The race to developing the country’s first major clean energy plant, a 100 megawatt Coal Bed Methane (CBM) operation, is heating up after government granted preferential status to the only two bidders in the running.
Preferential status means government has now moved to finalise negotiations with the two bidders, which will lead to the hammering out of a Power Purchase Agreement (PPA) and spades in the ground.
Although many factors will be considered, one major determinant will be the final tariff being offered by the bidders.
The two bidders, Tlou Energy and Kalahari Energy Botswana (KEB) are the country’s most advanced CBM developers, sitting on trillions of cubic feet of gas reserves in the Central District.
While Tlou Energy has proposed a pilot 10MW project to test variables and reduce the required upfront capital expenditure before ramping up capacity, KEB’s bid was for a 97MW facility.
The CBM-fired plant will be the Botswana’s first and is seen by government as a critical part of the country’s energy mix going forward to a future where the reliance on “dirtier” fossil fuels is reduced.
In a statement to BusinessWeek, KEB executives said the energy developer was ready to raise funding for the 97MW plant. In its bid, KEB proposed that government provide a credit-enhancement mechanism to make the project bankable.
“The project represents a P5.85 billion investment in the economy of Botswana and will have a significant impact on the economy as it will provide a springboard from which to commercialise the significant CBM resources in Botswana whilst reducing the country’s carbon footprint,” the company said.
KEB said it expected its proposed CBM plant would create between 1,200 and 1,500 jobs during the construction phase. KEB hopes in the upcoming talks with the Botswana Power Corporation it could secure a 30-year PPA for the Mmashoro-based project.
Meanwhile, Tlou Energy said it had already received indications of funding support from a “number of existing strategic investors” including the Botswana Development Corporation. Tlou’s star was recently brightened by the Botswana Public Officers Pension Fund, which increased its stake in the gas company to 10.4% from 4.6 percent.
“The company will look to source the lowest cost of capital for the downstream development,” said Tlou MD, Tony Gilby. “An initial 10MW development was selected to facilitate the success of the downstream project by requiring relatively minimal up-front capital expenditure.
“This reduces risk and therefore limits the downside for Tlou, its shareholders and the government.”
The latest race is not the first between the two bidders. In July 2016, the government again shortlisted Tlou Energy and KEB for the provision of 100MW from a 100MW CBM powered plant, before suspending the process.
At the time, government was willing to split the tender 50/50 for the joint provision of 100MW. As the race heats up between the two bidders, analysts said this time around, it could be a case of winner takes all, although the wording of the specifications required by the Public Procurement and Asset Disposal Board (PPADB) is unclear.
The May 7 PPADB statement naming Tlou and KEB as preferential bidders refers to the “development of CBM-fuelled pilot power plants,” suggesting a split could be possible.
Gilby meanwhile said Tlou’s proposal had received the highest pass mark at the compliance and technical stage, while it had also been the most competitive for cost of energy.
“This was possible due to Tlou’s ability to operate efficiently using very experienced personnel coupled with the geological knowledge gained over many years of operating in Botswana,” he said. KEB, meanwhile, says it has partnered with Prana Energy, a South African project developer which has closed several natural gas and CBM projects in the past.
Tlou has been operational in Botswana since 2007, while KEB landed in the year 2000.