While Eskom is currently slated to pay low tariffs for electricity from Karpowership’s three vessels, this could fluctuate wildly over the course of the next 20 years – potentially resulting in a massive rise in the cost of electricity from these units.
This is according economist Mike Schussler, who explained to the City Press that the price of electricity from these ships will change in accordance with the international price of liquefied natural gas and the rand/dollar exchange rate.
Since the contract is for 20 years, what is now a cost-effective project could therefore become a massive nightmare for consumers down the line.
Schussler highlighted how a similar situation happened with an aluminium smelter at Richards Bay.
The cost of this power was linked to the price of aluminium on the London Stock Exchange, as well as to international exchange rates and other foreign considerations.
Independent analyst Ryk de Klerk calculated in 2020 that Eskom had incurred R15 billion in losses since 2013 due to the above aluminium smelter situation.
Schussler is worried that the powerships could present the same problem in the long-term.
A “fast, effective, reliable” solution
Karpowership advertises its ships as a “fast, flexible, reliable” solution to energy supply needs.
These ships will also be costly, as the CSIR calculated that South Africa could pay up to R218 billion across its 20-year contract with the energy company.
Experts have criticised the length of this contract.
“That the South African government would procure one [powership] for 20 years speaks to the depths of the country’s power crisis, and questionable long-term planning in light of dropping renewables costs,” said Antoine Vagneur-Jones, an analyst at BNEF’s energy transition policy team for Europe, Middle East and Africa.
Vagneur-Jones said that most similar contracts have spanned no longer than 10 years.
In response to queries over the variable cost of internationally-sourced liquefied natural gas, Powership said: “Costs are kept low by Karpowership’s reach into the LNG market and an exclusive, long-term deal with Shell.”
Department of Mineral Resources and Energy Deputy Director General, Jacob Mbele, also told energy expert Chris Yelland that government hopes to source liquified natural gas in South Africa over the course of the contract, which would reduce costs significantly.
“Yes, we currently don’t have gas in South Africa. But there are explorations that are happening, and there are findings. It is likely that, in the future, the gas for these powerships will come from local fields,” said Mbele.
“When local gas becomes available, I can see a situation where this local gas will become the cheapest option, because it will be sourced closest to where it will be required and used.”
How powerships will fight load-shedding
Karpowership SA will dock its powerships at Coega, Richards Bay, and Saldanha, and this will provide a combined 1,200MW of ship-to-shore electricity.
Internationally-sourced liquified natural gas will be channeled into generators on the powerships to produce electricity.
The power is fed directly into the transmission network from an onboard high voltage substation.
These powerships are envisioned to be a key part of providing sufficient power to the troubled South African energy grid.