The controversial Karpowership contract: How much will it cost you?
The government’s plan to use Turkish company Karpowership’s ship-mounted power plants appears to be advancing, following a number of legal and environmental regulatory setbacks. The government has passed a ‘special directive’ ordering Transnet to find harbour space for three Turkish gas-to-power ships in the Coega harbour for the next two decades. This is despite opposition from the Transnet National Ports Authority (TNPA), which argues there is no room to harbour them. This was a key reason as to why Karpowership’s bid for environmental approval was rejected two months ago.
The terms of the emergency power tender gave Karpowership and other bid winners 20-year supply contracts. Environmentalists warn this will lock South Africa into using climate-damaging fossil fuels for their duration, while others challenge that the extortionate cost of the projects when dramatically cheaper energy generation projects exist.
Expensive, polluting and ineffective load-shedding solution
The Karpowership projects are very expensive, yet would provide very little additional power to South Africa. Between them they would generate just 1,220 MW combined — not much more than a single stage of load-shedding. Moreover, the project would not be completed in time to help with persistent power outages before capacity could be brought online from other sources.
Furthermore, due to the soaring price of gas and weakened rand, the ships could cost South Africa R500 billion, according to the Organisation Undoing Tax Abuse (OUTA). As a result, the power ships would likely require funding through higher electricity tariffs. Otherwise, taxpayers would have to foot the bill, said OUTA chief executive officer Wayne Duvenage.
OUTA’s legal challenge
OUTA is currently in court challenging the National Energy Regulator of South Africa’s (NERSA’s) approval of Karpowership’s licence before environmental approvals had been completed. The license will “cost South Africa billions of rand and be loaded onto your electricity bill”, OUTA warns.
“You’d think that Nersa would be on the public’s side, but they are not. There seems to be something seriously wrong here”, said Duvenage.
In an affidavit supporting the application, OUTA’s Advocate Stefanie Fick said:”It is submitted that NERSA has displayed a cavalier attitude towards statutory compliance and public concerns throughout its decision-making process to award generation licences to Karpowership.” Just a few of the fundamental challenges include:
- Faster and substantially cheaper generation project options exist that could eliminate load-shedding in the short term, deeming the Karpowership projects unnecessary
- The Karpowership projects will impose unnecessary financial, economic and environmental costs on South Africa, and the 20-year contracts carry a significantly greater risk to customers
- The Karpowership bid price in April 2020 was about R1.50/kWh, and NERSA said this would be up to R2.80/kWh from April 2022. However, the independent consultant estimates the current price is close to R5/kWh
The tariff estimated by the independent consultant equates to “more than 10 times” the cost of renewable alternatives, the International Institute for Sustainable Development (IISD) highlighted in a 2022 report.
Gas in South Africa a ‘costly mistake’
Meanwhile, Bloomberg reported this week that South Africa’s Presidential Climate Commission had advised the country only use a minimal amount of gas and forsake coal for future power generation. Alongside climate concerns, the high cost of fossil fuels was a fundamental reason for this advice.
The IISD similarly concluded that expanding the use of gas in South Africa will be a “costly mistake”.
“Just to introduce the first 3,000 MW of gas capacity and gas supply by 2030 will cost at least ZAR 47 billion (USD 3.1 billion)”, it stated.