The role of flexible gas power in South Africa

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ENERGY PRODUCTION IN SOUTH AFRICA IS PERMANENTLY CHANGING 


South Africa will soon embark on a large energy programme aiming at 3 726 MW of new-build gas power. For it to obtain any benefits, this capacity must be flexible.

When comparing the total system costs with and without flexible gas power, we see that gas power generates savings of up to 250 million USD per year. This translates to cheaper electricity prices for South African electricity consumers and a financially safe future for utilities. Flexible gas capacity based on internal combustion engines also allows South Africa to adjust to the displacement of diesel, optimization of coal and integration of more renewable energy. It provides a reliable solution for South Africa – now and in the future.

CONFERENCE PAPER: OPTIMIZING THE SOUTH AFRICAN POWER SYSTEM WITH ULTRA-FLEXIBLE LNG POWER PLANTS



NEWS 


www.engineeringnews.co.za ➦ Gas technology group makes case for flexibility as South Africa mulls power road map. 

www.businesslive.co.za ➦ Gas and renewable power Wärtsilä embraces new energy model. 

www.iol.co.za/business-report ➦ Wärtsilä punts gas-to-power generation. 





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Optimizing the South African power market with ultra-flexible LNG power plants

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“Wärtsilä's gas engine technology
allows us to reduce our carbon footprint
by more than 40%.”

HENRI LOUBSER, MANAGING DIRECTOR, SASOL NEW ENERGY








THE INTERMITTANCE OF RENEWABLES


South Africa is no exception to the fact that renewables are highly intermittent. While the South Africa renewables programme had saved the economy approximately 4 billion ZAR through the saving of diesel and the avoidance of unserved energy up until mid-2015, the drawbacks of renewables have similarly arisen through the intermittent nature of these energy sources.


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The aggregated energy production of solar PV and wind over 1 month from the Renewable Energy Independent Power Producers Programme (REIPPP) highlights the intermittent nature of renewable energy sources.

Traditionally, Eskom has largely relied on the use of their large coal units to balance the system. However, as the system experiences a growing level of intermittency caused by the introduction of renewable energy, so too will the overall system be required to be more flexible to accommodate this intermittency. According to the International Energy Agency, the power system will start to experience the negative effects of variability from renewable energy sources after 5% penetration levels are reached. 



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Unless new flexible capacity is added, increasing the relative share of renewables will place pressure on the existing capacity to balance the system.

Looking ahead, Eskom either has the option to continue using increasingly expensive and risky coal capacity to balance the system or alternatively, rely on more flexible technologies to balance the system.







SYSTEM SAVINGS

When comparing the total system costs with and without flexible gas power, flexible gas generates considerable annual savings for the South African electricity system. Even greater savings are realised by allowing gas to provide regulating reserves to the system. These savings emanate from the displacement of diesel capacity and the optimisation of coal capacity, which enables greater levels of renewable energy to be introduced into the system.

Savings on system costs not only translate to sustainable margins for Eskom, but also cheaper electricity for industries and consumers alike.

 






Flexible gas capacity creates savings up to 2 billion USD depending on the supply demand status of the power system.









COMPARING THE COSTS FOR POSSIBLE LNG SUPPLY CONTRACTS


With the majority of gas power envisaged to be supplied with imported LNG, one cannot ignore the cost implications of adopting non-fixed Gas Supply Agreements (GSA). But when comparing a discounted fixed LNG GSA with that of a non-fixed GSA, we see that the non-fixed solution still generates significant system savings. In fact, in certain years, it actually costs the system more to have the fixed GSA than no gas at all.

 





Even with a lower LNG price to suit the GSA, the power system will realise significant savings from having a non-fixed GSA in place.










WÄRTSILÄ DEVELOPMENT & FINANCIAL SERVICES

Join us for project development to the South Africa LNG-to-Power Programme

Innovation is the key factor for success in today’s complex world of power. Wärtsilä recognizes this, and constantly adapts to find innovative solutions for power and LNG projects to meet the ever changing market conditions. In addition to delivering EPC and O&M, Wärtsilä also serves as a development partner in the development and financing of Independent Power Producer projects, one area of which are Integrated LNG to Power Projects.

Wärtsilä Development & Financial Services (WDFS) is the development and financial services arm of Wärtsilä Corporation, dedicated to providing a comprehensive range of project development and financial services solutions to the Independent Power Producer industry. WDFS, as a project’s co-developer, invests capital into project development and construction equity and has the proven ability to mobilize capital from multilateral and bilateral institutions, local and international banks and equity investors. WDFS works closely with project sponsor partners, state and investor owned utilities, governments, financial institutions, fuel suppliers and other key industry players to develop innovative solutions to meet the specific needs of complex and demanding project developments. A combination of global reach and expertise together with strong local presence and a deep understanding of South African power and energy needs affords us great opportunity for success in the South Africa LNG-to-Power Programme. 


We are geared for managing project risks for even the most demanding requirements of non-recourse project finance lenders:


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  • Proven track record of successful projects with over 80 IPP projects with Wärtsilä EPC delivery out of which over 30 projects being WDFS developed.
  • Integrated project structure and financial engineering seamlessly merged with our technical expertise in EPC and O&M.
  • One stop shop for seamless transitions through in-house project development, technology, EPC and O&M.
  • Investing in development and construction equity as a minority shareholder to projects.


WDFS has an impressive track record of “firsts” in financing for Independent Power Producers over the past 25 years including:

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  • First investment by the Dutch development lender, FMO in an IPP.
  • First investment by the German development lender, DEG in a Latin American IPP.
  • First loan by the Inter-American Development Bank in an IPP.
  • First project finance loan to an IPP in Kenya by the International Finance Corporation.
  • First project loan to an IPP in Bangladesh by OPIC.


Wärtsilä has significant experience in arranging Export Credit Agency (“ECA”) supported financing for customers across the globe with 40 ECA financings in past 10 years and about EUR 900 million of ECA financings since the past 3 years. ECA’s are national export promotion organizations offering competitive financing support to exporting companies and their foreign customers. Credit enhancement by ECA often offers major advantages compared to purely commercial financing, such as longer maturities, lower financing costs, and the ability to lock in a fixed interest rate at an early stage.


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  • WDFS supports Wärtsilä’s clients with advice and assistance in deal structuring and financing, helping customers in finding the most competitive financing for their investments.
  • WDFS has strong relationships and long experience with commercial banks, development banks and ECAs to support Wärtsilä’s clients in arranging financing for power plant and marine sector investments.
  • Based on Wärtsilä 4-stroke engine manufacturing presence we have access to ECA support through Finnvera (Finland) and SACE (Italy). We also co-operate with GIEK and Export Credit Norway for marine projects.









LET’S TALK

The role of LNG-based gas generation in the South African power system needs to be suitable to provide flexible energy to the system. Installing 3,7 GW of flexible capacity in the system generates over 8 billion USD of total system savings over a 10 year period, while the same amount of baseload gas power would have almost zero cost benefit to the system and would instead present it with further problems when coupled with highly intermittent renewable energy sources.

We believe we have the best solution for South Africa and your business.

Shall we talk more about it?




Contact Wayne Glossop

WAYNE GLOSSOP
Sales Manager, Africa East









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