 pt, English (UK) Formatted: English (UK) Medupi Formatted: No bullets or numbering

Medupi is a Greenfields dry cooled coal fired power station located in the Waterberg (to the Deleted: Formatted: English (UK) west of Lephalale) in the Limpopo Province. The Waterberg coal fields in Limpopo are Formatted: English (UK) estimated to have 75.7 billion tons of coal, more than 50% of South Africa’s remaining Formatted: English (UK) reserves (Mgojo, 2012).

Kusile Deleted: : Formatted: English (UK) Kusile is also a Greenfields coal fired power station under construction in Nkangala, Formatted: No bullets or numbering Mpumalanga. The nameplate capacity of Kusile will be 4800 MW, the same as Medupi, Deleted: Formatted: English (UK) making them both the fourth largest coal fired power stations in the southern hemisphere Deleted: 4800MW (Eskom, 2014). Kusile will be the first power station in South Africa to install Flue-gas Formatted: English (UK) desulphurisation (Eskom, 2015). This is a technology used to eliminate oxides of sulphur from Formatted: English (UK) Deleted: Kusile will be the first in South African to install exhaust gasses. Flue-gas desulphurisation. This is a a technology used to eliminate oxides of sulphur from exhaust gasses. Page Break

2.4 Significant Gas Discoveries in Mozambique Formatted: No underline, English (UK) Deleted: : Formatted: No underline, English (UK) The recent significant discoveries of natural gas has thrust Mozambique into the lime light, Formatted: English (UK) making it one of the most promising countries in Africa in terms of natural gas. Mozambique’s Deleted: ... [126] Formatted: English (UK) proven gas reserves have increased substantially from 4.5 tcf in 2013 to 98 trillion cubic feet Deleted: have (tcf) at the end of 2015 (Business Monitor International, 2015), resulting in Mozambique Formatted: English (UK) Deleted: BMI th having the 13 largest proven reserves in the world (Energy Information Administration, Formatted: English (UK) 2014). Final recoverable reserves are not yet known until exploration companies book final Deleted: EIA Formatted: English (UK) reserves. Business Monitor International expects (Business Monitor International, 2015) Deleted: ... [127] “Mozambique to make its presence felt in the global LNG market by early/mid next decade”. Formatted: English (UK) Deleted: monitor international The exploration license holders are aggressively moving ahead on plans to develop the Formatted: English (UK) Rovuma basin discoveries with LNG trains leading the development (Stanley , et al., 2014). Formatted: English (UK) Deleted: ” (BMI, 2015) ... [128] Formatted: English (UK) Business Monitor International’s view is that final investment decision delays, falling gas Deleted: the Formatted: English (UK) prices combined with infrastructure constraints as well as ongoing regulatory changes are Formatted ... [129] challenges facing the stakeholders in the pursuit of developing these huge offshore resources. Formatted: English (UK) Deleted: BMI (Business Monitor International, 2015). In the view of the author this discovery is opportunity Formatted: English (UK) for South Africa to revise its energy policy to take advantage of the close proximity of the Gas, Deleted: ... [130] Formatted: English (UK) taking advantage of the reduced carbon emissions to supplement its coal intensive assets and Deleted: it planned nuclear programme expansion. Formatted: English (UK) Formatted: Font color: Auto, English (UK)

Formatted: English (UK) 2.5 Constraints and Risk of Gas for South Africa Deleted: More on the Mozambican gas discoveries will ... [131] Formatted: No underline, English (UK) Deleted: : According the the Integrated Resource Plan (Department Of Energy, 2010) “Building gas- Formatted: No underline, English (UK) driven CCGT power plants requires the creation of gas infrastructure. In addition to the CCGT Formatted: English (UK) Formatted: English (UK) 28 power plants, a LNG terminal needs to be decided on unless a suitable domestic supply is Deleted: ” (DOE, 2010) developed, and built together with the associated gas infrastructure”. Formatted: English (UK) Deleted: in achieving using South Africa faces a number of challenges is realising the use of Mozambican gas as a Formatted: English (UK) Deleted: from Mozambique feedstock, mainly a lack of infrastructure and distance between market and the source. Formatted: English (UK) Deleted: PWC According to Price Waterhouse Coopers (Price Waterhouse Coopers, 2015) these are the Formatted: English (UK) Deleted: “ challenges that face South Africa’s adoption of Gas: Formatted: English (UK) Deleted: Local • Current local demand exceeds supply Formatted: English (UK) Deleted: limited • Costly to establish infrastructure Formatted: English (UK) • Limited local availability Deleted: ” (PWC, 2015). Formatted: English (UK) • High upfront Costs Deleted: Page Break • Pricing uncertainty –including oil indexation Formatted: No underline, English (UK) • Lead time to supply Deleted: : • Not easily portable Formatted: No underline, English (UK) Formatted: English (UK) Deleted: With natural Opportunities for the Adoption of Gas in South Africa Formatted: English (UK) Formatted: English (UK) Deleted: increasing Natural gas is playing an increasingly important role in the primary energy production mix Formatted: English (UK) globally, following this trend South Africa has undertaken to increase use of gas for electricity Formatted: English (UK) Deleted: ... [132] generation as stated in the Integrated Resource Plan 2010 – 2030 (IRP). The question that Formatted: English (UK) needs to be answered is; ‘can supply challenges be overcome to give the South African market Formatted: English (UK) Deleted: . access to gas cost effective price that makes it an economically viable alternative to other Formatted: English (UK) electricity generation technologies?’ Deleted: PWC, “ Formatted: English (UK)

Deleted: an international According to Price Waterhouse Coopers (2015), there have been number of local and Formatted: English (UK) Deleted: ” (PWC, 2015). international developments that’s make the availability of natural gas a viable option for Formatted: English (UK) South Africa. Price Waterhouse Coopers goes on to say there are several ways to service the Deleted: PWC goes on to say there are several ways to service the demand for natural gas in South Africa, and they demand for natural gas in South Africa, as follows (Price Waterhouse Coopers, 2015): are as follows: ... [133] Formatted: English (UK)

Deleted: huge • Further pipelines could link the Sasol Pande-Temane gas fields to the offshore gas found Formatted: English (UK) Deleted: finds in the North of Mozambique, providing further gas to South Africa. Formatted: English (UK) • A proposed pipeline from Mozambique to Richards Bay could provide a further source Deleted: additional Formatted: English (UK) 29

of gas to South Africa. • Piped gas from the Ibhubesi gas field on the South African west coast to supply natural gas to Eskom’s Ankerlig power station in Atlantis. • LNG supply is outstripping demand as a result of developments in North America, Australia and East Africa. This provides opportunities for additional gas supply to South Africa. Companies such as PetroSA, Sasol and Shell are investigating the feasibility of Deleted: This could lead to licenses being issued in 2015, fracking in 2016 and if LNG import options. Larger ships and Floating LNG (FLNG) and Floating Production, Formatted: English (UK) Storage and Offloading (FPSO) facilities provide greater flexibility into the sector. Deleted: Formatted: English (UK) • Coalbed methane exploration is looking promising with Molopo oil and Kinetiko Energy Deleted: .” (PWC, 2015) evaluating results from their exploratory drilling activities. Formatted: English (UK) Deleted: GTL • Shale gas exploration permits are being processed by the Petroleum Agency of South Formatted: English (UK) Africa (PASA). If the reserves are commercially viable then possible production from Deleted: The first 3 Formatted: English (UK) around 2023. Shale gas technology has significantly improved over the last few years Deleted: we and will assist the development of shale gas exploration and production going forward. Formatted: English (UK) Deleted: see that • CNG tankers supplying natural gas from Angola to the Western Cape are being Formatted: English (UK) investigated. Deleted: Formatted: English (UK) • “Chemical conversion options, of which the biggest potentials are Gas to Liquids, Deleted: “ ammonia, methanol and ethylene. They are already practised in South Africa, but there Formatted: English (UK) Deleted: ” (Mckinsey , 2015). is certainly potential for more GTL and ammonia (depending on cost of feed gas), Formatted: English (UK) whereas ethylene is also possible” (Putter, 2016) Deleted: goes on to say Formatted: English (UK) Deleted: From the above it can be seen there are various opportunities for South Africa to increase the Coal Formatted: English (UK) use of gas in its primary energy mix. According to McKinsey (2015) the urgency to act on Deleted: & natural gas opportunity is growing. McKinsey (2015) also states that new coal assets Kusile Formatted: English (UK) Deleted: decommissioning and Medupi coming online should secure supply until 2020 only, and that demand growth Formatted: English (UK) combined with upcoming de-commissioning of existing assets will create a pressing need for Formatted: English (UK) Deleted: Nuclear is a possible option but due to its new capacity. Nuclear power is a possible option but due to its complexity and safety complicity and safety requirements the lead time of construction is very long. requirements the lead time of construction is very long. Formatted: English (UK) Formatted: English (UK) McKinsey (2015) also positions that although new coal and nuclear assets are important for Deleted: states Formatted: English (UK) the base load supply of electricity neither is likely to be available in time to address the Formatted: Tabs: 0.39 cm, Left + 1.27 cm, Left capacity crunch of 2020-2030. “Natural gas power has to be added on a schedule that would Deleted: “ Formatted: English (UK) work to bridge the gapsuntil South Africa can realise its longer-term energy plans. Due to Deleted: ” (Mckinsey , 2015) Formatted: English (UK) 30 the modular nature of construction, the total lead time required to plan, design, and build a gas plant is two to four years” (Mckinsey , 2015). Once demand for Natural Gas has been established by the power sector, it can then be integrated into industry, transportation and housing markets growing the demand. A large demand base for gas means economies of scale for gas infrastructure can be leveraged off in order to reduce the input or cost price of gas. Formatted: English (UK)

Deleted: Once demand for Natural Gas has been established by the power sector it can then be integrated into industry, transportation and housing markets growing the demand and intern the economies of scale related to gas infrastructure. Formatted: Font:Not Bold, No underline, English (UK) Formatted: English (UK) Formatted: Left, Space After: 0 pt, Line spacing: single, Widow/Orphan control, Adjust space between Latin and Asian text, Adjust space between Asian text and numbers

3. Gas Power Generation Deleted: : Formatted: No underline, English (UK) Formatted: No underline, English (UK) Formatted: English (UK) Natural gas power stations have the benefits of generating large amounts of reliable electricity with lower greenhouse gas emissions than any fossil fuel based power station while Deleted: green house Formatted: English (UK) having no nuclear waste disposal problems (Price Waterhouse Coopers, 2015). Deleted: PWC Formatted: English (UK)

3.1 Types of Gas Power Stations Deleted: : Formatted: English (UK)

Gas power stations are a versatile technology that can be integrated into a power system in various sizes and forms to generate a reliable consistent base load, mid-merit generation or intermittent peaking load into an energy supply pool (Evans, et al., 2013). There are two main Deleted: . Gas turbine work on the same principles of a jet engines, types of large scale gas power station plants: Open Cycle Gas Turbines and Combined Cycle they are theoretically very simple and have 4 stages: ... [134] Formatted: English (UK) Gas Turbines (as the names suggest these are both based on turbine technology). Gas Deleted: 2 turbines work on the same principles of a jet engines, they are theoretically very simple and Formatted: English (UK) Deleted: have 4 stages: Intake (air and fuel), Compression, Combustion, Expansion Exhaust (where , Formatted: English (UK) energy is converted). Deleted: . Formatted: English (UK)

This basic principle can be seen in Figure 3.1 below: Deleted: Gas turbine work on the same principles of a jet engines, they are theoretically very simple and have 4 1. Air comes into the intake stages: ... [135] Formatted: English (UK) 2. Compression takes place in the compressor Deleted: figure 3. Fuel and compressed air is mixed and combustion takes place Formatted: English (UK) Formatted: English (UK) 4. Air/fuel mixture combusts and expands, through the turbines that drive the output shaft. 5. Combusted hot air is expelled through the exhaust. Formatted: Left

Formatted: Font:Calibri, Bold Formatted: English (UK)

Figure 3.1: Basic Principles of Turbines (Brain, nd) Open Cycle Gas Turbine (OCGT) An open cycle gas turbine is a stand-alone gas turbine combustion unit that is typically operated to meet peak load demands as they have short start-up and shutdown cycles. The typical size of these units are 100-400MW and they have thermal efficiency of around 35-40% (Price Waterhouse Coopers, 2015).

Combined Cycle Gas Turbine (CCGT) Combined cycle gas turbines are a combination of a combustion unit that is integrated with a Deleted: Deleted: : How a turbine works steam turbine unit. These two turbine units are integrated to achieve greater efficiency by Formatted ... [136] using the exhaust gases that are otherwise wasted (out of the Open cycle gas turbine to Formatted ... [137] Formatted ... [138] generate steam for a steam turbine unit). CCGT’s are run at higher temperatures to create Deleted: increased amounts of exhaust gases which are captured to boil water and create steam, for Formatted ... [139] Deleted: the steam turbine therefore, generating more power from the same amount of fuel input Formatted ... [140] (Price Waterhouse Coopers, 2015). This results in a much greater (50-60%) thermal Deleted: peak Formatted ... [141] efficiencies (Price Waterhouse Coopers, 2015). Deleted: , the Formatted ... [142] Deleted: PWC 3.2 Natural Gas and Liquefied Natural Gas Formatted ... [143] Deleted: the Formatted ... [144] Natural gas can be supplied in various ways to a power station but it is predominantly supplied Deleted: gasses via a pipeline. The source of the gas may come from a direct transmission pipeline from the Formatted ... [145] Deleted: . gas processing facility, or from a LNG regasification facility. Formatted ... [146] Deleted: CCGT are run at higher temperatures to create ... [147] Formatted ... [148] Natural Gas Transmission Pipeline Deleted: Vs Where the proximity to source (under 3000 km) and geographical conditions will allow the Formatted ... [149] Deleted: : cheapest and safest way to transport gas is through a pipeline network from source to end Formatted ... [150] users (Stanley et al., 2014). Formatted ... [151] Deleted: through

Formatted ... [152] Liquefied Natural Gas Deleted: : Formatted Where proximity and geographical conditions do not allow for natural gas to be transported ... [153] Formatted ... [154] through pipelines, the natural gas is liquefied at the source and transported by specifically Deleted: 3000km Formatted designed refrigerator ships. If the distance is greater than between 2000 and 3000km then ... [155] Deleted: . LNG transport solution is more viable than a pipeline (Price Waterhouse Coopers, 2015). The Formatted ... [156] 33 Deleted: , Formatted ... [157] Deleted: ) Formatted ... [158] Deleted: : Formatted ... [159]

Formatted ... [160] ... [161] Formatted ... [162]

Formatted ... [163] ... [164] Formatted ... [165] typical LNG process is that natural gas is extracted and processed to remove impurities, it is 0 then cooled down to -162 C to liquid form and transported in specialised refrigerator ships Deleted: 162 degrees Celsius Formatted: English (UK) to a LNG receiving terminal. The LNG is re-gasified into natural gas and distributed by pipeline Deleted: where the to end users (Price Waterhouse Coopers, 2015). Formatted: English (UK) Deleted: regasified Formatted: English (UK) 3.3 Comparison to Other Forms of Power Generation Deleted: . Formatted: English (UK)

Deleted: : When generating large amounts of electricity various technologies are used in conjunction Formatted: English (UK) Deleted: with each other to create in order to to create a balanced supply scenario that accommodates Various Formatted: English (UK) for demand cycles, while taking into account various constraints, objectives and requirements Deleted: in electricity supply of the system. Table 3.1 below shows a comparison of a number of electricity generation Formatted: English (UK) Deleted: all technologies showing a rating of their characteristics of between 1 and 5 (1 - being Formatted: English (UK) unfavourable and 5 - being most favourable). Deleted: . ... [166] Formatted: English (UK) Deleted: 5 Table 3.1: Comparison of various power generation technologies: (Price Waterhouse Formatted: English (UK) Deleted: is Coopers, 2015) Formatted: English (UK) Natural Formatted: Left Gas Coal Nuclear Hydro Wind Biomass Geothermal Solar Deleted: 5 Construction Formatted: English (UK) Cost 5 4 1 3 4 3 2 3 Deleted: PWC Electricity Cost 5 5 4 2 3 3 3 2 Formatted: English (UK) Land Use 4 3 5 3 2 1 4 2 Formatted: English (UK) Water Formatted: English (UK) Requirements 3 1 1 3 5 1 3 5 Formatted: English (UK) Formatted: English (UK) C02 Emissions 3 1 5 5 5 4 4 5 Formatted: English (UK) Non-CO2 Formatted: English (UK), Subscript Emissions 3 1 5 5 5 2 4 5 Formatted: English (UK) Waste Products 5 1 3 5 5 2 4 5 Formatted: English (UK) Availability 5 5 5 3 0 5 5 1 Formatted: English (UK), Subscript Flexibility 5 3 2 5 0 3 4 1 Formatted: English (UK) 1 = Least Favourable: 5 = Most Favourable. Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) From this table one can establish that natural gas is a well-balanced technology that offers a Formatted: English (UK) low construction cost, low operating cost, relatively small land usage, has below average Deleted: we Formatted: English (UK) water requirements, produces less pollution than coal, has little waste product, it is very Deleted: flexible, while having high availability. Formatted: English (UK)

Deleted: : Formatted ... [167] Formatted ... [168] Formatted ... [169] Formatted ... [170] 3.4 CO2 Intensity Formatted ... [171] Deleted: green house

Formatted The global movement toward reducing greenhouse gas emissions in order to combat global ... [172] Deleted: . means warming as discussed in chapter 2.1.4 illustrates that policy makers are looking at alternatives Formatted ... [173] that produce lower greenhouse gas emissions. Deleted: green house Formatted ... [174] Deleted: 6 Formatted ... [175] Table 3.2 indicates the amount of CO2 emissions for fossil fuel based thermal power stations Deleted: makeup for each source of energy in pounds of CO2 emitted per million British thermal units (Btu) of Formatted ... [176] energy for various fuels. Deleted: . Pounds Formatted ... [177] Deleted: : Formatted Table 3.2: Fossil Fuel CO2 Emissions per Btu (Energy Information Administration, 2015) ... [178] Deleted: ... [179] Pounds Of Formatted ... [180] Fossil Fuel CO2 per Btu Deleted: 6 Formatted Coal (anthracite) 228.6 ... [181] Deleted: EIA Coal (bituminous) 205.7 Formatted ... [182] Coal (lignite) 215.4 Formatted ... [183] Coal (subbituminous) 214.3 Formatted Table ... [184] Diesel fuel and heating Formatted 161.3 ... [185] oil Formatted ... [186] Gasoline 157.2 Formatted ... [187] Propane 139 Formatted ... [188] Formatted ... [189] Natural gas 117 Formatted ... [190]

Formatted ... [191] Formatted From Table 3.2 it can be seen that natural gas emits the lowest amount of CO2 per thermal ... [192] Formatted ... [193] unit, making it the cleanest option of the fossil fuel power generation. According to McKinsey Formatted ... [194] (2015) New combined-cyclegas turbine plants produce less than half the carbon emissions Deleted: the above we Formatted ... [195] of new coal plants (at 388 kilograms per megawatt-hour, compared with 947 kilograms for Deleted: see coal). “Gas is also practically free from sulphur dioxide and carbon monoxide emissions” Formatted ... [196] Deleted: ... [197] (Deloitte, 2015). From an environmental stand point natural gas provides a very attractive Formatted ... [198] solution for South Africa as it has low greenhouse gas emissions, and no nuclear waste Deleted: “ Formatted ... [199] disposal issues. Moved (insertion) [7] ... [200] Formatted ... [201] Deleted: )” (Mckinsey , 2015).

Formatted ... [202] Moved up [7]: “Gas is also practically free from sulphur ... [203] Formatted ... [204] Deleted: 35 ... [205] Formatted ... [206]

3.5 Cost of Producing Power from Gas Deleted: : Formatted: English (UK)

Formatted: English (UK) Capital Expenditure Deleted: : Formatted: English (UK) The United States Energy Information Agency released a comparative cost of electricity generating technologies. The costs in Table 3.3 are shown as: Deleted: table 7 Formatted: English (UK)

1. Construction (Overnight Capital Cost) 2. Fixed Maintenance Costs (Fixed Operational and Maintenance (O and M) Costs) Formatted: English (UK) Deleted: & 3. Variable Maintenance Costs (Variable Operational and Maintenance (O and M) Formatted: English (UK) Costs) Formatted: English (UK) Formatted: English (UK)

Deleted: & From Table 3.3 it is clear that gas power technology on a relative capital cost for construction Formatted: English (UK) Formatted: English (UK) and operation (this does not include the cost of the fuel feedstock) basis is a very cost Deleted: the below table effective choice of technology. Formatted: English (UK)

Table 3.3: Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants: Deleted: 7 Formatted: English (UK) (Energy Information Administration, 2013) Deleted: EIA

Plant Characteristics Plant Costs (2012$) Formatted: English (UK) Type Of Deleted: ). Technology Nominal Overnight Fixed O and M Variable O Formatted: English (UK) Capacity Heat Rate Capital Cost Cost ($/kW- and M Cost (MW) (Btu/kWh) ($/kW) yr) ($/MWh) Formatted: English (UK) Formatted: English (UK) Coal Single Unit Formatted: English (UK) Advanced Deleted: & 650 8'800 $3'246 $37.80 $4.47 Pulverized Formatted: English (UK) Coal Dual Unit Formatted: English (UK) Advanced Deleted: & 1'300 8'800 $2'934 $31.18 $4.47 Pulverized Formatted: English (UK) Coal Formatted: English (UK) Natural Gas Formatted: English (UK) Conventional Formatted: English (UK) Combined 620 7'050 $917 $13.17 $3.60 Cycle Turbine Formatted: English (UK) Conventional Formatted: English (UK) Open Cycle 85 10'850 $973 $7.34 $15.45 Formatted: English (UK) Turbine Formatted: English (UK) Advanced Formatted: English (UK) Open Cycle 210 9'750 $676 $7.04 $10.37 Turbine

Uranium Formatted: English (UK)

Dual Unit Formatted: English (UK) Nuclear 2'234 N/A $5'530 $93.28 $2.14

Wind Formatted: English (UK) Onshore Wind 100 N/A $2'213 $39.55 $0.00 Formatted: English (UK) Offshore Wind 400 N/A $6'230 $74.00 $0.00 Formatted: English (UK) Solar Formatted: English (UK) Solar Thermal 100 N/A $5'067 $67.26 $0.00 Formatted: English (UK) Photovoltaic 20 N/A $4'183 $27.75 $0.00 Formatted: English (UK) Photovoltaic 150 N/A $3'873 $24.69 $0.00 Formatted: English (UK) Conventional 500 N/A $2'936 $14.13 $0.00 Formatted: English (UK) Hydroelectric

Pumped 250 N/A $5'288 $18.00 $0.00 Formatted: English (UK) Storage Formatted: English (UK)

The cost of the fuel is not taken into account in the above Table 3.3. This cost has to be Deleted: As mentioned above the Formatted: English (UK) calculated on a case by case basis as there are many variables such as geographical location, Deleted: table infrastructure and market conditions. Formatted: English (UK)

3.6 Load Factors Deleted: : Formatted: English (UK)

Load factors are the average output of a power station divided by the peak load output. This calculation gives an indication the utilisation of a plant: below are the approximate load factors for the different electricity generation categories.

• Peaking power generation - 0%-20% Deleted: %. Formatted: English (UK) • Mid-merit generation - 20%-50% Deleted: %. • Baseload generation - 50% and above Formatted: English (UK) Deleted: . Formatted: English (UK) Historically these Open Cycle Gas Turbines and Combined Cycle Gas Turbines have been used Deleted: OCGT & CCGT Formatted: English (UK) for peak load and mid-merit generation due to their short start-up and shutdown cycles Deleted: however, advances in technology and efficiency combined with a larger availability of gas has Formatted: English (UK) Deleted: but resulted in new plants being used for base-load requirements (Price Waterhouse Coopers, Formatted: English (UK) 2015). The cost of gas in South Africa will determine to what extent gas can be utilised. The Deleted: PWC Formatted: English (UK) lower the cost the more economical generating power from gas will be, the more economical Deleted: ... [207] gas power is the greater the load factor will be. Formatted: English (UK) Deleted: , the

Formatted: English (UK) Formatted: English (UK) 37

4. Analysis of South African Electricity Market Formatted: No underline, English (UK) Deleted: : Formatted: No underline, English (UK) Formatted: English (UK) As discussed in the the literature review South Africa’s power sector is in turmoil, supply Deleted: rolling blackouts shortages are causing load shedding across the country that is causing economic growth to Formatted: English (UK) slow (Business Monitor International, 2015). Deleted: . Formatted: English (UK)

Deleted: Electricity Eskom produces and distributes 95% of South Africa’s electricity and according to the Formatted: English (UK) Deleted: BMI Business Monitor International Research Institute, failure to win regulatory permissions to Formatted: English (UK) hike electricity tariffs will inhibit Eskom’s ability to stabilise its financial position “making it Deleted: stabilize Formatted: English (UK) harder to fund measures needed to end load-shedding” (Business Monitor International, Deleted: BMI 2015). The recent supply shortages in 2014 and 2015 are an indicator of how vulnerable the Formatted: English (UK) South African Power infrastructure is currently. Deleted: ) Formatted: English (UK) Deleted: The latest supply shortages are an indicator of how vulnerable the South African Power infrastructure is According to Eskom in their latest financial report (Eskom, 2015), Significant operational currently. constraints and uncertainties face them in the short term. These are centred on the trade- Formatted: English (UK) Deleted: , “ offs between meeting the country’s electricity demand while operating their Generation fleet Formatted: English (UK) in a sustainable manner, as well as meeting legal and regulatory requirements and remaining Deleted: us Formatted: English (UK) financially viable. As discussed in the chapter 2.2.2 Eskom has seen a dramatic reduction in Deleted: our the electricity reserve margin, putting the existing power infrastructure under significant Formatted: English (UK) Deleted: ” (Eskom, 2015) strain to keep the lights on. Formatted: English (UK) Deleted: the literature review The new generating capacity coming online will “merely be playing catch-up to demand” Formatted: English (UK) (Business Monitor International, 2015). In a strengths, weaknesses, opportunities and threats Deleted: BMI Formatted: English (UK) (SWOT) analysis of the South African Electricity market done by Business Monitor Deleted: Privatization may be the answer to South Africa’s problems, International shown in table 4.1, demonstrates that maintenance delays as well as new build as reported by BMI “Privatisation could be forced on the government in the long run - although we do not think this project delays are having a considerable effect on the ability of Eskom to deliver on its will occur in 2015/2016 as it would be too contentious ... [208] mandate. There are significant opportunities within South Africa but Eskom’s dire financial Formatted: English (UK) Formatted: English (UK) position will hinder its ability to exploit these opportunities, privatisation may be the answer Deleted: BMI show to South Africa’s problems, as reported by Business Monitor International (Business Monitor Formatted: English (UK) Deleted: 8 International, 2015) Privatisation could be forced on the government in the long run - Formatted: English (UK) although they do not think this will occur in 2015/2016 as it would be too contentious Deleted: Formatted: English (UK) politically. Deleted: . Formatted: English (UK) Deleted: Privatization may be the answer to South Africa’s ... [209] 38

Table 4.1: South African Power SWOT Analysis: (Business Monitor International, 2015) Deleted: 8 Formatted: English (UK) Strengths Deleted: BMI Deleted: • Abundant indigenous supplies of coal make this fuel the favoured choice in terms of the cost Formatted: English (UK) of capacity expansion, as it is cheap and not vulnerable to international supply concerns. Formatted: English (UK) • Considerable renewable energy potential, with the country making progress in exploiting it. Formatted: English (UK) • Highest level of electrification rate in Sub-Saharan Africa. Formatted: English (UK) • South Africa's business environment and the power sector's level of development give the Formatted: English (UK) country an edge over many of its regional peers, incentivising developers to use the country as a base. Formatted: English (UK) • Broad political stability is likely to persist, owing to the African National Congress (ANC)'s Formatted: English (UK) dominance at a national and provincial level. Formatted: English (UK)

Weaknesses Formatted: English (UK)

• Extensive use of coal in electricity generation implies rising carbon emissions; this will be a Formatted: English (UK) concern if a carbon tax is introduced by the government. Deleted: in 2015 • Outages are commonplace, having a severe impact on key industries such as mining and the Formatted: English (UK) manufacturing sector. Formatted: English (UK) • Delays in maintenance of existing power stations and the completion of those under Formatted: English (UK) construction give Eskom very little margin to cope with seasonal surges in power demand. • Lack of progress in privatising the power sector limits investments. Formatted: English (UK) • High currency volatility over the years has hampered investment planning. Formatted: English (UK)

Opportunities Formatted: English (UK)

• Demand for South African coal is driving investments into expanding the mining sector and Formatted: English (UK) supporting infrastructure, including power. • Investment into the development of offshore gas fields and plans to import liquefied natural Formatted: English (UK) gas should support the development of new gas-fired power stations. • Relatively strong, independent institutions, including the judiciary and security services. Formatted: English (UK) • Research into underground coal gasification of poor-quality coal reserves should help widen Formatted: English (UK) the energy mix in the long term. • The lifting of a moratorium on hydraulic fracturing (fracking) and continued exploration across Formatted: English (UK) the offshore Ibhubesi gas project underpin their view that gas will ultimately play a greater Deleted: our role in the energy mix. Formatted: English (UK) • The power plant and transmission grid infrastructure will continue to offer investment Formatted: English (UK) opportunities over their forecast period and beyond, thanks to a buoyant renewables Deleted: our industry, pressure on state utility Eskom to boost generation and South Africa's nascent nuclear expansion plans. Formatted: English (UK) • Lack of energy supply has been identified as a critical challenge by the government. Formatted: English (UK)

Threats Formatted: English (UK)

• The financial pressure facing Eskom has continued to mount over the last few years as Formatted: English (UK) delays in bringing large power projects online have eaten into projected revenue streams and exacerbated Eskom's debt exposure. • South Africa's power sector is in turmoil as supply shortages and rolling blackouts continue Formatted: English (UK) to plague the country.

• The economy continues to attract relatively low levels of foreign direct investment (FDI). Formatted: English (UK) • South Africa's worsening corruption profile, particularly in political circles, could deter Formatted: English (UK) investment.

Formatted: English (UK)

4.1 Market Regulation and Competition Deleted: : Formatted: English (UK)

The National Energy Regulator of South Africa (NERSA) regulates the electricity market, along with the pipeline and petroleum pipeline industries. NERSA is mandated to regulate electricity prices, as well as market participants through licensing Eskom dominates the South African Deleted: . According to Business Monitor international the remaining electricity supply market, producing over 95% of South Africa’s electricity (Business Monitor 5% of electricity generation is produced municipalities and other major companies (like Sasol) and the IPSA in Newcastle International, 2015). Eskom is also the sole licensed distributor of electricity in South Africa is the only independent Power Producer operating in South Africa (BMI, 2015). ... [210] making this vertically integrated utility one of the largest power companies in the world Deleted: Dominates (Business Monitor International, 2015). According to Business Monitor international the Formatted: English (UK) Formatted: English (UK) remaining 5% of electricity generation is produced by municipalities and other major Deleted: BMI companies (like Sasol) and the IPSA Group in Newcastle is the only independent Power Formatted: English (UK) Deleted: BMI, 2015). Producer operating in South Africa (Business Monitor International, 2015). Formatted: English (UK)

4.2 Eskom Company Profile Deleted: According to Business Monitor international the remaining 5% of electricity generation is produced municipalities and other major companies (like Sasol) and the IPSA in Newcastle is the only independent Power Eskom is the South African electricity utility, formed in 1923 it became a wholly owned Producer operating in South Africa (BMI, 2015). ... [211] Deleted: : subsidiary of the government in accordance with the Eskom conversion action of 2002, Formatted: English (UK) forming Eskom Holding SOC ltd. According to Eskom its mandate is to “to provide electricity Formatted: English (UK) Formatted: Space After: 0 pt, Widow/Orphan control, in an efficient and sustainable manner, including its generation, transmission, distribution and Adjust space between Latin and Asian text, Adjust space between Asian text and numbers sale” (Eskom, 2015). They continue by stating that “Eskom is a critical and strategic Deleted: ... [212] contributor to Government’s goal of ensuring security of electricity supply to the country as Formatted: English (UK) well as economic growth and prosperity” (Eskom, 2015). Formatted: Font color: Auto, English (UK) Formatted: English (UK)

Table 4.2 below is a SWOT analysis of Eskom compiled by Business Monitor International in Deleted: 9 Formatted: English (UK) their South African Power Report.

Deleted: Table 9: Eskom SWOT Analysis (BMI, 2015) Formatted ... [256] Formatted ... [213] Formatted ... [214] Formatted Table ... [215] Formatted ... [216] Table 4.2: Eskom SWOT Analysis (Business Monitor International, 2015) Formatted ... [217] Formatted ... [218] Formatted ... [219] Formatted ... [220] Formatted Strengths ... [221] Formatted ... [222] • Eskom generates approximately 95% of the electricity used in South Africa and Formatted ... [223] approximately 45% of the electricity used in Africa. Formatted • Dominant generation portfolio. ... [224] Formatted • Control of transmission network. ... [225] Formatted • Monopoly position ... [226] • Stock exchange listing. Formatted ... [227] Formatted ... [228] Weaknesses Formatted ... [229] Formatted ... [230] • State control reduces flexibility. Formatted ... [231] • Inadequate historic investment levels. Formatted ... [232] • Heavy emphasis on costly thermal power. Formatted • Inadequate generating capacity. ... [233] Formatted ... [234] Formatted Opportunities ... [235] Formatted ... [236] • Additional power stations and major power lines are being built on a massive scale to Formatted meet rising electricity demand. ... [237] Formatted • Diversification into other power forms. ... [238] • Eventual privatisation. Formatted ... [239] Formatted ... [240] Threats Formatted ... [241] Formatted ... [242] • The financial pressure facing Eskom has continued to mount over the last few year Formatted ... [243] • Eskom's funding gap has been estimated at about R225bn for the next four to five years Formatted ... [244] • Changes in national energy policy. Formatted ... [245] • Macroeconomic headwinds. Formatted ... [246] • Vulnerable to changes in coal prices. Formatted ... [247]

Formatted ... [248] Formatted ... [249] Formatted ... [250] Although Eskom benefits from a monopoly position in, this seems to have done little to Formatted ... [251] protect the power utility from deteriorating performance and escalating financial Formatted ... [252] Formatted ... [253] vulnerability (Business Monitor International, 2015). “The government presented Eskom with Formatted ... [254] Formatted a massive challenge, by failing to support the state owned group in developing generating ... [255] Formatted ... [257] capacity that would provide adequate supply as demand rose” (Business Monitor Deleted: . International, 2015). Formatted ... [258] Deleted: BMI Formatted ... [259] 4.3 Current Power Mix Deleted: Formatted ... [260] Deleted: : 41 Formatted ... [261]

Eskom Operates 23 power stations with a nameplate capacity of 44 094 MW. Table 4.3 below Deleted: 10 Formatted: English (UK) gives a breakdown of the power mix and their respective generating capacity and location.

Table 4.3: Eskom Total Installed Capacity (Eskom, 2015) Deleted: 10 Formatted: English (UK) Installed Formatted: English (UK) Type Name Capacity (MW) Location Arnot 2352 Middelburg, Mpumalanga Camden 1520 Ermelo, Mpumalanga Duvha 3600 Witbank, Mpumalanga Grootvlei 1200 Balfour, Mpumalanga Hendrina 1965 Hendrina, Mpumalanga Kendal 4116 Witbank, Mpumalanga Coal Fired Formatted: English (UK) PowerStation’s Komati 940 Middelburg, Mpumalanga Kriel 3000 Kriel, Mpumalanga Lethabo 3708 Sasolburg, Free State Formatted: English (UK) Formatted: English (UK) Majuba 4110 Volksrust, Mpumalanga Formatted: English (UK) Matimba 3990 Lephalale, Limpopo Formatted: English (UK) Matla 3600 Kriel, Mpumalanga Formatted: English (UK) Formatted: English (UK) Tutuka 3654 Standerton, Mpumalanga Formatted: English (UK) Nuclear Power Station Koeberg 1910 Melkbossstrand, Western Cape Formatted: Justified Deleted: Conventional Hydro- Gariep 360 Norvalspont, Freestate Stations Vanderkloof 240 Petrusville, Northern Cape Pumped Storage Drakensberg 1000 Bergville, KwaZulu Natal Schemes Palmiet 400 Grabouw, Western Cape Acacia 171 Cape Town, Western Cape Gas/Diesel Fired Port Rex 171 East London, Western Cape Power Stations Ankerlig 1338 Atlantis, Western Cape Gourikwa 746 Mossel Bay, Western Cape Wind Farm Klipheuwel 3 Klipheuwel, Western Cape 44094

Figure 4.1 is a geographical representation of these power stations locations. From figure 4.1 it is clear to see that concentration of coal power generation (85%) in the north east of the country with nuclear, OCGT and renewables making up the balance in the south. Formatted: English (UK) Formatted: English (UK) Deleted: , from this Formatted: English (UK) Formatted: Font color: Black, English (UK) 42

Deleted: Formatted: Font:Calibri, Font color: Black Formatted: Font:Calibri

Base-load (Coal) Peak-load (Pumped Storage)

Base-load (nuclear) Base-load (RTS*)

Wind Power Gas Turbines Concentrated Peak-load (Hydro) Solar Power

*RTS – Power stations returned to service Figure 4.1: Geographical illustration of South African Electricity Supply Mix (Deloitte, 2015). Formatted: English (UK) Formatted: English (UK) Deleted: : Formatted: English (UK) 4.4 Capacity Availability Formatted: English (UK) Deleted: ( Formatted: English (UK) As examined in the literature review South Africa has been experiencing declining power Deleted: , available for distribution. Chris Yelland (2015) reports, there has been a rapid decline in Formatted: English (UK) availability in generation capacity as a result of unplanned breakdowns combined together Deleted: ). ... [262] Formatted: English (UK) with increasing planned maintenance that is needed. Yelland (2015) continues to say that Deleted: “In South Africa is in a situation of capacity constraints combined with low availability. Plant Formatted: English (UK) Deleted: ” (Yelland, 2015). ... [263] availability factor has decreased from 87.40% to 73.73% over the past 5 years (Eskom , 2015). Formatted: English (UK) Yelland states that a normal functioning utility should have an availability capacity of 85% Deleted: ... [264] Formatted: English (UK) (Yelland, 2015). According to Brian Molefe, the acting executive chairman of Eskom, “as a Deleted: the Formatted: English (UK) Formatted: English (UK) 43 result of the tightness of the system, the opportunity for maintenance has reduced” (Molefe, 2015).

Molefe (2015) goes on to say that a large portion of the assets are past their midlife and therefore require longer maintenance outages and extended restoration programmes. Due Deleted: (Molefe, 2015). Decommission to the low reserve margin, Eskom doesn’t have enough reserve margin to take units offline for maintenance, and as a result units are being run harder with less maintenance increasing the risk of breakdowns and unplanned outages (Molefe, 2015).

4.5 De-commission Schedule Deleted: Decommission Deleted: :

Formatted: English (UK) New build planning and capacity expansion is vital to ensuring energy security, but equally important is the decommissioning schedule. All electricity generating assets have a finite lifespan and new capacity may only be replacing outgoing assets causing a zero sum scenario. According the Integrated Resource Plan for electricity 2010-2030 update of 2013, Table 4.4 below represents the planned decommissioning schedule for the current asset base.

Deleted: According the the Integrated Resource Plan for Electricity 2010-2030 update of 2013, table 11 below represents the planned decommissioning schedule for the current asset base. ... [265]

Table 4.4: Eskom Decommissioning Schedule (Department Of Energy, 2013) Deleted: 11 Formatted: English (UK) Deleted: DOE Total Accumulated mw mw mw mw mw mw mw Symbol Station Formatted: English (UK) MW Total

2013 90 Ag 90 90 Ag Aggreko Formatted: English (UK) Pretoria 2014 0 90 PW West Formatted: English (UK) 2015 0 90 C Camden Formatted: English (UK) 2016 90 PW 90 180 H Hendrina Formatted: English (UK) 2017 0 180 Mt Matimba Formatted: English (UK) 2018 0 180 K Komati Formatted: English (UK) 2019 0 180 G Grootvlei Formatted: English (UK) 2020 380 C 380 560 R Rooiwaal Formatted: English (UK) 2021 190 C 380 H 570 1130 S Sasol SSF Formatted: English (UK) 2022 570 C 380 H 950 2080 Ac Acacia Formatted: English (UK) 2023 380 C 190 H 60 Mt 630 2710 Pr Port Rex Formatted: English (UK) 2024 200 K 190 H 390 3100 Kr Kriel Formatted: English (UK) 2025 100 K 190 H 740 Ar 180 G 180 R 500 S 1890 4990 Kd Kendal Formatted: English (UK) 2026 100 K 190 H 370 Ar 360 G 480 Kr 180 Ac 180 Pr 1860 6850 D Duvha Formatted: English (UK) 2027 300 K 380 H 370 Ar 180 G 480 Kr 60 Kd 1770 8620 Ml Matla Formatted: English (UK) 2028 200 K 370 Ar 360 G 960 Kr 1890 10510 L Lethabo Formatted: English (UK) 2029 360 K 580 Ml 960 Kr 1900 12410 Ak Ankerlig Formatted: English (UK) 2030 1160 D 1160 Ml 2320 14730 Gk Gourikwa Formatted: English (UK) 2031 580 D 580 Ml 1160 15890 Cge Co Gen Etc Formatted: English (UK) 2032 580 D 580 Ml 1160 17050 T Tutuka Formatted: English (UK) 2033 580 D 580 Ml 1160 18210 Ko Koeberg Formatted: English (UK)

2034 580 D 580 18790 Mj Majuba Formatted: English (UK) 2035 580 T 590 L 1170 19960 Mtp MTPPP Formatted: English (UK) 2036 1160 T 590 L 360 Cge 2110 22070 Ar Arnot Formatted: English (UK) 2037 580 T 1220 Mt 1350 Ak 750 Gk 3900 25970 Formatted: English (UK) 2038 580 T 1180 L 610 Mt 630 Kd 3000 28970 Formatted: English (UK) 2039 590 L 610 Mt 1200 30170 Formatted: English (UK) 2040 580 T 590 L 610 Mt 1780 31950 Formatted: English (UK) 2041 280 mtp 610 Mt 1890 Kd 2780 34730 Formatted: English (UK) 2042 630 Kd 630 35360 Formatted: English (UK) 2043 150 S 630 Kd 780 36140 Formatted: English (UK) 2044 1860 Ko 1860 38000 Formatted: English (UK) 2045 0 38000 Formatted: English (UK) 2046 610 Mj 1020 Ak 1630 39630 Formatted: English (UK) 2047 610 Mj 610 40240 Formatted: English (UK) 2048 610 Mj 610 40850 Formatted: English (UK) 2049 670 Mj 670 41520 Formatted: English (UK) 2050 670 Mj 670 42190 Formatted: English (UK) Formatted: English (UK)

The accumulated total of the decommissioning schedule shows the significant problem facing the South African electricity supply scenario. By 2028, the increased capacity of Kusile and Deleted: , by Formatted: English (UK) Medupi will be offset by the planned de-commissions. Formatted: English (UK) Deleted: decommissions Formatted: English (UK) 4.6 New Build Programme Deleted: : Formatted: English (UK)

The South African government has had significant success in adding renewable energy Deleted: Government Formatted: English (UK) capacity to the South African power pool. The REIPPP (Renewable Energy Independent Power Producer Procurement Programme) that was introduced in 2011 has made South Africa a renewable energy hotspot, and has been successful in attracting the developers to the market

(Business Monitor International, 2015). “The high rate of capacity growth registered by the Deleted: BMI Formatted: English (UK) market of the past two years and the strong investor interest shown in the auction, Deleted: ... [266] particularly from international renewables developers such as SunEdison, Enel Green Power Formatted: English (UK) and Mainstream, attest to the REIPPP’s success” (Business Monitor International, 2015). This Deleted: BMI Deleted: is reflected in the number of completed renewable energy projects that have been ... [267] Formatted: English (UK) implemented, a total 3731 MW (out of 3913MW added) of renewables have been added to Formatted: English (UK) the power pool – this can be seen in Table 4.6. Deleted: table 13 Formatted: English (UK)

Table 4.6 is the new capacity expansion that has been committed to and approved up to 2019, Deleted: 13 Formatted: English (UK) this is a total 14 375 MW of additional capacity. This new capacity has 3 major projects contributing to it, Medupi, Kusile and the Ingula Pumped storage scheme (10 896 out of 14 375 MW). Beyond 2019 there is currently 2 657 MW planned - all in renewables. All these Formatted: English (UK) Deleted: renewable energy projects go a long way to achieving reduced carbon emissions but ... [268] Formatted: English (UK) renewable energy has a very low capacity factor. Capacity factor is the average power generated by an asset, determined by dividing nameplate capacity by the average capacity generated by the plant.

In the United States the average availability factor per generation type is displayed in Table 4.5 as follows: Formatted: English (UK)

Table 4.5: Average Availability Capacity: (Ozgur, 2013) Formatted: English (UK) Deleted: 12 Generation Type Availability Factor Formatted: English (UK) Solar Panels 10-15% Formatted: English (UK) Wind Turbines 25% Formatted: English (UK) Combined Cycle Gas Turbine 38% Formatted: English (UK) Hydroelectric 40% Formatted: English (UK) Coal Fired Power Plants 70% Formatted: English (UK) Nuclear 89% Formatted: English (UK) Formatted: English (UK)

Table 4.6 illustrates that the availability factor of renewables can be extremely low due to Deleted: 12 Formatted: English (UK) their reliance on sun or wind which is subject to weather variability. Renewables then don’t Deleted: , renewables provide a strong reliable base load, which is what South Africa needs (Mckinsey , 2015). Formatted: English (UK) Deleted: . Formatted: English (UK) Table 4.6: South African Power Projects Database (Business Monitor International, 2015) Deleted: 13 Formatted: English (UK) Total Timeframe Deleted: : (BMI Name Province Type MW Status MW End Formatted: English (UK) Category Sasolburg Gas Gas Fired Formatted: English (UK) Free State 140 2012 Completed Power Plant Power Plant Rustmo 1 North West Solar PV 7 2013 Completed Formatted: English (UK) Northern Konkoonsies Solar PV 9.7 2013 Completed Formatted: English (UK) Cape Northern Aries Solar PV 9.7 2013 Completed Formatted: English (UK) Cape Koeberg Western Formatted: English (UK) Nuclear 1'840 2013 Completed Upgrade Cape Northern Kalkbult Solar Solar PV 75 2013 Completed Formatted: English (UK) Cape Northern Jasper Solar PV 96 2014 Completed 3'913 Formatted: English (UK) Cape Western Hopefield Wind Farm 66.6 2014 Completed Formatted: English (UK) Cape Northern Noblesfontien Wind Farm 73.8 2014 Completed Formatted: English (UK) Cape Northern Greefspan Solar PV 11 2014 Completed Formatted: English (UK) Cape Northern Kathu Solar PV 75 2014 Completed Formatted: English (UK) Cape Letsatsi Free State Solar PV 64 2014 Completed Formatted: English (UK) Northern Lesedi Solar Solar PV 64 2014 Completed Formatted: English (UK) Cape

Northern Kliphuewel Wind Farm 27 2014 Completed Formatted: English (UK) Cape Northern Sishen Solar Solar PV 94.3 2014 Completed Formatted: English (UK) Cape Solar Capital Northern Formatted: English (UK) Solar PV 85 2014 Completed De Aar Cape Dreunberg Eastern Cape Solar PV 75 2014 Completed Formatted: English (UK) Northern Linde Solar Solar PV 40 2014 Completed Formatted: English (UK) Cape Northern Droogfontien Solar PV 50 2014 Completed Formatted: English (UK) Cape Western SlimSun Solar PV 5 2014 Completed Formatted: English (UK) Cape Northern Herbert PV Solar PV 22 2014 Completed Formatted: English (UK) Cape Soutpan Solar Limpopo Solar PV 28 2014 Completed Formatted: English (UK) Witkop Solar Limpopo Solar PV 30 2014 Completed Formatted: English (UK) Northern De Aar Solar Solar PV 50 2014 Completed Formatted: English (UK) Cape Western Dassiesklip Wind Farm 27 2014 Completed Formatted: English (UK) Cape Metro Wind Formatted: English (UK) Van Stadens Eastern Cape Wind Farm 27 2014 Completed Wind Farm Jeffreys Bay Formatted: English (UK) Eastern Cape Wind Farm 138 2014 Completed Wind Farm Grasridge Eastern Cape Wind Farm 60 2015 Completed Formatted: English (UK) West Coast Northern Formatted: English (UK) Wind Farm 94 2015 Completed One Cape Northern Hyrdo Neusberg 10 2015 Completed Formatted: English (UK) Cape Electric Sere Wind Western Formatted: English (UK) Wind Farm 100 2015 Completed Farm Cape KaXu Solar Northern Consentrated Formatted: English (UK) 100 2015 Completed One Cape Solar Park Red Cap Formatted: English (UK) Eastern Cape Wind Farm 80 2015 Completed Koega Dorper Wind Formatted: English (UK) Eastern Cape Wind Farm 100 2015 Completed Farm Cookhouse Formatted: English (UK) Eastern Cape Wind Farm 138.6 2015 Completed Wind Farm Open Cycle Under Dedisa Eastern Cape 335 2015 Formatted: English (UK) Turbine Construction 14'375 Gouda Wind Western Under Formatted: English (UK) Wind Farm 138 2015 Park Cape Construction

Waainek Under Formatted: English (UK) Eastern Cape Wind Farm 24 2015 Wind Farm Construction Chaba Wind Under Formatted: English (UK) Eastern Cape Wind Farm 21 2015 Farm Construction Western Under Touwsriver Solar PV 44 2015 Formatted: English (UK) Cape Construction Northern Consentrated Under Bokpoort CsP 50 2015 Formatted: English (UK) Cape Solar Park Construction Boshoff Solar Under Formatted: English (UK) Free State Solar PV 60 2015 Park Construction Under Amakhala Eastern Cape Wind Farm 134.4 2016 Formatted: English (UK) Construction Tsitsikamma Formatted: English (UK) Under Community Eastern Cape Wind Farm 95 2016 Construction Development Spumped KZN/Free Under Ingula Storage 1'332 2016 Formatted: English (UK) State Construction Scheme Northern Under Mulilo Solar PV 86 2016 Formatted: English (UK) Cape Construction Avon Power Kwa Zulu Open Cycle Under Formatted: English (UK) 670 2016 Plant Natal Turbine Construction Northern Consentrated Under Khi Solar one 2016 Formatted: English (UK) Cape Solar Park Construction Eskoms Northern Consentrated Under Formatted: English (UK) 100 2016 Upinton CSP Cape Solar Park Construction Northern Contract Copperton Wind Farm 102 2017 Formatted: English (UK) Cape Awarded Northern Under Xina Solar One Solar PV 100 2017 Formatted: English (UK) Cape Construction At Planning KiPower Mpumalanga Coal Fired 600 2018 Formatted: English (UK) Stage Garob Wind Northern At Planning Formatted: English (UK) Wind Farm 140 2018 Farm Cape Stage Water Under Mzimvubu Eastern Cape 180 2018 Formatted: English (UK) Project Construction Under Kusile Mpumalanga Coal Fired 4'800 2018 Formatted: English (UK) Construction Under Grootegeluk Limpopo Coal Fired 600 2018 Formatted: English (UK) Construction Under Medupi Limpopo Coal Fired 4'764 2019 Formatted: English (UK) Construction Northern Under Noupoort Wind Farm 80 Nd 2'657 Formatted: English (UK) Cape Construction 50

Under Nojoli Eastern Cape Wind Farm 88 Nd Formatted: English (UK) Construction Western Under Paleisheuwel Solar PV 82.5 Nd Formatted: English (UK) Cape Construction Tom Burke Under Formatted: English (UK) Limpopo Solar PV 66 Nd Solar Construction Northern Under Kathu Solar Solar PV 100 Nd Formatted: English (UK) Cape Construction Gauteng Solar At Planning Formatted: English (UK) Gauteng Solar PV 300 Project Stage Northern At Planning Mulilo Solar PV 9.7 Formatted: English (UK) Cape Stage Project Northern Khobab Wind Farm 140 Finance Formatted: English (UK) Cape Closure Project Northern Loeriesfontien Wind Farm 140 Finance Formatted: English (UK) Cape Closure Redstone Northern At Planning Formatted: English (UK) Termal Solar 100 Solar Cape Stage At Planning Gibson Bay Eastern Cape Wind Farm 111 Formatted: English (UK) Stage Northern At Planning Scatex Solar Solar PV 258 Formatted: English (UK) Cape Stage At Planning Nxuba Wind Eastern Cape Wind Farm 141 Formatted: English (UK) Stage Oyster Bay At Planning Formatted: English (UK) Eastern Cape Wind Farm 142 Wind Farm Stage Karusa Wind Northern At Planning Formatted: English (UK) Wind Farm 142 Farm Cape Stage Aggeneys Northern At Planning Formatted: English (UK) Solar PV 45 Solar Cape Stage Northern At Planning Konkoonsies II Solar PV 86 Formatted: English (UK) Cape Stage At Planning Golden Valley Eastern Cape Wind Farm 120 Formatted: English (UK) Stage At Planning Roggeveld Wind Farm 140 Formatted: English (UK) Stage Droogfontien Northern At Planning Formatted: English (UK) Solar PV 86 2 Cape Stage Lephalale At Planning Formatted: English (UK) Limpopo Solar PV 30 Solar Stage Northern Contract Kangnas Wind Farm 140 Formatted: English (UK) Cape Awarded 51

Formatted ... [269] Formatted ... [270] Formatted ... [271] Deleted: table 13 Western Contract Perdekraal Wind Farm 110 Formatted ... [272] Cape Awarded Deleted: we Formatted ... [273] Total 20'945.25 Deleted: ... [274] Formatted ... [275] Deleted: . Formatted ... [276] Deleted: states The Project database table (Table 4.6) reveals that 63.75% of new capacity is from wind and Formatted ... [277] solar. Although South Africa have a high installed capacity the reality is that over 60% of that Deleted: Mega Watts Formatted ... [278] capacity has very low availability factors. Considering that supply is already constrained, and Deleted: decommissioning that renewables represent a large portion of new capacity, the renewable build program will Formatted ... [279] Deleted: new do little to solve South Africa’s Power Problems (Mckinsey , 2015). Formatted ... [280] Deleted: (Mckinsey , 2015). Formatted ... [281] McKinsey (2015) points out that Kusile and Medupi will add 9.8 MW of supply, and that this Deleted: “ will secure electricity needs through 2020, but the combination of demand growth with the Formatted ... [282] Deleted: ” added pressure of the de-commissioning schedule this will create a pressing need for new Formatted ... [283] capacity. Deleted: its “ Formatted ... [284] Deleted: ” Coal fired power stations have a lead time of approximately 8 years in South African Formatted ... [285] Deleted: (Mckinsey , 2015), while nuclear power could take longer due to the increased complexity ... [286] Deleted: , neither and increased safety requirements of the technology (Mckinsey , 2015). Taking this into Formatted ... [287] consideration, nuclear or coal energy is likely to be available in time to address the crunch Formatted ... [288] Deleted: ” expected between 2020-2030 although both remain important for base-load supply beyond Formatted ... [289] this period (Mckinsey , 2015). From this one can easily determine that beyond 2020, there Deleted: ) ... [290] Formatted ... [291] will be a shortage of power supply resulting from extensive de-commissioning of existing Deleted: decommissioning assets, current new capacity being built is over 63% renewable energy based. Formatted ... [292] Deleted: , and the fact that no concreate commitments for ... [293]

Formatted ... [294] Formatted ... [295] 4.7 CO2 Intensity Deleted: a Formatted ... [296] South Africa has extensive coal reserves, making coal power generation a “frugal choice” Deleted: BMI Formatted ... [297] (Business Monitor International, 2015) in terms of cost of capacity expansion. Coal is “cheap Deleted: cost and not particularly vulnerable to international supply concerns” (Business Monitor Formatted ... [298] Deleted: BMI International, 2015). The result of this is that South Africa has a very carbon intensive Formatted ... [299] economy. Eberhard (2011) states that South Africa is a major consumer of coal, mainly for Deleted: ... [300] Formatted ... [301] 52 Deleted: “ Formatted ... [302] electricity production, it also operates the world’s only commercial coal synfuels (CTL) plant. Deleted: . It Formatted: English (UK) It is amongst the twenty most carbon-intensive economies in the world. Carbon emissions Deleted: ” (Eberhard, 2011). ... [303] are a key element in the decision making criteria of the Integrated Resource Plan 2010-2030 Formatted: English (UK)

(Department Of Energy, 2010), and this commitment can be seen in South Africa’s climate Deleted: DOE Formatted: English (UK) change pledges. South Africa promised to halt its rising greenhouse gas pollution by 2025, Deleted: - (Department Of Energy, 2013). Formatted: English (UK) Deleted: DOE Formatted: English (UK) The implication of this is that South Africa has pledged to the United Nations Framework Convention on Climate change that will allow its emissions to plateau at current levels, then emissions will peak from 2020 until 2025, and then reduce from 2025 onwards. The South Deleted: This pledge to this African Government will be investing heavily in the transformation of its energy sector to Formatted: English (UK) achieve these goals, according to the submission to the United Nations Framework Convention on Climate change.

The commitment to lower carbon emissions can be seen by the South African governments Deleted: This pledge to this Formatted: English (UK) encouragement through policy, for the private sector to participate through the Renewable Deleted: clearly Energy Independent Producer Procurement (REIPPP) program. “According to Eskom over Formatted: English (UK) Deleted: 1000 MW of renewable projects have been connected to the grid and a further 4280MW have their commitment to encouraging Formatted: English (UK) been contracted” (Deloitte, 2015), this is reflected in the data in table 4.6. Formatted: English (UK) Formatted: English (UK)

Deleted: ... [304] Table 4.6 gives insight into the the success of the REIPPP program with over 63.75% of new Formatted: English (UK) build commitments being in renewables. As discussed in the new build section, while this is Deleted: 13 Formatted: English (UK) certainly a step in the right direction in terms of emissions renewables will do little to provide Deleted: 13 the large baseload capacity the South Africa desperately needs (Mckinsey , 2015). Formatted: English (UK) Deleted: set Formatted: English (UK) 4.8 Electricity Supply / Demand Forecast Deleted: . Formatted: English (UK)

Determining future electricity demand is a challenging feat that often yields unreliable results. Deleted: , this This combined with unnatural market elements such as forced demand controlling (load Formatted: English (UK) shedding) and underwhelming GDP growth makes forecasting demand for South Africa particularly difficult.

The Mckinsey (2015) has forecasted the demand/supply balance into: high, medium and low Deleted: Global Institute Formatted: English (UK) 53 demand scenarios after taking into account the existing and new committed sources of supply.

• The High demand scenario is based on 5.4% GDP growth as stated in the National Deleted: national development plan Development Plan, modelling electricity demand growth on energy demand growth

observed in other emerging economies of similar income levels Deleted: . (Mckinsey , 2015)

• The Medium Demand Scenario of 2.8% growth as stated in the Integrated Resource Plan Deleted: integrated resource plan

for electricity (IRP) 2010–2030: Update report 2013, Department of Energy, 2013 Deleted: . (Mckinsey , 2015) Formatted: English (UK)

• Low Demand Scenario of 1.8% growth in demand, this can be seen in figure 4.2 Deleted: (Mckinsey , 2015)

Figure 4.2: Supply/Demand Balance Forecast: (Mckinsey , 2015) Deleted: 5 Formatted: English (UK)

According to the Mckinsey report (2015), the results of this forecast are that South Africa will Deleted: , Formatted: English (UK) have severe under capacity of electricity supply, the resultant shortages (before reserve Formatted: English (UK) margin) in 2025 (these include the new projects in the power project database – table 4.6) Deleted: 13 Formatted: English (UK)

• High Demand Scenario: 11.6 MW Shortage (Mckinsey , 2015)

• Medium Demand Scenario: 10.2 MW Shortage (Mckinsey , 2015)

• Low Demand Scenario: 5.8 MW Shortage (Mckinsey , 2015)

4.9 Current Cost of Power Deleted: ... [305] Formatted: English (UK)

Table 4.7 below shows the cost per MW hours as per the Eskom financial statements (Eskom, Deleted: 14 Formatted: English (UK) 2015), from this it is clear to see that the real cost producing power has increased Deleted: mega watt substantially, increasing over 100% in a 5-year period. In order to avoid power outages Eskom Formatted: English (UK) Deleted: has been operating the diesel Open Cycle Gas Turbines for significantly longer than intended . From Formatted: English (UK) time periods (higher load factors). “Eskom ran these plants at a load factor of 19.3% in Deleted: ... [306] 2013/2014 which is well above the 5% - 10% for which they were designed” (Deloitte, 2015). Formatted: English (UK) Deleted: OCGT Formatted: English (UK) The diesel bill for the OCGT in the Western Cape alone was 10.5 billion rand for 2013/2014 Deleted: where Formatted: English (UK) (Deloitte, 2015). During December 2015 when there was extensive load shedding countrywide the Western Cape OCGT were run at over 60% load factor at a cost of R2 billion (Deloitte, 2015).

Table 4.7: Cost of Electricity: (Eskom , 2015) Deleted: 14 Formatted: English (UK) Year End 2015 2014 2013 2012 2011 Cost of Electricity (Excluding Depreciation), Formatted: English (UK) R/MWh 610.43 541.92 496.24 374.19 296.36

Electricity Operating Cost per KWh (including 0.6752 0.5967 0.5415 0.4182 0.3278 Formatted: English (UK) Depreciation and Amortisation) R/KWh Formatted: English (UK) Eskom’s escalating costs of producing power is causing financial pressure to mount, resulting Deleted: Formatted: English (UK) in an estimated funding gap of R225 billion (Business Monitor International, 2015). Deleted: BMI Formatted: English (UK) 55

Deleted: : 5. Natural Gas in South Africa Formatted: No underline, English (UK) Formatted: No underline, English (UK)

Formatted: English (UK) Prior to 2004, natural gas accounted for less than 2% of South Africa’s primary energy Formatted: English (UK) Deleted: , this demand. This demand is predicted to grow to 7% over the next 15 years to meet the growing Formatted: English (UK) electricity requirements (Price Waterhouse Coopers, 2015). The revised IRP 2010-2030 Deleted: PWC Formatted: English (UK) indicates that 2652 MW of electricity should be generated by gas by 2030 (Department Of Deleted: ... [307] Energy, 2013) Formatted: English (UK) Deleted: DOE Formatted: English (UK) Although the forecasted growth in gas consumption will be for gas to electricity, the gas Deleted: the Gas market was founded on the demand for gas to liquids and coal to liquids facilities firstly by Deleted: Electricity Formatted: English (UK) Petro SA, for the production of Petroleum products and later Sasol for synfuels and chemical Formatted: English (UK) production. Deleted: Gas Formatted: English (UK) Deleted: Liquids 5.1 Policy Formatted: English (UK) Deleted: Coal Formatted: English (UK) The key drivers for increased consumption of natural gas in South Africa will be the Deleted: Liquids Formatted ... [308] implementation of the Integrated Resource Plan 2010-2030. Reduction of greenhouse gas Deleted: Synfuel emissions are a key function of the IRP 2010-2030 and gas has been identified as a source of Formatted: English (UK) Deleted: Chemical Production electricity generation that could help South Africa reduce its greenhouse gas emissions from Formatted: English (UK) electricity generation (in the form of peaking power capacity). There are a number of policies Deleted: green house Formatted: English (UK) and plans that support the utilisation of gas for the development of cleaner energy in South Deleted: green house Africa and they are as shown in Table 5.1. Formatted: English (UK) Deleted: ... [309] Formatted: English (UK) Table 5.1: Policies and Plans for the Development of Gas and Cleaner Energy (Deloitte, 2015) Deleted: follows: Formatted: English (UK) Overreaching Economic National Development Plan 2011 Development Framework Draft Integrated Energy Plans (IEP) 2012 Key National Energy Plans Integrated Resource Plan 2010 Integrated Resource Plan 2013 Update Gas Infrastructure Development Plan 2005 (GIP) National Gas-Specific Energy Plans Gas Utilisation Masterplan (GUMP) - Forthcoming Other Relevant National Plans Industrial Policy Action Plan - IPAP 2014 Deleted: ... [310] Formatted: Font:Calibri Formatted ... [311] Deleted: ... [312] 56

There are key themes seen across all the development policies and plans seen in Table 5.1, Deleted: figure 6 Formatted: English (UK) these form the rationale behind the promotion of natural gas as an energy source in South Formatted: English (UK) Africa.

Table 5.2 below illustrates the unilateral rationale for the adoption of gas in South Africa for Deleted: 15 Formatted: English (UK) electricity generation seen across various policies and plans. This indicates that there is wide support of the utilisation of gas if it presents an economically viable solution.

Table 5.2: Key rationale for the adoption of gas across various policies and plans (Deloitte, Deleted: 15 Formatted: English (UK) 2015).

Key Rationale or IRP Description NDP IRP GIP IAPP Economic Benefit Update

Substituting diesel or Lower Emissions coal for gas lowers Formatted: English (UK) carbon emissions

Gas available at lower Diversity in energy mix to prices (below $10 per Formatted: English (UK) improve security of MMBtu) could help SA supply to diversify its energy mix

Gas power generation capacity is flexible Improves electricity grid Formatted: English (UK) supports renewables stability and improves electricity grid stability

The modular low-risk nature of gas-fired Attract private sector Formatted: English (UK) power plants means investment in power they are suitable generation private sector investments

Gas and particularly LNG is still Gas is price competitive expensive relative to Formatted: English (UK) alternative in a carbon- coal but when a pricing or emissions carbon price or constrained environment emissions constraints are introduced its more competitive

Gas power plants are small modular Gas-fired power plants investments relative Formatted: English (UK) can be built in shorter to nuclear and mega time frames, at lower risk coal and there is less construction and financial risk

Gas can supports the Facilitate the Formatted: English (UK) development of development of local specific downstream upstream and and upstream downstream industries industries locally

NDP National Development Plan Formatted: English (UK)

IRP Integrated Energy Plan 2012 Formatted: English (UK) IRP Update Integrated Resource Plan Update 2013 Formatted: English (UK) GIP Gas Infrastructure Plan Formatted: English (UK) IAPP Industrial Action Policy Plan 2015 Formatted: English (UK) Formatted: English (UK)

5.2 Key Stakeholders Deleted: : Formatted: English (UK)

The key stakeholders in the gas industry in South Africa are summarised below

5.2.1 Regulators

Price Waterhouse Coopers (Price Waterhouse Coopers, 2015) lists the following as the Deleted: PWC Formatted: English (UK) regulators of the South African gas industry:

• Minister of Mineral Resources Deleted: “ Formatted: English (UK) • Minister of Energy • The Petroleum Agency of South Africa (PASA) • National Energy Regulator (NERSA)

• The Transnet National Ports Authority

• Ports Regulator Deleted: ” (PWC, 2015) Formatted: English (UK)

5.2.2 Consumers of Gas

80% of all gas consumption in South Africa is feedstock for Synfuel and chemical production

(Price Waterhouse Coopers, 2015). Sasol consumes 140 MGJ/a which is about 60% of total Deleted: PWC Formatted: English (UK) gas consumed while Petro SA consumes 48 MGJ about 20% of total gas consumed is South

Africa (Price Waterhouse Coopers, 2015). Deleted: PWC Formatted: English (UK) The remaining 20% is made up of 16% methane rich gas and 4 % natural gas and is consumed Deleted: PWC by a total of about 404 major end users (Price Waterhouse Coopers, 2015). Formatted: English (UK) Deleted: PWC Formatted: English (UK) 5.2.3 Gas Traders Deleted: lights Formatted: English (UK) Price Waterhouse Coopers states that there are six main gas traders in South Africa, Sasol Deleted: novo energy Formatted: English (UK) Gas, Spring Lights, Reatile, Novo Energy, NGV gas and Virtual Gas Network (Price Waterhouse Deleted: PWC Coopers, 2015) Formatted: English (UK) Deleted: :

Formatted: English (UK) 5.3 Upstream Production Deleted: BMI Formatted: English (UK) Deleted: BMI Domestic production of natural gas for South Africa was estimated by Business Monitor Formatted: English (UK) Deleted: Gas International to be 42.37 billion cubic feet for 2014 (Business Monitor International, 2015). Formatted: English (UK) The majority of this gas is drawn from the offshore F-A and South Complex fields for the Deleted: Liquids Formatted: English (UK) Mossel bay gas to liquids facility (Business Monitor International, 2015). Deleted: BMI Formatted: English (UK) Deleted: : 5.4 Gas Consumption Formatted: English (UK) Deleted: “ Formatted: English (UK) Business Monitor International States (2015) South African gas consumption is heavily Formatted: English (UK) constrained by supply, due to the lack of domestic production as well as importation and Deleted: ” (BMI, 2015), Formatted: English (UK) distribution infrastructure. The two Gas to Liquid facilities (Petro SA and Sasol Secunda) Deleted: the account for the bulk of demand with industrial and residential users absorbing the remainder Formatted: English (UK) Deleted: (Business Monitor International, 2015). Gas Consumption for 2013 was 162.4 billion cubic & Formatted: English (UK) feet, of that 120 billion cubic feet of this was imported (Business Monitor International, 2015). Deleted: BMI Formatted: English (UK) 59

Figure 5.1 Shows the Business Monitor International forecast for natural gas consumption Deleted: Gas Consumption for 2013 was 162.4 billion cubic feet (BMI, 2015), of that 120 billion cubic feet of this was (light blue), production (dark blue) as well as the percentage year on year increases in demand imported (BMI, 2015). ... [313] Formatted: English (UK) (red). From the forecast one can see that domestic supply of gas is a huge constraint of Deleted: 7 demand and that local production increases to a peak in 2019, illustrating that the Formatted: English (UK) Deleted: importation of natural gas supply will play in important role in meeting growing demand in BMI Formatted: English (UK) the future. Deleted: Blue Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK)

Figure 5.1 Gas Production and Consumption Forecast (Business Monitor International, 2015) Deleted: 7 Formatted: English (UK)

Deleted: BMI 5.5 Potential Gas reserves of South Africa Formatted: English (UK) Deleted: :

Formatted: English (UK) 5.5.1 Upstream Projects Conventional Gas Deleted: : Formatted: English (UK)

Ikhwezi Deleted: : Formatted: English (UK) Petro SA (South African State Oil Company) is in the process of developing the Ikhwezi field (F-0 Field), this field is off the south coast and holds gas reserves of approximately 988.8 billion cubic feet which represents about 6 years of production (Business Monitor Deleted: BMI

International, 2015). This is aimed at sustaining the Gas to Liquids feedstock of the existing Formatted: English (UK) Deleted: GTL gas to liquids facility until other gas is available (Price Waterhouse Coopers, 2015). Deleted: PWC Formatted: English (UK) Formatted: English (UK) Ibhubesi Deleted: ) The Ibhubesi field is located on the West coast of South Africa in the Orange Basin. This field Formatted: English (UK) Deleted: ... [314] is under development and has proven reserves of 210 billion cubic feet (Business Monitor Deleted: : International, 2015). Sunbird (the operator) has signed an agreement with Eskom for the Formatted: English (UK) Formatted: English (UK) delivery of 30.01 billion cubic per year to be used for supply of the Ankerlig open cycle gas Deleted: , this turbine, replacing costly diesel feedstock (Business Monitor International, 2015). Formatted: English (UK) Deleted: BMI

Formatted: English (UK) 5.5.2 Unconventional Gas - Coal Bed Methane and Shale Gas Deleted: BMI Formatted: English (UK) Pilot coal bed methane projects with planned shale gas exploration has a significant upside Deleted: & Formatted: English (UK) potential for South Africa gas reserves. If the reserves are economically recoverable it has the Deleted: : ability to change the energy landscape of South Africa. Price Waterhouse Coopers (2015) Formatted: English (UK) Deleted: if expects the exploration process for shale gas is to take between 3 to 7 years and only once Formatted: English (UK) viable reserves are proven will gas infrastructure be setup which will take around two years. Deleted: ... [315] Formatted: English (UK)

Deleted: “expected th Shale gas estimated technical reserves of 390 trillion cubic feet 8 largest globally, while Coal Formatted: English (UK) Bed Methane technically recoverable reserves is 12 trillion cubic feet 12th largest in the world Deleted: ” (PWC, 2015). Formatted: English (UK) (Price Waterhouse Coopers, 2015). Underground coal gasification from coal bed methane is Deleted: PWC a new and untested process that has yet to be proven commercially in South Africa and has Deleted: ... [316] Formatted: English (UK) no definitive timeline (Price Waterhouse Coopers, 2015). Formatted: English (UK) Deleted: . Formatted: English (UK) 5.6 Infrastructure Deleted: : Formatted: English (UK) Deleted: Gas Natural gas in South Africa is almost entirely transported to customers via pipelines (Price Formatted: English (UK) Waterhouse Coopers, 2015). Figure 5.2 below illustrates the Gas pipeline infrastructure in Deleted: PWC Formatted: English (UK) South Africa. Deleted: 8 Formatted: English (UK) Deleted: illustration • Sasol Gas that has about 1100 km of pipeline that they operate represented in blue. Formatted: English (UK) (Price Waterhouse Coopers, 2015) Deleted: : Formatted: English (UK) Deleted: (PWC Formatted: English (UK) 61

• ROMPCO is the 865km gas importation Pipeline from the Temane Processing facility

in Mozambique, to the Sasol Secunda facility - represented in green (Price Waterhouse Deleted: . (PWC Coopers, 2015) Formatted: English (UK) • The Lilly Transmission Pipeline is 537 km, owned and operated by Transnet from

Secunda to Durban for the transmission of methane rich gas represented in red (Price Deleted: Methane Formatted: English (UK) Waterhouse Coopers, 2015) Deleted: . (PWC Formatted: English (UK) Formatted: English (UK)

Figure 5.2: Main gas transmission and distribution lines on South Africa (Price Waterhouse Deleted: 8 Formatted: English (UK) Coopers, 2015) Deleted: : (PWC *MRG - methane rich gas. Formatted: English (UK) Deleted: stands for Formatted: English (UK) 5.7 Drivers for Natural Gas Growth in South Africa

Deleted: PWC The biggest anticipated driver for natural gas in South Africa will be a feedstock for Electricity Deleted: ), this generation (Price Waterhouse Coopers, 2015). This is being driven by the IRP 2010-2030 on Formatted: English (UK) the back of governments commitment to reduce greenhouse gas emissions. Once demand is Formatted: English (UK) Deleted: green house established by an “anchor client” such as electricity generation, gas utilisation can be Formatted: English (UK) expanded to industrial, transport and household users as discussed in Chapter 2.6. Deleted: ... [317] Formatted: English (UK) Deleted: chapter Formatted: English (UK) 62

6. Analysis of Mozambican Gas Reserves Deleted: : Formatted: No underline, English (UK) Formatted: No underline, English (UK) Formatted: English (UK)

6.1 Occurrence and Estimation of Natural Gas in Mozambique Deleted: : Formatted: English (UK) The Gas industry in Mozambique was kick started in 2000 when Sasol conducted surveying activities in partnership with CMH S.A. (a subsidiary of ENH – the national hydrocarbon company) in a project aimed at developing 120 million Giga Joules of natural gas for use domestically and in South Africa (Republic of Mozambique Cabinet Council, 2014). This Deleted: REPUBLIC OF MOZAMBIQUE CABINET COUNCIL Formatted: English (UK) resulted in the exploration and production from the Pande and Temane onshore gas fields, along with the construction of an 865 km pipeline between Temane, Mozambique and Deleted: 865km Formatted: English (UK) Secunda, South Africa.

The most recent developments in Mozambican gas have been in the Rovuma basin in the Deleted: current Formatted: English (UK) north forming the bulk of new discoveries, together with the Mozambican Basin in the central part of the country. Table 6.1 represents the total discovered and undiscovered (assumed) gas resources in Mozambique as per a publication by ICF International. Formatted: English (UK) Formatted: English (UK), Not Highlight

Table 6.1: Discovered and Undiscovered Gas Resources Mozambique (ICF, 2012) Deleted: 16 represents the total discovered and undiscovered gas resources in Mozambique as per a publication by ICF International. ... [318] Region Name Total Assessed tcf* Discovered tcf 3P* Undiscovered tcf 3P* Formatted: English (UK) Deleted: : Rovuma Offshore 199.4 124.4 75 Formatted: Font:Bold, English (UK) North Formatted: English (UK) Rovuma Offshore 36 36 Formatted: No underline, English (UK) South Formatted Table Formatted: English (UK) 3.1 3.1 Rovuma Onshore Formatted: English (UK) Central offshore 17.9 17.9 Formatted: English (UK)

South offshore 13.1 13.1 Formatted: English (UK) Formatted: English (UK) Maniamba basin 1.2 1.2 Formatted: English (UK) onshore Formatted: English (UK) South and west 9.2 3.5 5.7 onshore Total 279.9 127.9 152 Formatted: English (UK) *Tcf = Trillion Cubic feet Formatted: English (UK) *Discovered Plus Undiscovered equals total assessed *3P is defined as: proven, plus probable, plus possible resources.

From Table 6.1 one can see that although proven reserves of 100tcf (as discussed in chapter Deleted: the above table we Formatted: English (UK) 2.4) have been recorded, there is a huge upside potential for greater reserves in undiscovered th areas of existing exploration concessions. New exploration concession of the 5 licensing Deleted: ... [319] Formatted: English (UK) round are also being issued which could add to the existing base of assessed gas resources.

Figure 6.1 below is a map displaying the 2 Mozambican Gas hot spots, the Rovuma basin in Deleted: 9 Formatted: English (UK) the north and the Mozambican Basin in the central part of the country. The yellow demarcated areas are the concession blocks that exploration and production concession have already been issued.

Deleted: Figure 6.1: Mozambique Gas Map: (The Oil and Gas Year, 2013) Formatted: Font:Calibri Formatted: Font:Calibri Formatted: English (UK) Deleted: 9 6.2 Mozambican Gas Industry SWOT Formatted: English (UK) Deleted: : Formatted: English (UK) The Business Monitor Institute (Business Monitor International) completed an extensive Formatted: English (UK) analysis of the Mozambican Gas industry and has presented the following SWOT analysis: Deleted: Formatted: English (UK)

Deleted: 17 Table 6.2: Mozambican Gas Industry SWOT (Business Monitor International, 2015) Formatted: English (UK) Deleted: : (BMI Formatted: English (UK) 65

Formatted: English (UK)

Strengths Formatted Table

• Strong prospectively offshore - Large gas discoveries to date Formatted: English (UK) • Substantially unexplored acreage both onshore and offshore Formatted: English (UK) • Geographically well positioned to tap into lucrative Asian market Formatted: English (UK)

Formatted: English (UK) Weaknesses • Undeveloped physical infrastructure. Formatted: English (UK) Formatted: English (UK) • Regulatory framework in place, but still no Final Investment Decision (FID). Timing important given several large LNG projects Formatted: English (UK) are already coming online elsewhere in the world. Deleted: . Formatted: English (UK) Opportunities Formatted: English (UK)

• Significant opportunities for new discoveries. Formatted: English (UK) • LNG exports as discoveries move closer to development stage. Formatted: English (UK) • Wide-ranging opportunities for infrastructure and gas-based Formatted: English (UK) industries: power generation, methanol and fertiliser production, gas to liquids etc. Deleted: GTL Formatted: English (UK)

Threats Formatted: English (UK)

• Lower oil prices and company Capex cuts run the risk of Formatted: English (UK) threatening GTL and LNG projects within their forecast period to Deleted: our 2024. Formatted: English (UK)

• Large LNG capacity coming online elsewhere and slowing Asian Formatted: English (UK) demand for LNG could threaten the profitability of an onshore LNG project.

6.3 Upstream Exploration Formatted: English (UK) Deleted: :

Formatted: English (UK) 6.3.1 Offshore

Business Monitor International (2015) has concluded that the Large offshore appraisal Deleted: “ Formatted: English (UK) campaigns by both Anadarko and Eni have come to an end, with the results yielding significant Deleted: ” (BMI, 2015), revisions on the countries reserves of gas. While appraisal activities have come to an end it It Formatted: English (UK) Deleted: BMI is still unclear how much will be booked as proven reserves (Business Monitor International, Formatted: English (UK) 66

2015). The completion of the fifth licensing round should lead to more exploration of offshore Deleted: ... [320] Formatted: English (UK) prospects in the northern and central basins, as mentioned above. Deleted: 5th Formatted: English (UK) 6.3.2 Onshore

The majority of the investment into gas exploration has gone into offshore exploration, but in September 2013 there was a discovery of onshore gas at the Buzi block located in the central region of the country (Business Monitor International, 2015). The Buzi block in located Deleted: BMI Formatted: English (UK) in the Mozambique basin, represented in figure 6.1. The completion of the fifth licensing Deleted: 9. ... [321] round will lead to more exploration of onshore and offshore prospects on the central and Formatted: English (UK) Deleted: th north eastern region. 5 Formatted: English (UK)

6.3.3 5th Licencing round

The fifth licencing round is a competitive bidding round for new exploration and production concession licences. This licencing round consisted of fifteen new areas which include areas within offshore Rovuma, offshore Angoche, offshore Zambezi, onshore Pande-Temane and Deleted: “ Formatted: English (UK) onshore Palmeira covering approximately 74,259 sq. kms. Bids were received from potential operators for eight of the fifteen areas on offer (INP, 2015). Deleted: Operators Formatted: English (UK)

Deleted: .” INP (2015) has issued statements that the following companies have been invited to engage Formatted: English (UK) Deleted: in negotiations for exploration and production concession contracts (INP, 2015) ) Formatted: English (UK) • eni Mozambico S.p.A Deleted: The Formatted: English (UK) • ExxonMobil E and P Mozambique Offshore Ltd. Deleted: “ • Sasol Petroleum Mozambique Exploration Ltd. Formatted: English (UK) Deleted: & • Delonex Energy Ltd Formatted: English (UK) Deleted: ” (INP, 2015). Formatted: English (UK) The noteworthy interest in the fifth licensing round despite low oil and gas prices confirms the high potential of Mozambican gas exploration and production and the rising industry Deleted: “ Formatted: English (UK) confidence in the stability and regulatory attractiveness of the country as an exploration and production market (Business Monitor International, 2015). Deleted: ” (BMI Formatted: English (UK) Deleted: ) Formatted: English (UK) 67

6.4 Upstream Production Deleted: : Formatted: English (UK)

Current upstream production from the onshore Pande and Temane fields are set for an Deleted: “ Formatted: English (UK) expansion in a bid to increase export to South Africa, with the largest increase in exports Deleted: ” (BMI, 2015), expected to come with the development of the deep-water gas fields in the Rovuma Basin Formatted: English (UK) Deleted: . (BMI, 2015) (Business Monitor International, 2015). Business Monitor International predicts that 2020 will BMI be the year that gas is first produced from the deep-water fields in the Rovuma Basin, this will Formatted: English (UK) be produced from the Eni Coral Floating Liquid Natural Gas project which is located in Area 4

(see Figure 6.1) (Business Monitor International, 2015). Deleted: figure 9) (BMI Formatted: English (UK)

Business Monitor International (2015) goes on to predict that 2021 will have the largest Deleted: BMI Formatted: English (UK) increase in gas production when the Afungi onshore Liquid Natural Gas (LNG) terminal comes online. This is a terminal planned by Anadarko and Eni who will co-ordinate their independent offshore activities in support of a common onshore Liquefied Natural Gas processing terminal.

Although predicted for 2021, the onshore LNG terminal timing is becoming increasingly Deleted: (BMI, 2015). “ uncertain states Business Monitor International, this is due to the following reasons (Business Formatted: English (UK) Monitor International 2015) Deleted: BMI Formatted: English (UK) • Increasing price uncertainties (Gas) Deleted: : • Absence of Infrastructure Formatted: English (UK) Deleted: “ • Shortage of skilled labour Formatted: English (UK) • increasingly well supplied LNG market Deleted: ” (BMI, 2015) Formatted: English (UK)

6.5 Trade – Gas Deleted: : Formatted: English (UK)

Formatted: Font:Times New Roman, English (UK) Mozambique currently produces and trades small amounts of gas of which the majority going Formatted: Left, Line spacing: single to Sasol in South Africa from the onshore Pande and Temande fields via pipeline. Local Formatted: English (UK) Deleted: with demand for gas in Mozambique is small and will continue to be in the near future meaning Formatted: English (UK) that most of the gas production will be exported to South African until the large offshore Rovuma fields come online (Business Monitor International, 2015). Deleted: BMI Formatted: English (UK)

Deleted: above, BMI expects When the Rovuma fields come online in 2020 and 2021 as stated by Business Monitor Formatted: English (UK) Deleted: mostly International (2015), it is expected Mozambique to export 607 bcf of LNG by 2024, the most Formatted: English (UK) likely destination of these exports will be Asia. Deleted: (BMI, 2015). Formatted: English (UK) 68

6.6 Policy Deleted: : Formatted: English (UK)

In August 2014 a long awaited new bill proposed by the Mozambican Government which was Deleted: and Formatted: English (UK) passed in parliament by MP’s for the hydrocarbons sector, setting out a clearer framework Deleted: was passed for production and export of hydrocarbons (Business Monitor International, 2015). The new Formatted: English (UK) Deleted: laws are not a complete overhaul of previous laws, but rather put into law what was government Formatted: English (UK) previously agreed in contracts (Business Monitor International, 2015). It also formalises the Formatted: English (UK) allocation of oil and gas production rights, ensuring more transparent concession allocation Deleted: BMI Formatted: English (UK) while formalising a stronger role for the state in order to maximise local benefits and Deleted: ... [322] participation in this sector (Business Monitor International, 2015). Formatted: English (UK) Deleted: BMI Formatted: English (UK) 6.7 Mozambique Gas Infrastructure Deleted: on Formatted: English (UK) Deleted: BMI Mozambique is one of the poorest counties in the world that is recovering from a crippling Formatted: English (UK) Deleted: : civil war that only ended in 1992, leaving most of the countries limited infrastructure Formatted: English (UK) destroyed. The result of this is that Mozambique is critically lacking gas infrastructure. Lack of Deleted: being Formatted: English (UK) infrastructure is a key restraint on the development of the gas sector (Business Monitor Deleted: BMI International, 2015), as reflected in the Business Monitor International SWOT analysis above Formatted: English (UK) Deleted: BMI in Table 6.2. Mozambique has 3 major ports: Maputo in the south, Beira in the central region Formatted: English (UK) and Nacala in the North. The Temane – Secunda pipeline is the other mentionable Deleted: table 17. ... [323] infrastructure. Formatted: English (UK) Formatted: Font color: Black, English (UK)

6.8 Price Benchmarks of Mozambican Gas Deleted: ... [324] Formatted: English (UK)

Deleted: : Formatted: English (UK) Formatted: English (UK) 6.8.1 Price Benchmarks for Natural Gas Production Deleted: : Formatted: English (UK) Minimum Wholesale Price The minimum wholesale price is a bottom up price build-up of the cost factors for the Deleted: Formatted: English (UK) extraction gas. These cost factors consist of “capital and operating costs plus fiscal expenses Deleted: , and a 15 percent rate of return for the producer” (Stanley et al., 2014). Although this is not a Formatted: English (UK) Deleted: ) ... [325] Formatted: English (UK) 69 direct measure of pricing it does indicate the lowest price that can be sustained in the market that still preserves the economic incentive required for the producers (Stanley et al., 2014). Deleted: , Formatted: English (UK)

LNG Netback Price The LNG netback price is the opposite of minimum wholesale; it is a top down analysis, calculating the costs of getting an equivalent load of gas to the location from an existing market and deducting shipping and associated liquefaction costs. This results in a wellhead Deleted: ... [326] Formatted: English (UK) cost that can be used as a benchmark to compare against other gas wellhead costs in different regions. The LNG netback price then serves as a global market reference price of gas (Stanley et al., 2014. Formatted: English (UK)

Netback vs Minimum Wholesale Deleted: : Formatted: English (UK) The Minimum Wholesale Price and the LNG netback price define a range of potential gas prices that ensures sufficient returns to warrant development of the gas assets while remaining competitive on an international price scale (Stanley et al., 2014). The relationship Deleted: . Formatted: English (UK) between these two elements is reflected in Figure 6.2 Deleted: , Formatted: English (UK) Deleted: The range between these two prices will be the assumed range of the possible cost of ) Formatted: English (UK) Mozambican Gas for this study

Deleted: ... [327] Formatted: English (UK)

Deleted: 10 Formatted: English (UK)

Deleted: : Figure 6.2: Cost Factors Determining Price Benchmarks (Stanley et al., 2014) Formatted: English (UK) Deleted: , Formatted: English (UK) 70

6.8.2 Mozambique Price Benchmarks Deleted: : Formatted: English (UK)

Minimum Wholesale Price Deleted: : Formatted: English (UK) Stanley et al (2014) using data submitted to them from ICF international (used to develop the Formatted: English (UK) gas master plan of Mozambique), states the minimum wholesale gas prices for the different Deleted: from the Formatted: English (UK) fields in Mozambique as seen in Figure 6.3. Deleted: figure 11 Formatted: English (UK)

Formatted: English (UK)

Figure 6.3: Mozambique Minimum Wholesale Gas Price (Stanley et al., 2014) Deleted: 11 Formatted: English (UK)

Deleted: : Formatted: English (UK) Deleted: , Formatted: English (UK) Formatted: English (UK)

Deleted: 12 Formatted: English (UK) Figure 6.4: Gas Fields Within Areas 1 and 4. (Interfax Energy, nd) Deleted: 12 Formatted: English (UK) Deleted: of Figure 6.4 demonstrations the locations of the gas fields discussed in figure 11. Formatted: English (UK) 71

From this one can see that the larger fields are producing much cheaper gas showing that the Deleted: ... [328] Formatted: English (UK) cost of smaller fields escalates substantially, reflecting the strong economies of scale in upstream gas development (Stanley et al., 2014). For the purpose of this study the assumed Deleted: , Formatted: English (UK) average minimum wholesale price of 2.5 USD/MMBTU is used, as per the study done by Deleted: ... [329] Stanley et al (2014). Formatted: English (UK) Deleted: . Formatted: English (UK) LNG Netback Price Deleted: : Stanley et al, believes that the LNG global prices will converge over the medium to long term Formatted: English (UK) as discussed in chapter 2.1.7.

Taking this newly emerging market pattern into account of declining Asian delivered ex ship prices, combined with the liquefaction capex estimates for Mozambique and Stanley et al forecasts that in 2025 the LNG netback price will be 7.7 USD/MMBTU (Stanley et al., 2014). Deleted: , Formatted: English (UK) The same LNG netback price will be assumed in this study.

Deleted: : Formatted ... [330] Formatted ... [331] 7. Cost of Mozambican Natural Gas in South Africa Formatted ... [332] Deleted: : Formatted ... [333] 7.1 Palma – Johannesburg Pipeline Formatted ... [334] Deleted: ... [335]

Formatted ... [336] The ICF study submitted to The World Bank for the development of the Mozambican Gas Deleted: , Formatted ... [337] Master Plan, has a conceptual study of a pipeline from Palma, Mozambique to Johannesburg, Deleted: ... [338] South Africa. The study determines a pipeline cost by assuming a new 36-inch pipeline Formatted ... [339] Deleted: inline between these two destinations using Inflation adjusted cost data for U.S. Pipelines in 2009, Formatted ... [340] while making adjustments for African labour costs and terrain costs (Stanley et al., 2014). The Deleted: , Formatted results of the study was a cost of $64,300 per inch-kilometre, this falls in line with existing ... [341] Formatted ... [342] data for pipelines in the region (completed, under construction and at feasibility study stage) Formatted ... [343] Deleted: get of $66 238 (Stanley et al., 2014). Formatted ... [344] Deleted: “ Formatted In order to calculate the transport tariffs the capital amounts are converted by using a 30- ... [345] Deleted: ” year discounted cash flow model at a 10 percent discount rate (Stanley et al., 2014). The Formatted ... [346] Deleted: resultant transport tariff is 3.2 USD/MMBTU, for a 114.245 billion cubic feet per annum , Formatted ... [347] throughput (Stanley et al., 2014). With this information one can determine that with a Deleted: pipeline from Palma to Johannesburg the cost of gas would range between USD5.70 and USD Formatted ... [348] Deleted: , 10.90 per MMBTU using the minimum wholesale price as well as the LNG netback price range. Deleted: ... [350] Formatted ... [351] Deleted: we Formatted ... [349] 7.2 LNG Imports Formatted ... [352] Deleted: : Formatted ... [353] In study completed by Deloitte (2015), a study for the Western Cape Government on the Deleted: 2015 socio-economic impact of importing LNG into the West Coast of the Western Cape. The Study Formatted ... [354] Deleted: completed determines calculated a landed cost elements of Mozambique LNG at Saldanha, Table 7.1 Formatted ... [355] displays the results: Deleted: The Formatted ... [356] Deleted: In that study they Table 7.1: Cost Components of Mozambican LNG delivered to Saldanha (Deloitte, 2015) Formatted ... [357] Deleted: where as follows Estimated Landed LNG Price Formatted ... [358] Cost Components Deleted: Low High Formatted ... [359] Deleted: 18 Liquefaction Costs USD/MMBtu 3.3 4 Formatted ... [360] Formatted ... [361] 73

Shipping Costs USD/MMBtu 0.4 0.4 Formatted: English (UK)

Additional Infrastructure Formatted: English (UK) 1.5 Cost/Risk Premium USD/MMBtu

Total 3.7 5.9 Formatted: English (UK)

Formatted: English (UK)

Deloitte (2015) determines a range of costing for the LNG scenario. The first “low road” Formatted: English (UK) scenario based on industry standard estimated costs while the “high road” has an additional premium for possible risks associated with a greenfield project exploration and production in a such a remote location. Assuming the minimum wholesale and the LNG netback price range Deleted: ... [362] Formatted: English (UK) from the assumed cost range (Chapter 6.8.2) of cost of Mozambican LNG landed in Saldanha Deleted: above of USD 6.2/MMBtu to USD 13.6/MMBtu. Formatted: English (UK) Formatted: English (UK)

Formatted: English (UK)

8. METHODOLOGY - LEVELISED COST OF ENERGY Formatted: No underline, English (UK) Deleted: : Formatted: No underline, English (UK) In order to determine the economic viability of using Mozambican Gas in South Africa one Formatted: English (UK) needs to compare the cost of producing the energy from gas and compare this cost of other possible alternative electricity generating technologies. The levelised cost of energy Formatted: English (UK) Deleted: calculation is a tool that is used by the energy sector to compare the total cost of producing ... [363] Formatted: English (UK) energy from different technologies. The levelised cost of energy is an economic calculation Deleted: is a Formatted: English (UK) taking into account the the capital cost, fixed and variable operating costs while accounting Formatted: English (UK) for the weighted average cost of capital as well as time value of money. Deleted: ... [364] Formatted: English (UK)

Levelised cost of energy breaks down the capital, fixed and variable operating costs as well as fuel costs into a price per MWh. The result is the total price of producing electricity can be Deleted: mega watt hour. Formatted: English (UK) compared on a level basis of a unit of cost per MWh. The calculation of levelised cost of energy Deleted: Mwh. ... [365] can be calculated in the following manner: Formatted: English (UK)

Firstly, one would need to calculate the Adjusted Capital Cost. Overnight capital cost is the cost of the plant if it was to be built overnight, the reality is that power plants take several years to construct ranging from 18 months to 16 years (Department Of Energy, 2010), and Deleted: DOE Formatted: English (UK) are phased online over a period of time.

The adjusted capital cost accounts for the phasing of construction and the costs associated with that (Equation 8.1). Deleted: . Formatted: English (UK)

Adjusted Capital Cost = Overnight Capital Cost + Interest During Construction [8.1] Formatted: Right Formatted: Font:Bold, English (UK) Formatted: English (UK) Once the adjusted capital cost has been determined the Capital Recovery Factor (CRF) must Formatted: English (UK) be calculated in order to determine the levelised capital cost. Capital Recovery Factor Formatted: English (UK) (equation 8.2) is a ratio that determines that annual capital cost annuity for a set period of Deleted: ... [366] time, in other words it determines the capital cost in an annuity over the lifetime of the asset. Formatted: English (UK) Formatted: Right Formatted: English (UK) Formatted: English (UK) + &(1+&) Formatted: English (UK) !"# = + [8.2] (1+&)[(1+&) −1] Formatted: English (UK) Where: Formatted: English (UK) r = interest rate Formatted: English (UK) Formatted: English (UK) 75 n = Period (number of Years)

Annualised Capital (equation 8.3) is the amount of capital that the annuity or capital recovery Formatted: English (UK) factor allocates for each year that of the lifetime of the plant.

/++012345 !267821 = /5903845 !267821 !:38 ;4& <= x !"# [8.3] Formatted: Font:Bold, English (UK) Formatted: Right Formatted: English (UK) Once the annualised capital is determined this can be used to calculate the levelised capital Deleted: . Formatted: English (UK) 9equasion 8.4) . Annualised capital is divided by the number of hours that the plant is planned Deleted: planed to be in operation to get a capital cost per MWh. There are a possible 8760 hours in a year, Formatted: English (UK) this must be multiplied availability and load factor to calculate the number of hours the plant Formatted: Right Formatted: English (UK) will be operating in a given year. Formatted: English (UK) Formatted: Font:Bold, English (UK)

/++0217345 !267821 Formatted: English (UK) ?4@417345 !267821 = [8.4] !262A78B x ?:25 #2A8:& x /@217C7178B x 8760 Formatted: English (UK) Deleted: like Formatted: English (UK) Levelised Operations and Maintenance Costs (O and M) (equation 8.5) have two cost Formatted: Font:11 pt, English (UK) Formatted: English (UK) elements, firstly the variable cost element quoted in unit of cost per MWh (therefore already Formatted: Right in a levelised cost comparison format), secondly there is a fixed cost element. Deleted: & Formatted: English (UK) Formatted: Font:14 pt, English (UK) Fixed costs are cost that the plant will incur no matter the circumstance or way in which the Formatted: Font:16 pt, English (UK) Formatted: Font:16 pt, English (UK) plant is run. Like capital cost, fixed cost needs to be converted into a MWh element in order Formatted: Font:Bold, Not Italic, English (UK) to be levelised: Formatted: English (UK) Deleted: mega watt per hour Formatted: English (UK)

Deleted: cots #7H45 :64&287:+3 2+5 J27+84+2+A4 !:383 ?4@4127345 #7H45 I 2+5 J = !262A78B x /@212C7178B x ?:25 #2A8:& x 8760 [8.5] Formatted: English (UK) Deleted: demine Formatted: English (UK) Once the fixed operational and maintenance costs have been calculated into a MWh cost, Deleted: . Formatted: English (UK) one can determine the total levelised operations and maintenance costs by adding the Deleted: & levelised fixed, and variable costs to determine the total levelised operational and Formatted: English (UK) Deleted: & maintenance costs (equation 8.6). Formatted: English (UK) Formatted: English (UK) Deleted: & K:821 ?4@217345 I 2+5 J/JMℎ = Levelised Fixed O and M/MWh Formatted: English (UK) + Variable O and M/MWh [8.6] Formatted: No underline, English (UK) Formatted: English (UK) 76

Fuel cost is the final component that needs to be considered in order to determine the levelised cost of energy, the Levelised cost of fuel is (equation 8.7): Deleted: : Formatted: English (UK) ?4@417345 A:38 :P #041 = #041 !:38 64& (QR) x S428 (Q9/Q=ℎ) [8.7] Formatted: English (UK) Where: Deleted: Formatted: Font:Bold, Not Italic, English (UK) 1 MMBtu = 1.05587 GJ Formatted: Right Formatted: English (UK) Total Levelised Cost is a function of all the above formulas (equation 8.8); Deleted: Gj Formatted: English (UK) Deleted: ; ?4@417345 !:38 :P T+4&UB = ?4@417345 !267821 + ?4@417345 I 2+5 J + Formatted: English (UK) ?4@417345 #041 !:38 [8.8] Formatted: Centered Deleted: & Assumptions Formatted: English (UK) Formatted: English (UK) Calculating the levelised cost of energy using range of Cost of Mozambican Gas assumed Formatted: Font:Bold, English (UK) Formatted: English (UK) (Chapter 6.8.2) will be done using the IRP 2010-2030 Update of 2013 adjusted assumptions, Deleted: above most importantly the 2013 exchange rate. The reason for this is that the most current data Formatted: English (UK) Deleted: numbers produced by Government and this report serves as the basis on which the Government makes Formatted: English (UK) policy decisions. It is important to use the assumptions in the report including exchange rate Deleted: ... [367] Formatted: English (UK) in order that the economics of using Mozambican Gas can be determined against other Deleted: government possible alternatives on a level basis. Formatted: English (UK) Deleted: government Formatted: English (UK) The deterioration of the value of the rand over the past 3 years will have significant effect on Deleted: ... [368] all the considered electricity generation technologies as many of the inputs technologies Formatted: English (UK) Formatted: English (UK) (Capital, Operations and Maintenance as well as fuel) for all of these are linked to the US Deleted: recent Dollar. The result of the devaluation of the rand will have a significant impact on cost Formatted: English (UK) Formatted: English (UK) determination of all elements (capital, O and M and fuel) and with the information that is Formatted: English (UK) available it will be hard to determine the exact effects this will have proportionately to each Deleted: Formatted: English (UK) component. For this reason, the analysis will be done according to the assumptions in the IRP Deleted: ... [369] 2010-2030 Update of 2013 together with the the gas prices assumed in chapter 7. Formatted: English (UK) Deleted: & Formatted: English (UK) IRP Assumptions Deleted: Formatted: English (UK) Formatted: English (UK) • Levelised Cost of Energy Based on IRP 2010-2030 update (Department Of Energy, Deleted: DOE 2013) Formatted: English (UK) • Exchange Rate is ZAR 8.01 to the US Dollar (Department Of Energy, 2013) Deleted: DOE Formatted: English (UK) 77

• Inflation rate 6% p.a. (Department Of Energy, 2013) Deleted: (DOE Formatted: English (UK) • Cost of Debt 10% p.a. (Department Of Energy, 2013) Deleted: (DOE • Carbon taxes have not been taken into account as there is no clear timeframe Formatted: English (UK) indicated on the implementation of this from government.

• Figures are without learning rates (Department Of Energy, 2013) Deleted: DOE Formatted: English (UK)

Deleted: <#>Renewables are excluded due to low capacity Objectives of Methodology factors as discussed in Chapter 4.6. Formatted: English (UK) • Analysis of Levelised Cost of Energy according to Range of cost of Gas According to IRP Formatted: English (UK) 2010-2030 update of 2013. • Levelised cost comparison of alternative electricity generation technologies to determine if Mozambican Gas can be utilised to economically produce electricity for the South African market.

9. RESULTS AND DISCUSSIONS Formatted: No underline, English (UK) Deleted: : Formatted: No underline, English (UK) Formatted: English (UK)

9.1 Analysis and Interpretation Deleted: & Formatted: English (UK) South Africa has a number of options for increasing electricity generation capacity as stated Deleted: : Formatted: English (UK) in the IRP 2010-2030. Of these options coal fired generation is still the more frugal option Deleted: African even when a carbon tax of USD15 per ton of CO2 emitted (Stanley et al., 2014), but due to the Formatted: English (UK) Formatted: English (UK) impending limit on emissions of CO2 as discussed in Chapter 4.7 a limited number of new coal Formatted: English (UK), Subscript fired power plants will be built (Mckinsey , 2015). Formatted: English (UK) Deleted: ,

Formatted: English (UK) The intended diversification away from coal into nuclear, gas and renewable energy options Deleted: hard cap Formatted: English (UK) as stated in the IPR 2010-2030, is a clear indication of the intent to adhere to the hard cap on Formatted: English (UK) emissions. Gas has been given a small role in this new energy mix due to the supply and price Deleted: chapter constraints. Formatted: English (UK) Deleted: . Formatted: English (UK)

There are 3 ways to integrate the use of Natural Gas into South African electricity supply, Deleted: utilise gas to compliment Formatted: English (UK)

Formatted: English (UK) • Cheaper Alternative to Diesel to supply Peak Demand Loads. Deleted: scenario, Formatted: English (UK) • Mid-merit supply of a varying load factor average of 50% to compliment renewables. • Base Load supply – consistent, high load factor supply.

The price at which South Africa has access to gas will determine the utilisation in electricity generation (peaking, mid-merit and baseload) and related sectors.

9.1.1 Levelised Cost of Energy for Range of Gas Prices Deleted: : Formatted: English (UK)

The levelised cost of energy for the cost range of Mozambican gas assumed in this study results in a linear relationship between the cost of gas and the levelised cost of energy. The Deleted: ... [370] Formatted: English (UK) Gas price, converted from MMBtu to GJ then placed in the Levelised Cost of Energy Model Deleted: MMbtu results is a parallel relationship of gas cost and levelised cost of energy. The levelised cost of Formatted: English (UK) Deleted: energy is based on the OCGT (due to its higher efficiency levels) technology at the assumed Gj Formatted: English (UK) exchange rate of ZAR 8.01 to the USD as per the IRP 2010-2030 Update. Deleted: Formatted: English (UK) 79

Table 9.1: Conversion of MMBtu to Gigajoules (GJ) Deleted: 19 Formatted: English (UK) USD Formatted: English (UK) /MMBTU 5.70 6.49 7.28 8.07 8.86 9.65 10.44 11.23 12.02 12.81 13.60 USD/ GJ 6.01 6.85 7.68 8.51 9.35 10.18 11.02 11.85 12.68 13.52 14.35 Formatted: English (UK) Formatted: English (UK)

Figure 9.1 below is an illustration of the cost build-up (as calculated in appendix 1) of the Deleted: 13 Formatted: English (UK) levelised cost of energy for CCGT in South Africa according to the cost data from the IRP 2010- Formatted: English (UK) 2030 update of 2013 combined with the range for gas costs assumed in this study.

Levelised Cost of Energy OCGT R/MWh Levelised Cost of Energy OCGT R/mwh

13.60 13.60 12.81 12.81 12.02 12.02 11.23 11.23 10.44 10.44 9.65 9.65 8.86 8.86 8.07 8.07 7.28 7.28 6.49 6.49 6.01 6.01

0 200 400 600 800 1000 1200 0 200 400

Adjusted Capital (R/MWh) O&M (R/MWh) Fuel (R/MWh) Adjusted Capital (R/MWh) Deleted: Figure 9.1: Gas Price and Levelised Cost of Energy Relationship Formatted: English (UK) Deleted: 13

Formatted: English (UK) Table 9.2 is the displays the relationship of the levelised cost of energy at the assumed range Deleted: 20 Formatted: English (UK) of gas prices assumes in this study. The calculation of this can be seen in Appendix 1 Formatted: English (UK)

Deleted: Table 9.2 Gas Input Cost and Total Levelised Cost of Energy ... [371] Formatted: English (UK) USD/ GJ 6.01 6.84 7.68 8.51 9.34 10.18 11.01 11.84 12.68 13.51 14.34Deleted: 20 R/GJ 48.17 54.84 61.52 68.2 74.87 81.55 88.23 94.9 101.58 108.26 114.93Formatted: English (UK) Total Formatted: English (UK) (R/MWh) 532.82 582.81 632.8 682.79 732.77 782.76 832.75 882.74 932.72 982.71 1032.7Formatted: English (UK) Formatted: Font:Not Bold, English (UK) Deleted: From the above data (Table 9.2) and graph (figure 9.1) one can see that fuel cost is a large Formatted: English (UK) portion of the cost of Gas power generation using the CCGT. Formatted: English (UK) Formatted: English (UK) 80

This highlights the importance of the price at which South Africa can source gas from

Mozambique, as it will greatly affect the possibility of economic viability of integrating gas Deleted: effect Formatted: English (UK) into the South African power generation fleet due to its high proportion of the levelised cost.

9.1.2 Comparison of Levelised Cost of Energy to Other Forms of Electricity Generation

In order to make a baseline comparison of the cost of using Mozambican power to produce power in South Africa, the data from the IRP 2010-2030 2013 update was used to make a levelised cost of energy analysis (Figure 9.2). Deleted: for level Formatted: English (UK)

Deleted: . Formatted: English (UK) Levelised Cost Of Energy IRP 2013 Update Levelised Cost Of Energy IRP 2013 Update CCGT with CCS

CCGT CCGT with CCS

OCGT CCGT

Nuclear Fleet OCGT

Pulverised Coal With CCS Nuclear Fleet

Pulversided Coal with FGD Pulverised Coal With CCS

0.00 200.00 400.00 600.00 800.00 1000.00 1200.00 1400.00 1600.00 1800.00 Pulversided Coal with FGD

Adjusted Capital (R/MWh) O&M (R/MWh) Fuel (R/MWh) 0.00 200.00 400.00 600.00 Adjusted Capital (R/MWh) Figure 9.2: Levelised Cost of Energy as per IRP 2010 – 2030 Update 2013 (Department Of Deleted: Formatted: English (UK) Energy, 2013) Deleted: 14 Formatted: English (UK) Deleted: DOE Figure 9.2 is a graphic representation of the cost build-up of electricity generation options Formatted: English (UK) that the South African government has assessed as per the IPR 2010-2030 2013 update. IPR Deleted: 14 Formatted: English (UK) 2010-2030 2013 update assumes a cost of R92 per gigajoule resulting in a total levelised cost Deleted: ... [372] of energy for CCGT of ZAR 860.97, resulting in gas power generation (CCGT and OCGT) being Formatted: English (UK) Deleted: & one of the more expensive alternatives. This would most likely result in its integration into Formatted: English (UK) the power system for peaking electricity generation only.

Figure 9.3 is a graphic representation of the total levelised cost of according the price range Deleted: 15 Formatted: English (UK) of gas assumed in this study of USD 6 – 14.35 per gigajoule. The calculation of this can be seen Deleted: the in annexure 2. Formatted: English (UK) Formatted: English (UK) Assumed Cost of Mozambican Gas Vs IPR Assumed Cost of Mozambican Gas Vs IPR Alternatives Alternatives

CCGT @ USD13.6 /Gj CCGT @ USD13.6 /Gj CCGT @ USD11.00 /Gj CCGT @ USD11.00 /Gj CCGT @ USD9.00 /Gj CCGT @ USD9.00 /Gj CCGT @ USD7.00 /Gj CCGT @ USD7.00 /Gj CCGT @ USD6.01 /Gj CCGT @ USD6.01 /Gj Nuclear Fleet Nuclear Fleet Pulverised Coal With CCS Pulverised Coal With CCS Pulversided Coal with FGD Pulversided Coal with FGD 0.00 200.00 400.00 600.00 800.00 1000.00 1200.00 0.00 200.00 400.00 Adjusted Capital (R/MWh) O&M (R/MWh) Fuel (R/MWh) Adjusted Capital (R/MWh) Deleted: Figure 9.3: Levelised Cost of Energy at various Gas Prices Deleted: 15 Formatted: English (UK) Formatted: English (UK) From this one can see at the assumed rage of the cost of gas, integrating Mozambican gas for electricity could be an economically viable alternative for peaking, mid-merit as well as baseload generation depending on the landed cost of the gas in South Africa. Deleted: chapter Formatted: English (UK) Gas imports from Mozambique could present an economically viable alternative in the long Deleted: “however Formatted: English (UK) and medium term, using the prices assumed in Chapter 7. However much depend on the Deleted: ” price at which Mozambique is prepared to sell gas to South Africa as well as the volumes Deleted: , Formatted: English (UK) delivered and hence the cost of transportation (Stanley et al., 2014). Formatted: English (UK) Formatted: No underline, English (UK) Deleted: : 9.2 Medium Term Opportunities Formatted: No underline, English (UK) Formatted: English (UK) Deleted: chapter LNG will be the first gas available from the large offshore fields of the Rovuma Basin as Formatted: English (UK) discussed in Chapter 6.4. This presents an opportunity for South Africa to use LNG to boost Deleted: electricity supply in the medium term, for peaking and mid – merit supply. Deloitte (2015) Formatted: English (UK) Deleted: has 82 study completed an analysis on LNG imports to Saldanha and concludes that there is a strong Deleted: a study Formatted: English (UK) economic case for the import of LNG for electricity generation. This is further support by Formatted: English (UK) Business Monitor International (2015) stating that, Of the import projects under proposal, we Deleted: believe Saldanha Bay to be the most feasible. Saldanha is a naturally deepwater port, Formatted: English (UK) accessible to large bulk carriers. Deleted: BMI: " Formatted: English (UK) The report goes on to say “It is also comparatively favourable on the demand side. The IDZ Deleted: ” (BMI, 2015). provides a number of major industrial consumers - in particular in the metals industry. It is Formatted: English (UK) Deleted: also close to the Ankerlig power plant at Atlantis” (Business Monitor International, 2015) The Formatted: English (UK) conversion of the existing Ankerlig facility from a 1350 MW OCGT to more efficient 2070 CCGT Deleted: BMI Formatted: English (UK) setup, would generate peaking and mid-merit electricity supply at a much reduced rate per Deleted: ... [373] KWh. Formatted: English (UK) Deleted: reduce

Formatted: English (UK) 9.2.1 Cost Savings Formatted: Font color: Auto, English (UK) Formatted: English (UK)

Deleted: : According to Deloitte (2015), if one assumes a LNG cost of USD 10/MMBtu the assumed price Formatted: English (UK) of LNG in South Africa for LNG sourced outside of Mozambique, as per the IRP 2010-2030. At Formatted: English (UK) Deleted: MMbtu a load factor of 45% for the CCGT, a levelised cost analysis taking into account Initial capital Formatted: English (UK) required for the conversion, operating costs, fuel costs and cots of capital. This results in a Deleted: ... [374] Formatted: English (UK) levelised cost of energy 65% cheaper than the cost of producing power from diesel. (Deloitte, Deleted: Results 2015) Formatted: English (UK)

Eskom is running their open cycle gas turbines on diesel at an astronomical cost of R3.13/KWh (May 2011 figures), the adoption of LNG in the Western Cape would mean the Ankerlig facility would produce electricity for R1.10 /Kwh (Deloitte, 2015).

The total fuel cost savings Eskom could realise at a 45% load factor is R5 billion per annum offsetting the capital cost of between R17 – R19.5 Billion in under 4 years. (Deloitte, 2015)

9.2.2 Other Benefits Deleted: : Formatted: English (UK)

• The Western Cape economy would be realising a boost from the infrastructure spend of between R17 and R19 billion. (Deloitte, 2015)

• The Western Cape would realise greater energy independence – meaning less electricity imports from the north eastern parts of the country. Additional 800 MW of coal power plus transmission losses of about 10% making a total of 880MW available to the rest of the grid. (Deloitte, 2015)

• Reduced greenhouse gas emissions, CO2 intensity of gas is 27% less than diesel (as Deleted: green house Formatted: English (UK) displayed in table 3.2 in section 3.4.) (Deloitte, 2015). Formatted: English (UK) • Gas as a mid-merit load capacity support the nuclear and renewable energy mix in the Deleted: , Formatted: English (UK), Subscript region well. (Deloitte, 2015) Formatted: English (UK) • Due to shorter lead time of gas infrastructure, and the higher load factor of gas will Deleted: 6 Formatted: English (UK) provide much needed support in the energy supply mix in the medium term. (Deloitte, Deleted: chapter 2015) Formatted: English (UK) Deleted: .

Formatted: English (UK) 9.2.3 Additional LNG Opportunities Deleted: ) Formatted: English (UK)

Deleted: Other coastal industrial zones such as Coega Industrial Zone and Richards bay could be Formatted: English (UK) Deleted: renewables developed into power generating hubs that could integrate gas into the industrial sectors in Formatted: English (UK) these areas. Coega is similar to Saldanha in that it has a large compliment of renewables in Deleted: : Formatted: English (UK) the region with no baseload generation capacity and relies heavily on electricity imports. Deleted: ... [375] Coega like Saldanha could implement LNG to generate electricity to supplement the Formatted: English (UK) renewable energy in the area. Deleted: to Formatted: English (UK)

Coega being an industrial zone could distribute gas direct to industry, and because the large Formatted: English (UK) city of Port Elizabeth is nearby gas can be integrated into the transport and household sectors. Deleted: ... [376] Richards Bay Industrial Zone also presents an opportunity to produce electricity for the area, Formatted: English (UK) with Durban close by gas can be integrated into the transport and household sectors in additional to the industrial users and electricity generation. Having these 3 LNG power nodes Deleted: ... [377] Formatted: English (UK) will alleviate significant pressure on the current supply of electricity and transmissions Formatted: No underline, English (UK) networks. Deleted: : Formatted: No underline, English (UK) Formatted: English (UK) 9.3 Long Term Opportunities Deleted: chapter Formatted: English (UK) Deleted: weight Gas being available through a pipeline could offer cheaper landed gas as calculated in Chapter Formatted: English (UK) Deleted: prioritising 7, cheaper gas adds merit to the prioritisation of gas baseload generation capacity. Formatted: English (UK) 84

9.3.1 Price of Gas to Displace Coal Deleted: : Formatted: English (UK) Utilising the levelised cost of electricity model we can determine the cost at which gas will start to displace coal power generation. Formatted: Font color: Text 1, English (UK) Formatted: Font color: Red, English (UK)

Formatted: English (UK) According to the IRP 2010-2030 update the costs of producing power from coal are as follows: Deleted: there are Deleted: following

Formatted: English (UK) • Pulverised Coal with FGD - ZAR 584.14/MWh Formatted: English (UK) Formatted: English (UK)

The comparison of the cost to displace coal will be done on Pulverised Coal with flue gas desulphurisation as this is the most cost competitive. Carbon taxes have not been taken into Deleted: - carbon Formatted: English (UK) account in this calculation as mentioned above. Deleted: study Formatted: English (UK) Formatted: English (UK) The Result from the model is as follows as seen in appendix 2 Deleted: : Formatted: English (UK) • USD 6.511/MMBtu - ZAR 584.14/MWh

This is further supported by Stanley et al (2014), stating that gas imports via pipeline from Deleted: , Formatted: English (UK) Mozambique are currently competitive with coal at a delivered price of USD7/MMBtu (USD

7.39/Gj) or less. This estimate is also closely maintained by McKinsey (2015) stating that gas Deleted: (Stanley , et al., 2014). ... [378] Formatted: English (UK) prices would need to drop below USD6/MMbtu (USD 6.33/Gj) to begin to displace coal on the Deleted: supported cost curve. Formatted: English (UK) Deleted: , Formatted: English (UK) 9.3.2 Price of Gas to Displace Nuclear Deleted: states that “ Formatted: English (UK) According to the IRP 2010-2030 update there are the following costs of producing nuclear Deleted: ” (Mckinsey , 2015). power as seen in appendix 2: Formatted: English (UK) Deleted: : • Nuclear Fleet Cost - ZAR 692.83/MWh Formatted: English (UK) Formatted: English (UK) The cost of gas needed to displace the cost of nuclear power according the the levelised cost of energy model is:

• USD 8.229/MMBtu - ZAR 692.85/MWh

Figure 9.3 illustrates that landing gas in the lower quartile of the cost estimate would result Deleted: 15 Formatted: English (UK) in gas displacing the cost of new coal assets as well as nuclear alternatives.

The Mozambican onshore gas processing facilities timeline is more uncertain than the LNG facilities but based on the cost assumptions in this paper the integration of Mozambican Gas via pipeline presents a credible opportunity that stakeholders should be perusing. Formatted: English (UK) Formatted: Line spacing: 1.5 lines

10. Conclusion and Recommendations Deleted: & Formatted: No underline, English (UK) Deleted: : Mozambican Gas has the potential to provide an economically viable solution to the South Formatted: No underline, English (UK) African power crisis, but the final price at which South Africa can buy the gas is unclear due Formatted: No underline, English (UK) Formatted: English (UK) to the early stage of development the gas fields are currently in. The cost assumption made Formatted: Line spacing: 1.5 lines in this study (based on the IRP 2010-2030 Update of 2013) show that based on current Deleted: ... [379] Formatted: English (UK) information Mozambican gas could provide an economic solution to South Africa’s electricity Deleted: ... [380] crisis. Taking all these factors into account it is clear that the Government should be Formatted: English (UK) Deleted: ... [381] prioritising a Big Gas scenario utilising gas for peaking power, mid merit and baseload capacity Formatted: English (UK) expansion. Adopting the Big Gas approach based on the current available information offers Deleted: ... [382] Formatted: English (UK) a feasible way for South Africa to meet its current and future electricity shortfalls.

10.1 What is the Big Gas Scenario?

A Big Gas scenario according to the IRP 2010-2030, a big gas scenario would mean 62 480 MW Deleted: big gas Formatted: English (UK) of CCGT and 6720 MW of OCGT totalling 69 200 MW of installed power being gas, resulting Deleted: in 65.34% of total installed capacity would be power generated from gas with the balance made Formatted: English (UK) up of hydro, coal and renewables.

10.2 Implementation

Gas infrastructure has the shortest lead time and the lowest capital requirement of any power generation technology as discussed in Chapter 3. The fact that coal fired powered plants have Deleted: chapter Formatted: English (UK) a lead time of approximately eight years, and nuclear could take significantly longer due to Deleted: ... [383] the technical complexity (Mckinsey , 2015). This means that no new coal and nuclear Formatted: English (UK) expansion will be ready by at least 2026, and the renewable build program will not generate enough additional electricity to meet demand putting significant stress on the power supply system.

LNG gas Infrastructure can be implemented over the short to medium alleviating the immediate pressure on the electricity system while a pipeline for gas is being built in order to land gas at the cheapest possible price to integrate gas baseload electricity generation. All Deleted: ... [384] Formatted: English (UK) this can be achieved before any coal or nuclear assets would be integrated into the power supply pool. 87

10.3 Capital Cost Savings

Gas power stations need significantly less capital per unit capacity and achieve a similar and competitive levelised cost of electricity, this means that the investment is a more feasible Deleted: (as discussed above) Formatted: English (UK) option for the financially distressed Eskom or a more attractive investment to possible

Independent Power Producers. Adopting the Big Gas scenario would drastically change Deleted: Annexure envisaged energy mix (base case) of the IRP 2010-2030, but based on the assumes figures in Formatted: English (UK) this study could result in a very similar or better levelised cost per KWh, with a significantly reduced capital outlay.

Appendix 3 is an extract from Mckinsey (2015) report from this it is clear to see the Deleted: Annexure Formatted: English (UK) dramatically reduced capital expenditure a Big Gas adoption would realise. Over R 244 billion Deleted: the would be saved (a saving of 29% on capital expenditure) to realise a similar levelised cost of Formatted: English (UK) Formatted: English (UK) electricity (Mckinsey , 2015). In order to adopt a Big Gas scenario where gas would be used Deleted: for the full range of capacity including base load generation, (therefore displacing coal and ... [385] Formatted: English (UK) nuclear) gas prices would have to be in the region of USD 7/MMBtu. Deleted: big gas Formatted: English (UK) 10.4 Shale Gas Opportunity Deleted: ... [386] Formatted: English (UK)

The largest potential upside of developing a “Big Gas” scenario is the possibility of shale gas Deleted: big gas Formatted: English (UK) development and production in South Africa. If the development of the shale gas is successful Deleted: if the source can be switched to the domestic shale gas, potential utilising cheaper domestic Formatted: English (UK) gas for power, which will change the energy dynamics in South Africa significantly.

10.5 Downstream Gas Opportunities

Once the gas infrastructure is in place and gas is further integrated in the downstream sector, Formatted: English (UK) gas utilisation can be expanded into the industrial, transport and residential sectors creating a larger demand base which could offset the transport costs, possibility reducing the cost of gas further. The volume of gas that can be transported through a pipeline increases Deleted: ... [387] Formatted: English (UK) exponentially with the increase in the diameter of the pipe, costs on the other hand an Deleted: , increase more or less linearly (Stanley et al., 2014). “The combination of exponential volumes Formatted: English (UK) Deleted: and liner costs leads to powerful economies of scale in the unit cost of pipeline ... [388] Formatted: English (UK) 88 transportation” (Stanley et al., 2014). The development of a downstream gas sector in South Deleted: , Deleted: Africa would go a long way in creating new manufacturing hubs aiding in the creation of much ... [389] Formatted: English (UK) needed jobs and contributing significantly to the Gross Domestic Product. Formatted: English (UK) Deleted: adding Formatted: English (UK) 10.6 Recommendations Deleted: creating Formatted: English (UK) Formatted: English (UK) The South African Government needs to lead the process by firstly updating its stance on Deleted: : Formatted: English (UK) natural gas, identifying the recent Mozambican gas fields as a Mozambique as a key potential Formatted: English (UK) source of gas. The Integrated Resource Plan as the steering document must to be updated to Deleted: it Formatted: English (UK) reflect the Mozambican gas as a potential source of gas to produce economically viable Deleted: sighting electricity for the South African market. The Integrated Resource Plan must also update the Formatted: English (UK) Deleted: Gas. ... [390] effects of the exchange rate on the levelised cost of energy for each of the electricity Formatted: English (UK) generating options in order to get an accurate cost of gas, that can displace coal and nuclear Deleted: ... [391] Formatted: English (UK) options in order that the Big Gas scenario can be adopted.

Once these updated numbers have been determined, the ministry of energy needs to start approaching South Africa gas stakeholders in order that a combined approach can be made to the Mozambican gas stakeholders in order to acquire additional and more accurate information about the costs of LNG and Natural Gas to determine with certainty the cost that gas would be available to the South African market. Once this has been established the Deleted: ... [392] Formatted: English (UK) ministry can then make an informed decision about how to move forward with gas development before any other commitments are made to other new build technologies, specifically nuclear.

Deleted: Annexure Formatted ... [393] Formatted ... [394] Formatted ... [395] Formatted ... [396] Appendix 1: Levelised Cost of Energy OCGT Calculation Formatted ... [397] CCGT Formatted ... [398] Formatted ... [399] Rated Capacity MW 711 711 711 711 711 711 711 711 711 711 711 Formatted ... [400] Life of Program 30 30 30 30 30 30 30 30 30 30 30 Formatted ... [401] Load Factor 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% Formatted ... [402] Overnight Capital Cost 6406 6406 6406 6406 6406 6406 6406 6406 6406 6406 6406 Formatted ... [403] Lead Time 3 3 3 3 3 3 3 3 3 3 3 Deleted: & Availability Factor 88.8 88.8 88.8 88.8 88.8 88.8 88.8 88.8 88.8 88.8 88.8 Formatted ... [404] Formatted Adjusted Overnight Capital Costs, ... [405] Formatted Accounting for Capex Phasing 7089 7089 7089 7089 7089 7089 7089 7089 7089 7089 7089 ... [406] Formatted Discount Rate R/Kw ... [407] Formatted ... [408] Formatted Fixed O and M (R/Kw) 163 163 163 163 163 163 163 163 163 163 163 ... [409] Formatted Variable O and M (R/Gj) 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 ... [410] Formatted Variable Fuel Costs (R/GJ) 48.17 54.85 61.53 68.20 74.88 81.56 88.23 94.91 101.59 108.26 114.94 ... [411] Formatted ... [412] Formatted Heat Rate Kj/Kwh 7487 7487 7487 7487 7487 7487 7487 7487 7487 7487 7487 ... [413] Formatted ... [414] Formatted CO2 Emissions Kg/MWh 388 388 388 388 388 388 388 388 388 388 388 ... [415] Formatted ... [416]

Deleted: &

Formatted Adjusted Capital (R/MWh) 134.25 134.25 134.25 134.25 134.25 134.25 134.25 134.25 134.25 134.25 134.25 ... [417] Formatted O and M (R/MWh) 37.91 37.91 37.91 37.91 37.91 37.91 37.91 37.91 37.91 37.91 37.91 ... [418] Formatted USD/ GJ 6.01 6.49 7.28 8.07 8.86 9.65 10.44 11.23 12.02 12.81 13.60 ... [419] Formatted ... [420] Fuel (R/MWh) 360.67 410.66 460.64 510.63 560.62 610.61 660.59 710.58 760.57 810.56 860.54 Formatted ... [421] Total (R/MWh) 532.83 582.82 632.80 682.79 732.78 782.77 832.75 882.74 932.73 982.72 1032.70 Formatted ... [422] Source IPR 2010-2030 Update as well as data from this Report Formatted ... [423] Formatted ... [424] Formatted ... [425] Formatted 90 ... [426] Formatted ... [427] Formatted ... [428] Formatted ... [429] Formatted ... [430] Formatted ... [431] Formatted ... [432] Formatted ... [433] Formatted ... [434] Formatted ... [435] Formatted ... [436] Formatted ... [437]

Formatted ... [438] Formatted ... [439] Formatted ... [440] Formatted ... [441] Formatted ... [442] Formatted ... [443] Formatted ... [444] Formatted ... [445] Formatted ... [446] Formatted ... [447] Formatted ... [448] Formatted ... [449] Formatted ... [450] Formatted ... [451] Formatted ... [452] Formatted ... [453] Deleted: Annexure Formatted ... [454] Formatted ... [455] Formatted ... [456] Formatted ... [457] Appendix 2: Levelised Cost of Energy Comparison Calculation: Formatted ... [458] CCGT @ CCGT @ CCGT @ CCGT @ CCGT @ Formatted ... [459] Pulverised Nuclear USD6.01 USD7.00 USD9.00 USD11.00 USD13.6 Formatted ... [460] Pulverised Coal Coal With Fleet with FGD CCS /Gj /Gj /Gj /Gj /Gj Formatted ... [461] Formatted ... [462] Formatted ... [463] Rated Capacity MW 4500 4500 9600 711 711 711 711 711 Formatted ... [464] Life of Program 30 30 60 30 30 30 30 30 Deleted: & Load Factor 85% 85% 92% 50% 50% 50% 50% 50% Formatted ... [465] Overnight Capital Cost 21572 40845 44010 6406 6406 6406 6406 6406 Formatted ... [466] Lead Time 9 9 16 3 3 3 3 3 Formatted ... [467] Availability Factor 91.7 91.7 94.1 88.8 88.8 88.8 88.8 88.8 Formatted ... [468] Adjusted Overnight Formatted ... [469] Capital Costs, Accounting Formatted ... [470] 25772 48789 59226 7089 7089 7089 7089 7089 for Capex Phasing Formatted ... [471] Discount Rate R/Kw Formatted ... [472] Formatted ... [473]

Fixed O and M 552 923 532 163 163 163 163 163 Formatted ... [474] Variable O and M 51.2 81.4 295 0.7 0.7 0.7 0.7 0.7 Deleted: & Formatted Variable Fuel Costs R/GJ 17.5 17.5 6.8 50.79 59.16 76.06 92.96 114.94 ... [475] Formatted ... [476] Formatted ... [477] Heat Rate Kj/Kwh 9812 14106 10762 7487 7487 7487 7487 7487 Formatted ... [478] Formatted ... [479]

CO2 Emissions Kg/MWh 947.3 136.2 0 388 388 388 388 388 Formatted ... [480] Formatted ... [481] CCGT @ CCGT @ CCGT @ CCGT @ CCGT @ Formatted ... [482] Pulverised Nuclear USD6.01 USD7.00 USD9.00 USD11.00 USD13.6 Formatted ... [483] Pulverised Coal Coal With Fleet Levelised Cost with FGD CCS /Gj /Gj /Gj /Gj /Gj Formatted ... [484] Formatted ... [485] Formatted ... [486] Formatted 91 ... [487] Formatted ... [488] Formatted ... [489] Formatted ... [490] Adjusted Capital Formatted: English (UK) (R/MWh) 287.10 543.51 524.14 134.25 134.25 134.25 134.25 134.25 O and M (R/MWh) 125.33 205.36 95.51 37.91 37.91 37.91 37.91 37.91 Formatted: English (UK) Fuel (R/MWh) 171.71 246.855 73.18 380.28 442.93 569.48 696.03 860.54 Deleted: & Total (R/MWh) 584.14 995.73 692.83 552.44 615.09 741.64 868.19 1032.70 Formatted: English (UK) Formatted: English (UK) Exchange Rate 8.01 Formatted: English (UK)

USD Formatted: English (UK) /MMBTU 6.010 7.000 9.000 11.00 13.60 Formatted: English (UK)

USD/ GJ 6.34 7.39 9.50 11.61 14.35 Formatted: English (UK)

R/GJ 50.79 59.16 76.06 92.96 114.94 Formatted: English (UK) Formatted: English (UK) Source IPR 2010-2030 Update as well as data from this Report Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK) Formatted: English (UK)

Appendix 3 – Capital Cost Savings Deleted: Annexure Formatted: English (UK) Formatted: English (UK)

(Mckinsey , 2015)

References:

Business Monitor International, 2015. Mozambique Oil and Gas Report Q1 2016, London: Deleted: BMI BMI Research. Deleted: s.l.: Formatted Table Business Monitor International, 2015. South Africa Oil and Gas Report 2015, London: BMI Formatted: Font:Not Italic Research. Deleted: BMI Deleted: SOUTH AFRICA OIL & GAS REPORT Q4 Business Monitor International, 2015. South Africa Power Report Q4 2015 , London: Deleted: BMI Business Monitor International Limited. Deleted: s.l.:

Business Monitor International, 2015. South Africa Power Report Q4 2015, London: BMI Deleted: BMI Research. Deleted: s.l.:

Bohlmann, J., Bohlman, H. and Inglesi-Lotz, R., 2015. An Economy-Wide Evaluation of New Deleted: & Power Generation in South Africa: The Case of Kusile and Medupi,: National Treasury of Deleted: , s.l.: South Africa.

British Petroeulm, 2015. BP Statistical Review of World Energy 2015 Workbook ,: British Deleted: BP Petroleum . Deleted: , s.l.:

Brain, M., nd. How Gas Turbine Work. [Online] Mass Engineers. Available at: http://www.massengineers.com/Documents/howgasturbinework.htm [Accessed 20 February 2016].

Deloitte, 2015. The socio-economic impact of importing LNG into the West Coast of the Western Cape,: Deloitte. Deleted: , s.l.:

Department Of Energy, 2010. Intergrated Resource Plan ,: South African Government . Deleted: DOE Deleted: , s.l.: Department Of Energy, 2010. Intergrated Resource Plan 2010 - 2030,: The Goverment of Deleted: DOE the Repbulic of South Africa. Deleted: , s.l.:

Department Of Energy, 2013. Intergrated Resource Plan 2010-2030 Update 2013,: Ministry Deleted: DOE of Energy. Deleted: , s.l.:

Eberhard, A., 2011. The Future of South African Coal: Market, Investment and Policy Deleted: THE FUTURE OF SOUTH AFRICAN COAL: Changes, s.l.: Stanford University . MARKET, INVESTMENT, AND POLICY CHALLENGES

Energy Information Administration, 2013. Updated Capital Cost Estimates for Utility Scale Deleted: EIA Electricity Generating Plants,: U.S. Department of Energy. Deleted: , s.l.:

Energy Information Administration, 2014. MOZAMBIQUE,: Energy Information Deleted: EIA Administration . Deleted: , s.l.:

Energy Information Administration, 2015. Frequently Asked Questions. [Online] Available Deleted: EIA at: https://www.Energy Information Administration.gov/tools/faqs/faq.cfm?id=73 and t=11 Deleted: eia [Accessed 22 November 2015]. Deleted: &

Energy Information Administration, 2015. South Africa International energy data and Deleted: EIA analysis,: International Energy Agency. Deleted: , s.l.: 94

Eskom , 2015. List of Fact Sheets: Intergrated Report 2015,: Eskom . Deleted: , s.l.:

Eskom, 2013. Ingula Pumped Storage Scheme,: Eskom SOC Limited. Deleted: , s.l.:

Eskom, 2014. COP17 fact sheet, s.l.: Eskom SOC Limited .

Eskom, 2015. Intergrated Report 2015, Johannesburg: Eskom Holdings SOC Ltd.

Fletcher, S. and Parker, L., 2007. Climate Change: The Kyoto Protocol and International Deleted: & Actions,: Congress Research Service. Deleted: , s.l.:

ICF, 2012. The Future of Natural Gas in Mozambique: Towards a Gas Master Plan, Fairfax:

INP, 2015. Results announcement – 28th October 2015,: INP. Deleted: RESULTS ANNOUNCEMENT Deleted: OCTOBER Interfax Energy, nd. Gas daily. [Online] Available at: Deleted: , s.l.: http://interfaxenergy.com/gasdaily/uploads/articles/1433502801.jpg [Accessed 21 February 2016].

International Monetary Fund, 2014. South Africa Strives to Revive Growth, Cut Exposure to Risks. [Online] Available at: http://www.imf.org/external/pubs/ft/survey/so/2014/car120514a.htm [Accessed 05 july 2016].

Intergovernmental Panel On Climate Change, 2014. Climate change 2014: Mitigation of Deleted: ... [491] Climate Change , New York: Cambridge University Press .

Kenny, A., 2015. The Rise and Fall of Eskom — And How to Fix it Now,: South African Deleted: , s.l.: Institute of Race Relations.

Mckinsey , 2015. South Africas Big Five: Bold Priorities for Inclusive Growth,: McKinsey Deleted: , s.l.: and Company . Deleted: &

Mgojo, M., 2012. Developing resources in the Waterberg: The Exxaro story.: Exarro. Deleted: . s.l.,

Molefe, B., 2015. Intergrated Report 2015,: Eskom. Deleted: , s.l.:

Ozgur, 2013. What is capacity factor and how do solar and wind energy compare? Deleted: ?. [ Sunmetrix.[Online] Available at: http://sunmetrix.com/what-is-capacity-factor-and-how- does-solar-energy-compare/ [Accessed 07 January 2016]. Deleted:

Evans , P., Farina, M., 2013. The Age of Gas and the Power of Networks. General Electric Company.

Price Waterhouse Coopers, 2015. Natural Gas Position Paper: EThewkwini Municipality,: Deleted: PWC Price Water House Coopers Incoporated. Deleted: , s.l.:

Putter, A., 2016. Interview by Stuart Brown, Mozambican Gas in South Africa [Interview] Deleted: (16 March 2016). Deleted: 95

Republic Of Mozambique Cabinet Council, 2014. Natural Gas Master Plan,: Rrepublic of Deleted: REPUBLIC OF MOZAMBIQUE CABINET Mozambique. COUNCIL, 2014. NATURAL GAS MASTER PLAN, s.l.: REPUBLIC OF MOZAMBIQUE.

Stanley , D., Schlotterer, R. and Eberhard, A., 2014. Harnessing African Natural Gas: A New Deleted: & Opportunity for Africa's Energy Agenda, Washington : The World Bank . Deleted: NEw

Stats SA, 2014. Electricity Generated and Available for Distrubution,: Statistics South Deleted: , s.l.: Africa .

Stats SA, 2015. Gross domestic product Third quarter 2015, s.l.: Stats SA. The Oil and Gas Year, 2013. The Oil and Gas Year Mozambique 2013, Dubai: Wildcat Deleted: & International FZ-LLC.

The Presidency , 2015. Twenty Year Review South Africa 1994 - 2014,: The Presidency . Deleted: TWENTY YEAR REVIEW SOUTH AFRICA Deleted: , s.l.: Trollip, H. et al., 2014. Energy Security In South Africa: Maps. Deleted: , s.l.: Formatted Table U.S. Department of Energy, 2015. Natural Gas Infrastructure Implications of Increased Demand from the Electric Power Sector, Washington: U.S. Department of Energy.

Yelland, C., 2015. Can Eskom Keep the Lights On - With Chris Yelland [Interview] (10 October 2015).

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Mozambican Gas – An Economically Viable Solution to the South African Electricity Crisis?

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1. INTRODUCTION: 6

1.1 Problem Statement: 7

1.2 Purpose of this Report: 8

2. LITERATURE REVIEW: 10

2.1 Natural Gas: 10 2.1.1 Natural Gas Characteristics: 10 2.1.2 Different Forms of Natural Gas: 11 2.1.3 Benefits of Using Natural Gas: 11 2.1.4 Global Movement toward CO2 Reduction: 12 2.1.6 Global Gas Demand and Supply: 13 2.1.7 Natural Gas Pricing: 14 2.1.8 Gas Value Chain: 14 2.1.9 Natural Gas in SA: 15

2.2 South African Electricity Outlook: 16 2.2.1 South African Power Crisis 16 2.2.2 Deterioration of the Reserve Margin: 16 2.2.3 Explaining the Supply Crisis: 17 2.2.4 Declining Power Available for Distribution: 18 2.2.5 Expected Demand Growth: 19

2.3 South Africa’s New Build Policy: 20 2.3.1 IRP 2010 – 2030: 20 2.3.2 IRP 2010 – 2030 Update (2013): 21 2.3.3 Stance On Gas IRP 2010-2030 Update: 22 2.3.4 Imminent Capacity Expansions 23

2.4 Significant Gas Discoveries in Mozambique: 25

2.5 Constraints and Risk of Gas for South Africa: 26

2.6 Opportunities for the Adoption of Gas in South Africa: 27

3. GAS POWER GENERATION: 29

3.1 Types of Gas Power Stations: 29 3.2 Natural Gas Vs Liquefied Natural Gas: 31 3.3 Comparison to Other Forms of Power Generation: 31 3.4 CO2 Intensity: 32 3.5 Cost of Producing Power from Gas: 33 3.6 Load Factors: 35

4. ANALYSIS OF SOUTH AFRICAN ELECTRICITY MARKET: 36

4.1 Market Regulation and Competition: 38 4.2 Eskom Company Profile: 38 4.3 Current Power Mix: 40 4.4 Capacity Availability: 41 4.5 Decommission Schedule: 42 4.6 New Build Programme: 45 4.7 CO2 Intensity 51 4.8 Electricity Supply / Demand Forecast 52 4.9 Current Cost of Power 54

5. GAS IN SOUTH AFRICA: 55

5.1 Policy 55 5.2 Key Stakeholders: 57 5.3 Upstream Production: 58 5.4 Gas Consumption: 58 5.5 Potential Gas reserves of South Africa: 59 5.6 Infrastructure: 60 5.7 Drivers for Natural Gas Growth in South Africa 61

6. ANALYSIS OF MOZAMBICAN GAS RESERVES: 62

6.1 Occurrence and Estimation of Natural Gas in Mozambique: 62 6.2 Mozambican Gas Industry SWOT: 64 6.3 Upstream Exploration: 65 6.4 Upstream Production: 67 6.5 Trade – Gas: 67 6.6 Policy: 68 6.7 Mozambique Gas Infrastructure: 68 6.8 Price Benchmarks of Mozambican Gas: 69

7. COST OF MOZAMBICAN GAS IN SOUTH AFRICA: 72

7.1 Palma – Johannesburg Pipeline: 72 7.2 LNG Imports: 72

8. METHODOLOGY - LEVELISED COST OF ENERGY: 74

9. RESULTS AND DISCUSSIONS: 78

9.1 Analysis & Interpretation: 78 9.1.1 Levelised Cost of Energy for Range of Gas Prices: 78 9.1.2 Comparison of Levelised Cost of Energy to Other Forms of Electricity Generation 80

9.2 Medium Term Opportunities: 82 9.2.1 Cost Savings: 82 9.2.2 Other Benefits: 83 9.2.3 Additional LNG Opportunities: 83

9.3 Long Term Opportunities: 84 9.3.1 Price of Gas to Displace Coal: 84 9.3.2 Price of Gas to Displace Nuclear: 85

10. CONCLUSION & RECOMMENDATIONS: 86

10.1 What is the Big Gas Scenario? 86

10.2 Implementation 86

10.3 Capital Cost Savings 87

10.4 Shale Gas Opportunity 88

10.5 Downstream Gas Opportunities 88

10.6 Recommendations: 88

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List of Figures

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Figure 1: Natural Gas Value Chain

Figure 2: Energy Supply Mix

Figure 3: How a turbine works

Figure 4: Geographical illustration of South African Electricity Supply Mix

Figure 5: Supply/Demand Balance Forecast:

Figure 6: Policies and Plans for

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Figure 7 Gas Production and Consumption Forecast

Figure

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Figure 9: Mozambique Gas Map

Figure 10: Cost Factors Determining Price Benchmarks:

Figure 11: Mozambique Minimum Wholesale Gas Price:

Figure 12: Gas Fields Within Areas 1 and 4

Figure 13: Gas Price and Levelised Cost of Energy Relationship

Figure 14: Levelised Cost of Energy as per IRP 2010 – 2030 Update 2013

Figure 15: Levelised Cost of Energy at various Gas Prices

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Table 1: Key Facts about Natural Gas

Table 2: Power Availability in Gigawatt-hours

Table 3: Energy Supply Mix

Table 4: IRP 2010-2030 Updated Base Case 2013

Table 5: Comparison of various power generation technologies:

Table 6: Fossil Fuel CO2 Emissions per Btu

Table 7: Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants

Table 8: South African Power SWOT Analysis

Table 9: Eskom SWOT Analysis

Table 10: Eskom Total Installed Capacity

Table 11: Eskom Decommissioning Schedule

Table 12 Average Availability Capacity

Table 13: South African Power Projects Database:

Table 14: Cost of Electricity:

Table 15: Key rationale for the adoption of gas across various policies and plans

Table 16: Discovered and Undiscovered Gas Resources Mozambique

Table 17: Mozambican Gas Industry SWOT:

Table 18: Cost Components of Mozambican LNG delivered to Saldanha

Table 19: Conversion of MMBtu to Gigajoules

Table 20: Gas Input Cost and Total Levelised Cost of Energy

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Combined Cycle Gas TurbineCO2 - Carbon DioxidGJ - GigajoulesGW - Gigawatt (One thousand MegawatGWh - Gigawatt houIPP - Independent Power ProduceIRP - Integrated Resource PlankW - Kilowatt (One thousandth of a MegawaKWh – Kilowatt HouLNG - Liquefied MMBtu – 1 Million British Thermal Units (standard measure oNERSA - National Energy Regulator of South Africa; alternatively, the RegulatoOCGT - Open Cycle Gas Tu

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South Africa currently

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2. Page 17: [87] Deleted Stuart Brown 7/27/16 3:56:00 PM Gas provides grid stability in a potentially intermittent renewable energy supply environment. “(PWC, 2015).

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Page 19: [98] Deleted Stuart Brown 7/27/16 3:56:00 PM Global Annual Natural Gas Consumption 117 Tcf Annual Natural Gas Discoveries (Average 200-1010) 134 Tcf Proven World Reserve (including unconventional gas) 6569 Tcf 27900- World Technically Recoverable Natural Gas Resources 28605 Tcf Proportion conventional technically recoverable natural gas reserve 58% Proportion unconventional technically recoverable natural gas reserve 42% Sub-Saharan % of world gas production in 2013 3.2% Sub-Saharan % of the world’s proven reserves in 2013 3.3%

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Page 20: [101] Deleted Stuart Brown 7/27/16 3:56:00 PM With various new supply projects coming online and to serve the growing Asian market it should see Asian prices drop to the lower levels, resulting in a convergence of prices (Stanley , et al., 2014).

The convergence is widely accepted. The impression here is that the Asian prices will reach the USA prices (Putter, 2016)

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Page 21: [105] Deleted Stuart Brown 7/27/16 3:56:00 PM A more extensive review of natural gas in South Africa will be done in chapter 5.

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Page 22: [108] Deleted Stuart Brown 7/27/16 3:56:00 PM The post apartheid government key goals are social transformation, access to electricity is a key element of this objective. The Presidency of South Africa published a 20-year review report, in this report it states; “there has also been a marked improvement in the percentage of households with access to electricity” “It increased from just over 50 percent in 1994/95 to 86 percent in 2013/14” (The Presidency , 2015).

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“

Page 23: [115] Deleted Stuart Brown 7/27/16 3:56:00 PM When assets are inadequately maintained this often load to reduction in efficiency as well as an increase in unplanned outages

Page 24: [116] Deleted Stuart Brown 7/27/16 3:56:00 PM More on this will be discussed on chapter 4.8.

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This

Page 28: [131] Deleted Stuart Brown 7/27/16 3:56:00 PM More on the Mozambican gas discoveries will discussed in chapter 6.

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Page 29: [133] Deleted Stuart Brown 7/27/16 3:56:00 PM PWC goes on to say there are several ways to service the demand for natural gas in South Africa, and they are as follows:

“Additional

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Intake (air and fuel) Compression Combustion Expansion Exhaust (where energy is converted)

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Page 33: [147] Deleted Stuart Brown 7/27/16 3:56:00 PM CCGT are run at higher temperatures to create increased amounts of exhaust gasses which is captured to boil water and create steam, for the steam turbine therefore generating more power from the same amount of fuel input (PWC, 2015). This results in a much greater 50- 60% thermal efficiencies (PWC, 2015).

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Page 35: [203] Moved to page 35 (Move #7) Stuart Brown 7/27/16 3:56:00 PM “Gas is also practically free from sulphur dioxide and carbon monoxide emissions” (Deloitte, 2015).

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From an environmental stand point gas provides a very attractive solution for South Africa as it has low green house gas emissions, and no nuclear waste disposal issues.

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Page 38: [209] Deleted Stuart Brown 7/27/16 3:56:00 PM Privatization may be the answer to South Africa’s problems, as reported by BMI “Privatisation could be forced on the government in the long run - although we do not think this will occur in 2015/2016 as it would be too contentious politically” (BMI, 2015).

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Page 40: [211] Deleted Stuart Brown 7/27/16 3:56:00 PM According to Business Monitor international the remaining 5% of electricity generation is produced municipalities and other major companies (like Sasol) and the IPSA in Newcastle is the only independent Power Producer operating in South Africa (BMI, 2015).

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Yelland

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Page 44: [265] Deleted Stuart Brown 7/27/16 3:56:00 PM According the the Integrated Resource Plan for Electricity 2010-2030 update of 2013, table 11 below represents the planned decommissioning schedule for the current asset base.

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“Considering

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Taking all of the above into consideration

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, and the fact that no concreate commitments for any baseload electricity infrastructure expansion beyond Kusile and Medupi. Considering the lead times this is very concerning

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Figure 6

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Page 60: [313] Deleted Stuart Brown 7/27/16 3:56:00 PM Gas Consumption for 2013 was 162.4 billion cubic feet (BMI, 2015), of that 120 billion cubic feet of this was imported (BMI, 2015).

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The

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It is clear to see from the information

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Levelised

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Levelised

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The paper

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Page 85: [378] Deleted Stuart Brown 7/27/16 3:56:00 PM (Stanley , et al., 2014).

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Taking the information from determined from this study into account,

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IPCC