Tanzania has awarded China’s Sinohydro Corporation as the construction contractor for the country’s first-ever solar photovoltaic power station to feed into the national electricity grid.
The Tanzania Electricity Corporation (TANESCO), signed the contract for the plant’s first phase of 50 MW capacity, in the presence January Makamba, the country’s Minister of Energy.
The project is part of a larger initiative of installing 150 MW of solar energy in the Kishapu district of the Shinyanga region, alongside a new power station with a 33 kilovolts/220 voltage capacity.
The power station will connect to the national grid through a 220 kV transmission line from Singida to Shinyanga.
The second phase will consist of plants generating 100 MW, resulting in a total project cost of TZS 275 billion.
TANESCO picked JV Artelia from France and Energiovida from Tanzania as consulting contractors. The estimated cost for the first phase is TZS 109 billion, the works are expected to start in June 2023 and be completed within 12 months.
Mr. Makamba acknowledged at the signing ceremony that this marks the first introduction of solar electricity into the national grid of Tanzania. He commended the French Development Agency (AFD), which has provided a loan for the project’s implementation.
Tanzania is developing a new Renewable Energy Policy to further enhance investments in renewable energy, which will capitalize on the substantial financial resources, capital markets, and advancements in new technologies dedicated to renewable energy globally, Makamba said. He also announced ongoing efforts to identify areas with renewable energy resources and prioritize native investments in wind and solar projects. The Tanzanian government, Mr. Makamba said, will provide support in this regard and establish guidelines for project implementation.
British Independent Power Producer (IPP) Globeleq has laid the foundation stone for its first ever geothermal plant I Kenya.
The 35 MWe Menengai power plant in the Rift Valley in western Kenya is the company’s second project in the country. The ceremony was attended by Kenyan Vice-President Rigathi Gachagua and the British High Commissioner to Kenya, Jane Marriott.
Technically, the$108Million steam power plant is being built by the Japanese company Toyota Tsusho Corporation, with the support of Fuji Electric for the installation of the turbine and the electrical generator. Globeleq will purchase the steam from the Kenyan state-owned Geothermal Development Company (GDC) and operate and maintain the plant once it is commissioned in 2025.
GDC has several production wells at the Menengai site which it already drilled.
“This will be Globeleq’s and our second project in Kenya along with our Malindi solar plant in the coastal region.,” said Mike Scholey, Globeleq’s Chairman and CEO.
The Menengai geothermal project is also supported by the African Development Bank (AfDB), the Trade and Development Bank of Eastern and Southern Africa (TDB) and Finnfund, a Finnish investor. These financial institutions have granted loans totalling $72Million to Globeleq. The electricity produced at Menengai will be sold for 25 years to the state-owned company Kenya Power.
The steam plant has the backing of both the Kenyan and British authorities. On the sidelines of the 27th United Nations Conference of the Parties on Climate Change (COP27) in 2022, the British government announced an investment of almost $4Billion in Kenya, including part of the Menengai project.
The European Union (EU) and the European Investment Bank (EIB) have agreed to contribute $543Million to finance the Mphanda Nkuwa mega hydroelectric project on the Zambezi River in Mozambique.
The two new partners will contribute up to $326Million to the development of the electricity transmission infrastructure and $217Million to fund the 1,500 MW hydroelectric power station.
This pledge amounts to 12% of the entire project cost of $4.5Billion.
The $543Million financing pledge was announced by the Mphanda Nkuwa Hydroelectric Project Implementation Office (GMNK).
Europe is backing this power project because two of its largest companies: France’s TOTALEnergies and Électricité de France (EDF), are part of the consortium that won the bid to Build, Own, Operate, and Transfer (BOOT) the plant. The other partners in the winning consortium, announced May 30, 2023, are Sumitomo and Kansai Electric Power (KEPCO), two Japanese companies.
The consortium will hold 70% of the shares in the project, with the rest held by the Hidroeléctrica de Cahora Bassa and state energy company EDM. It will feature a 1,300km high voltage transmission line to be built between the dam and the capital, Maputo. That project includes the segment from Temane to Maputo which is already under construction.
The contract is expected to be signed by the end of July 2023. GMNK is aiming for financial close on the project by 2024, and for it to be commissioned by 2030.
GMNK has held financing discussions with lenders other than EU and EIB. They include the World Bank, International Finance Corporation (IFC), African Development Bank (AfDB), Agence Française de Développement (AFD), Norwegian Investment Fund (Norfund), KfW Development Bank, US Development Finance Corporation (DFC), Development Bank of Southern Africa, Japan International Cooperation Agency (JICA), the Chinese and US Exim banks, and others.
The major environmental impact of the Mphanda Nkuwa mega hydroelectric project is the destruction of the irrigation systems located downstream of the dam; overwhelming aquaculture in the Zambezi River delta, affecting the livelihoods of 200,000 people and displacing 1,400 families. The United Nations (UN) has dismissed the project as “the least environmentally acceptable large dam project in Africa”.
Mozambique’s Ministry of Energy has announced a consortium consisting of Electricité de France (EDF), TOTALEnergies, Sumitomo and Kansai Electric Power (Kepco) as preferred bidder to build the Mphanda Nkuwa hydropower plant in Tete province.
The four companies will manage the financing, construction and operation of the 1.5GW, $4.5Billion run-of-river hydropower plant.
The project will be concessioned under a Build, Own, Operate, and Transfer (BOOT) model. EDF &Co will hold 70% of the shares in the project, with the rest held by the Hidroeléctrica de Cahora Bassa and state energy company EDM. It will feature a 1,300km high voltage transmission line to be built between the dam and the capital, Maputo. That project includes the segment from Temane to Maputo which is already under construction.
The contract is expected to be signed by the end of July 2023.
The Mphanda Nkuwa Hydroelectric Project Implementation Office (GMNK) is aiming for financial close on the project by 2024, and for it to be commissioned by 2030.
Financing discussions have been held between GMNK and putative lenders, including the World Bank, International Finance Corporation (IFC), African Development Bank (AfDB), Agence Française de Développement (AFD), European Investment Bank (EIB), Norwegian Investment Fund (Norfund), KfW Development Bank, US Development Finance Corporation (DFC), Development Bank of Southern Africa, Japan International Cooperation Agency (JICA), the Chinese and US Exim banks, and others.
There is potential for the reserve bidder; the consortium led by ETC Holdings and including Zambian utility ZESCO, CECOT (a subsidiary of Mota-Engil), and PetroSA, to join the winning consortium if they request to and are accepted, which will depend on their capital contribution to the project.
EDF & Co will be responsible for investing between $400-500Million in Mphanda Nkuwa and the corresponding high voltage power transmission line between Tete and Maputo. The consortium will also be expected to underwrite $15Million at the time of signing and provide a further $40Million for development costs.
Ivory Coast’s Council of Ministers has approved the concession agreement for the construction of a photovoltaic solar power plant in Bondoukou, in the country’s northeast. The plant is due to start commercial operations in 15 months’ time.
The electricity infrastructure is a public-private partnership (PPP) under which the concessionaire will develop, finance, build and operate the Bondoukou photovoltaic solar power plant.
Independent power producer Amea Power signed the concession contract for the construction of the power plant, in January 2023. It also signed a power purchase agreement (PPA) under which the output from the Bondoukou solar power plant will be sold to the compagnie ivoirienne d’électricité Ivorian Electricity Company (CIE) for 25 years.
The Bondoukou solar power plant, in the Gontougo region, will be installed on an 85-hectare site 420 km north-east of the economic capital Abidjan. The plant will be capable of injecting 87,100 MWh of electricity a year into Ivory Coast’s national grid. The Bondoukou photovoltaic solar power plant will require an investment of 56Million Euros (37Billion CFA francs).
British junior Savannah Energy is forging ahead on its empire building in African energy, despite the obstruction posed by the nationalization of the assets it bought in Chad.
The company signed a Memorandum of Understanding MoU with the government of Niger Republic to construct 200MW capacity solar plants on May 11, 2023. That’s less than two weeks after it concluded an agreement with the Cameroonian Government, to build a 75MW Hydropower Plant in that country.
The proposed solar plants, in Niger, two of them, are to be sited within 20 km of the cities of Maradi and Zinder, respectively, in southern Niger. They will be connected to the South-Central section of Niger’s electricity grid, which is forecast to be interconnected to the Western electricity grid zone (which serves Niamey) by 2026, as part of a World Bank funded project.
These solar plants come in addition to the up to 250 MW Parc Eolien de la Tarka, the wind farm project, for Niger Republic, which Savannah signed with the government in 2022, and is expected to start construction in 2024. In total therefore, the solar and wind power projects to which Savannah has committed to, in Niger Republic, totals 450MW in capacity. These are projects outside its main purview: to monetise oil and gas resources.
In Cameroon, the signing of the MoA for the Bini a Warak Hydroelectric Project, located in the country’s northern Adamawa Region, will be followed up with an updating of existing feasibility studies and work with power industry authorities and development finance institutions to finalise the development, financing and resumption of construction. Savannah expects to fund the Bini Project from a combination of its own internally generated cashflows and project-specific debt.
The agreements for Hydropower construction in Cameroon and Solar in Niger come after Savannah sold a minor stake in the Cameroon Oil Transportation Company S.A. (COTCo) to Cameroon’s state hydrocarbon firm, SNH.
COTCo owns and operates the 903km Cameroon section of the Chad-Cameroon export pipeline, the Kome Kribi 1 floating storage and offloading facility and related infrastructure. Completion of the transfer of the Shares from Savannah to SNH will result in Savannah’s shareholding in COTCo reducing from 41.06% to 31.06%.
Savanah Energy is primarily a Hydrocarbon company; the largest project in its portfolio is ownership and operation of a gas processing plant and related infrastructure in Nigeria, from which it supplies 142Million standard cubic feet of gas per day (142MMscf/d) to several power plants, making it one of the three largest independent suppliers of gas to the country’s domestic market.
Savannah has made several oil discoveries in Niger Republic and is on course of developing them. But the UK firm seems to have decided that one way to the hearts and minds of governments it deals with in Africa is to get involved in their power infrastructure projects.
ACWA Power has announced that it has signed a total of $123Million of financing package to develop the 200MW Kom Ombo project, a utility-scale solar power plant in Egypt.
The Saudi Arabia owned project developer says the package “comprises loans of up to $36Million from the EBRD, $14.6Million from the OPEC Fund, $ 14.4Million from the AfDB, $34.5Million from the GCF, $14.8Million from Arab Bank and $ 10Million from the SEFA, under the COVID-19 IPP relief programme”.
Apart from these loans, “the project already has equity bridge loans of $14Million from the EBRD and $45Million from the Arab Petroleum Investments Corporation (APICORP)”, ACWA explains.
“While the financing documentation was originally signed in April 2021 with the EBRD, the OPEC Fund, the Green Climate Fund (GCF), African Development Bank (AfDB) and Arab Bank, the dynamics in global supply chains due to COVID19 altered the dynamics for the development of solar plants”, ACWA ventures.
“This resulted in the extension for Kom Ombo’s project execution”.
All of the oil majors— Repsol, BP, Shell, ENI, TOTALEnergies, Chevron, ExxonMobil and Equinor—are enjoying their highest earnings ever. Is the message from shareholders: do not tamper with our cash machine?
In spite of increased dividends and stock buyback programmes by oil majors, their share prices have shown mixed results. In the period 2018-2022, US oil giants Chevron and ExxonMobil have seen their share prices flourish: Chevron up 39% and ExxonMobil 26%. European oil stocks have floundered: Repsol down 5%, BP down 19%, Shell down 17%, ENI down 17%, TOTALEnergies up 7%. Only Equinor was up 57%.
In the period January-March 2023 their stock market prices have not changed.
In the same period (January 2018-December 2022) the Dow Jones Industrial Index rose 31%: increasing from 25,295 to 33,147.
Table 1: Stock market prices of majors 2018-2022(NYSE)
Year
Repsol
BP
Shell
ENI
TOTAL
Energies
Chevron
ExxonMobil
Equinor
2018
$17
$43
$69
$35
$58
$128
$87
$23
2022
$16
$35
$57
$29
$62
$179
$110
$36
Note: Values based on January 2018 and December 2022
Why is it that the share prices of Chevron and ExxonMobil have performed so well and their European counterparts have done so poorly (with the exception of Equinor)?
The message from the investor community is the clarity of the message. Chevron and ExxonMobil have as their mainstay–the production of hydrocarbons and this is the message that is preached. New energy policies including CCS (Carbon Capture and Storage) and other new energy initiatives make up only between 15-20% of their capital budgets. In the case of Chevron some $3Billion per year based on a capital budget of $15-$17Billion; ExxonMobil’s new energy comes in at $3Billion per year based on a capex of $23- $25Billion. The message is clear and simple: we are oil companies pure and simple. Done in the good tradition of John D. Rockefeller, the spiritual father of both companies.
European oil giants, have seen their dualism—wanting to maintain their green image and also profiting from the oil bonanza—fall out of favour by company shareholders. Their clarity of messaging has been found wanting. The sole exception is Equinor who has stated that the majority of its capex budget will be from renewables by 2030.
The Message from BP
For 2022, BP posted a profit of $27.7Billion( underlying replacement cost profit). In the period 2018-2022, BP shares were down 19%.
A key component of BP’s original green strategy was to build an investment structure, which would require only a few skilled accountants. The company sacked employees or was preparing delegating BP’s headcount to its joint ventures. The goal was to become lean and mean, reducing costs and, hopefully, increasing margins. In short becoming an investment vehicle. Instead the strategy has been turned on its head.
In Africa BP is becoming the junior partner to ENI. In Angola BP has merged its upstream activities with ENI to form Azule Energy. ENI has also taken over BP’s Algerian assets.
In 2020 BP painted a glowing picture of how it would attain its green future:
From 2025 onwards, when its low-carbon projects would start to kick in, expected growth of between 12–14% would be maintained.
Reducing its oil production by 40% by 2030.
Its $25Billion divestment would provide the basis for up-scaling its low-carbon business.
Spending $5Billion per year to green itself and by 2030 the company would have 50 GW of net generating capacity.
Now the company is clawing back on reducing its oil production. Again, the duality of message has not helped the BP share price.
On the green front the company has initiated a series of joint ventures to speed up its transition.
BP and Ørsted have partnered to develop zero-carbon ‘green hydrogen’ at BP’s Lingen Refinery in north-west Germany, BP’s first full-scale project in a sector that is expected to grow rapidly. The 50 MW electrolyser project is expected to produce 1 ton of hydrogen per hour – almost 9,000 tonnes a year – starting in 2024. The project could be expanded to up to 500 MW at a later stage to replace all of Lingen’s fossil fuel-based hydrogen. Final investment decision is due later this year.
BP and Equinor revealed that BP will become a 50% partner of the non-operated assets Empire Wind (offshore New York State) and Beacon Wind (offshore Massachusetts). BP and Equinor will jointly develop four assets in two existing offshore wind leases located offshore of New York and Massachusetts that together have the potential to generate power for more than two million homes.
BP joined Statkraft and Aker Offshore Wind in a consortium bidding to develop offshore wind energy in Norway. The partnership—in which BP, Statkraft, and Aker Offshore Wind will each hold a 33.3% share—will pursue a bid to develop offshore wind power in the Sørlige Nordsjø II (SN2) licence area.
The Message from Shell
Shell has just announced its highest results of the last 115 years: $40Billion in annual adjusted profit for 2022. Yet investor interest has been muted at best. Shell’s share price has only shown a downward spiral of 17% in the 2018-2022 period. Annual capital expenditures in the near term, according to Shell, could be in the range of $23-$27Billion up from an earlier estimate of $21-23Billion. Then the company stated that its renewables and energy solutions would be $2-3Billion, marketing $3Billion, integrated gas $4Billion, chemicals and products $4-5Billion, and upstream $8Billion. A more detailed breakdown is not available.
While its competitors—BP and TOTALEnergies—are busy buying and creating gigawatts of new energy, Shell maintains that it wants to focus on the value it generates for shareholders across the entire value chain. While the company is eager to proclaim value generation, there is little indication to shareholders what this means. For the period 2025-2030 Shell lumps together the capital budgets devoted to three categories:
Growth which entails renewables and marketing will receive 30% of Shell’s capital budget;
Transition which entails Integrated gas and chemical & products will receive 30-35% of Shell’s capital outlay; and
Upstream will get 30-35%.
The Dilemma of BP and Shell
Both BP and Shell continue to believe that their upstream divisions will provide the funding for their green future. Yet their share prices demonstrate that there is little trust in this vision. Depending on their upstream portfolio to lead them to a bright new green future is central to their dilemma. Upstream oil and gas is viewed by shareholders as a sunset industry. Upstream references, perhaps, a distant memory of the integrated oil companies of 50 years ago. Not one to build a green future on.
Both companies continue to believe in a dash of green and fail to understand the basic tenets of how the Green Alliance—Enel, Engie, Iberdrola, and Ørsted–is understood and viewed. What has set these companies apart is that they have created a huge competitive advantage which will be hard to challenge for newcomers. They have moved well beyond simply dabbling in green energy. These companies have become specialists and now moving on to the next level: creating a digital platform on which value does not reside in owning resources but rather in managing data-driven ecosystems. They are essentially borrowing a chapter from Uber, which does not own taxis or Booking, which does not own hotels. Some members of the Green Alliance have established new goals, such as CO2 neutrality by 2040, instead of 2050 to which Shell is pledged. Consider the competition.
Enel: committed to achieving CO2 neutrality by 2040 instead of 2050, achieving 75% of electricity from renewables and 80% digitalization of its customers on the grid by 2025. and having an installed generating capacity of 75GW by 2050.
Engie: pledged to reduce to CO2 neutrality by 2045, 45% of investments is focused on renewables and by 2030 will have 80GW of installed generating capacity.
Iberdrola: in the period 2023-2025 the company will invest $50Billion and achieve net zero for Scope 1, 2 and 3 before 2040. By 2030 the company will have installed capacity of 100GW, valued at $70Billion.
Note: Essentially, scope 1 and 2 are those emissions that are owned or controlled by a company, whereas scope 3 emissions are a consequence of the activities of the company but occur from sources not owned or controlled by it.
Ørsted: the Danish wind energy pioneer, continues to set new records. Ørsted share price in December 2022 was $93; five years earlier in 10 June 2016 it was $37. By 2030 the company’s goal is to have an installed capacity of 50GW. Ørsted is also involved with the building of two energy islands– Bornholm and North Sea– which will deliver 10GW of power
How will shareholders react to these companies in 2023? To date there is good news and bad news for green energy companies.
Table 2: Stock market prices of new energy companies 2018-2022
Year
Enel
Engie
Iberdrola
Ørsted
2018
$5
$16
$7
$49
2022
$5
$14
$12
$93
Enel, the Italian power company has seen its share price remain flat. Engie, the large French energy giant has seen its share price decrease by 12.5%. Iberdrola, the Spanish power company has had an increase of 71% and Ørsted, the Danish power company, has seen its stock soar by 90%.
Some Final Thoughts
BP
BP has become a company in search of its soul. BP’s strategy of reducing its oil production by 40% by 2030 has been cast aside.
BP’s Greater Tortue Ahmeyim (GTA) field in Mauritana and Senegal is one of the few oil and gas projects the company is developing.
For 2023 the company has earmarked up to $7.5Billion for oil and gas projects.
Shareholders continue to habour doubts about BP’s green vision.
Shell
Shell should seriously consider splitting the company in two key divisions:
An upstream division which could be hived off to joint venture with other upstream divisions to ensure economies of scale;
An integrated gas division which could prove to be Shell’s star asset.
Wood Mackenzie’s AET-2 Scenario (Accelerated Energy Transition Scenario) predicts that in the following decades, market power will shift from OPEC to the giant gas producers, such as the USA, Russia, and Qatar.
According to AET-2, the “Era of carbon-neutral gas is born. AET-2 would require $300Billion to support Liquified Natural Gas growth globally and $700Billion to support dry gas development in North America.” Given that Shell is the global leader of LNG (liquid natural gas)this is certainly a sweet sound for Shell’s LNG business.
Downstream could also prove to be a key energy transition asset. Shell’s REFHYNE Project, the Rhineland Refinery in Germany, could well become the precedent that the company needs to ensure it becomes the leading supplier of green hydrogen, where hydrogen production is powered by renewable energy for industrial and transport customers. Could the REFHYNE Project be duplicated many times over to ensure that green technology becomes a key ingredient in the energy transition?
Pay attention to Shell’s Pernis refinery in the Netherlands. One of the largest in Europe, Pernis refinery has a 400,000 b/d capacity and a complexity enabling the processing of many different crude types. The site is already deeply integrated with chemicals production and is being transformed into an integrated energy and chemicals park that will deliver low-carbon products.
The current message from shareholders is: maintain the cash bonanza and do not tamper with our cash machine. No doubt the share price of Chevron and ExxonMobil will continue to flourish. Will Europe’s oil and gas companies—in particular BP and Shell—resolve their clarity of messaging? How long will this cash bonanza last?
Finally, one should not mistake the current cash bonanza with energy security. Rather this is a sign of energy insecurity which could very quickly end without further notice. Energy security will continue to be a key theme for the coming generations and no doubt the role of the members of the Green Alliance will be crucial.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.He writes on a regular basis for Africa Oil + Gas Reportand is a guest contributor to IEEFA(Institute for Energy Economics and Financial Analysis) based in Cleveland, Ohio, USA. His book ‘The 10 Commandments of the Energy Transition ‘is on sale at https://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition.
TOTALEnergies has signed Corporate Power Purchase Agreements (CPPA) with Sasol South Africa and Air Liquide Large Industries South Africa for the supply of 260 MW capacity of renewable electricity over 20 years.
TOTALEnergies will develop a 120 MW solar plant and a 140 MW windfarm in the Western Cape province to supply around 850 GWh of green electricity per year to the Sasol’s Secunda site, located 700 kilometres further North-East, where Air Liquide operates the biggest oxygen production site in the world.
The two projects will provide competitive and available renewable electricity to decarbonize Sasol and Air Liquide’s production. These agreements demonstrate TOTAlEnergies’ positioning to contribute to the evolution of the energy mix in South Africa.
Power cuts occur daily in South Africa, where electricity generation is still 80% based on coal.
The two projects are expected to be operational in 2025. The CPPAs with SASOL and Air Liquide were signed with a consortium of TOTALEnergies Marketing South Africa (70%), its partner Mulilo (17%) and a to-be-announced B-BBEE partner (13%).
UK based electricity provider Globeleq has awarded a contract for the construction of its first geothermal plant.
Toyota Tsusho Corporation (TTC) is the engineering, procurement and construction (EPC) contractor for the 35 MW Menengai geothermal project in Nakuru county, Kenya. The Japanese service provider also won a long-term service agreement (LTSA) for the project.
The $108Million Menengai project will benefit from financing agreements the company inked with the African Development Bank, the Eastern and Southern African Trade and Development Bank and Finnfund in December. 2022.
Construction is expected to begin during the first quarter of 2023 once financial close has been reached. “Having signed these key project agreements with TTC after achieving a fully committed financing in early January 2023, we will now work with the government of Kenya to reach financial close and start construction as soon as possible,” declares Globeleq CEO Mike Scholey.
Globeleq will operate and maintain the power plant once it reaches commercial operations in 2025. The steam turbine and generator will be manufactured by Fuji Electric.
During the twenty-seventh Conference of the Parties, held in Egypt, in November, the Kenyan and UK governments jointly committed to fast-tracking green investment projects worth KSh500-billion in the country, which included the Menengai project.
The 35MW Menengai is part of the first phase of the wider Menengai complex, which is the second large-scale geothermal field being developed in Kenya after Olkaria.
Steam will be supplied to the project by Geothermal Development Company (GDC), a Kenya government-owned company under a 25-year project implementation and steam supply agreement.
All of the oil majors— Repsol, BP, Shell, ENI, TOTALEnergies, Chevron, ExxonMobil and Equinor—are enjoying their highest earnings ever. Is the message from shareholders: do not tamper with our cash machine?
