Powerships will cause massive electricity price hike in South Africa — Outa challenges Karpowership licences

The Organisation Undoing Tax Abuse (Outa) has launched a legal challenge to overturn the National Energy Regulator of South Africa’s (Nersa’s) decision to award power generation licences to Karpowership.

The action comes after Nersa announced it had approved three generating licences for the Turkish power ship company in September 2021.

Soon after, Outa said it found the decision inexplicable, stating there was a lack of transparency over why it granted the licences, despite allegations of corruption and a lack of environmental approvals.

In a statement regarding its legal challenge, Outa claims that Nersa failed to act in the interests of South Africa when it granted the licences.

It also alleges the regulator failed to provide adequate reasons for its decision and failed to consider that the Karpowership contracts would not resolve load-shedding.

“The decisions to award the licences to Karpowership for generation at Coega, Saldanha Bay and Richard’s Bay, respectively, were irrational, unreasonable, and taken without regard to relevant considerations or with regard to irrelevant circumstances,” said Outa executive director advocate Stefanie Fick.

“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.”

“By doing so, it has failed to properly exercise its mandate in terms of the Electricity Regulation Act and fulfil its oversight functions of regulator without the necessary independent checks and balances to ensure that the interests of electricity suppliers are balanced with the interests of customers, the public and the South African economy,” said Fick.

Outa outlined 12 points that form the basis of its application, including a lack of public participation in the approval process, Karpowership’s failure to meet specific regulatory and legal requirements, and a lack of transparency from Nersa over the financial implications of a potential contract.

In a tweet thread explaining more about its legal action, Outa pointed out that power ships were not typically intended to be a long-term power supply solution but only for emergencies like in a war or after a natural disaster.

“If Karpowership‘s ’emergency’ contract kicks in, South Africa will be tied into a 20-year contract, costing us more than R218 billion over two decades. Then, they up and leave,” Outa said.

“When Karpowership leaves South Africa after 20 years, they leave behind no infrastructure.”

Nersa’s independent consultant also said the ships would not provide significant job opportunities like local power plants, as the company’s own staff and experts would run it.

“Contrary to Nersa’s assertion in its reasons for the decision to grant the Karpowership IPPs’ generation licences, renewable energy solutions provide more employment opportunities on a per kWh basis than will be provided by the Karpowership projects,” they stated.

“There are faster and substantially cheaper generation project options available to eliminate load-shedding in the short-term, so the Karpowership projects are not needed.”

Outa added the power ships were not a simple “plug and play” option for South Africa, with lengthy licencing issues that need to be considered.

“It will take the ships at least a year to supply electricity to the South African grid, so the spin that this is something that can help us now is misleading,” Outa stated.

Electricity price surge

Outa also warned that South Africa’s electricity price would surge if the contract went ahead.

“The Karpowership bid price in April 2020 was about R1.50 per kWh, and Nersa said this would be up to R2.80 per kWh from April 2022, but the independent consultant estimates the current price is close to R5 per kWh, roughly two to three times the cost of alternative generation methods,” the organisation said.

Outa said these prices could lead to “windfall” profits for Karpowership.

The organisation said the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), under which Karpowership has been granted preferential bidder status, had been rendered moot by other projects. 

“Outa believes that the normal public procurement processes for new generation capacity and private procurements by electricity customers themselves are now overtaking the RMIPPPP.”

Now read: Eskom wants corruption protection for Karpowership deal

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Powerships will cause massive electricity price hike in South Africa — Outa challenges Karpowership licences