Cogeneration: public hearings

Energy

24 July 2013
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The public hearing on cogeneration was organised by the Portfolio Committee on Energy in a bid to deepen the understanding of the potentials of cogeneration and to engage with stakeholders on the prospects and constraints of cogeneration. Presently, South Africa was having difficulties maintaining existing electricity generation and building new ones, and only 84% of households had access to electricity. Projections however revealed that South Africa could generate 3500 megawatts of electricity through cogeneration. Cogeneration, which referred to combined heat and power, would be able to fit in more with energy generation efficiency as it had the potential to achieve an overall efficiency of up to 90% compared to a conventional coal power plant that had about 35% efficiency. It was also imperative for South Africa to change its energy mix and reduce its dependence on coal, which currently provided over 75% of the nation’s energy. 

Stakeholders unanimously agreed that cogeneration had significant benefits which should make it a preferred source of electricity generation. The merits of cogeneration included reduced carbon emissions, relative quicker implementation, lower transmission and distribution losses, elimination of environmental hazards, job creation, among others. Cogeneration could be sourced from biomass, solar, wind, natural gas, waste mine dumps, and sugar cane. All of the cogeneration sources represented potentially viable and efficient sources of electricity generation.  

Despite the great potential for cogeneration, South Africa had made little progress due to some factors. These factors included the lack of mechanism to incentivise industry, difficulties encountered in grid access, the difficulties in obtaining cogeneration licence from National Energy Regulator of South Africa (NERSA) and the Department of Energy, lack of buyers for power, lack of a ‘wheeling-friendly’ environment and lack of coherent plan to deal with issues relating to wheeling, high cost charged by Eskom for the use of its networks for wheeling, and the lack of a clear national long-term programme to procure cogeneration. Policies relating to cogeneration were also inconsistent, incoherent and some had been discontinued.

Stakeholders identified various enablers that were needed to make cogeneration work in South Africa. These were procurement programmes, especially the Power Purchase Agreements (PPAs), capital incentives such as tax incentives for cogeneration projects, supportive and coherent legislation or national plan for cogeneration, and policy consistency. There must also be a commitment to support sector and sub-sector potential analysis as well as skills development, research and local content criteria for cogeneration.

Members expressed concerns on the lack of clarity on the procurement programme and its processes, as well as the rationale for withdrawing the incentives initially attached to cogeneration. They noted the importance of exploiting the potential inherent in cogeneration and the need to initiate actions that would ensure that cogeneration had the proper institutional framework. Engagement with relevant stakeholders would be further advanced as the Committee would organise the second phase of the hearing on cogeneration, and relevant government departments and parastatals that were absent for the first phase 

Meeting report

Introduction

The Chairperson welcomed everyone to the public hearings on cogeneration of electricity and gave background information on what prompted the organisation of the public hearing.  Research suggested that South Africa could generate 3 500 megawatt of electricity through cogeneration. Last year, the Committee invited, for discussion, South Africa Calcium Carbide, which hitherto utilised 50% of Newcastle municipality’s electricity supply but was now cogenerating about eight megawatt for use in its operation. This was a clear indicator of South Africa’s potential with regards to cogeneration. The public hearing was being organised to appraise the prospects and challenges of cogeneration. The Committee was disappointed with the absence of the Department of Energy as it would have been good for the policy making department to be around. South Africa’s ruling party had stressed the need to expedite action on cogeneration. It was thus important to explore how cogeneration could make a meaningful contribution to electricity supply in South Africa. The presentations from potential players and other stakeholders in the public hearing would be very helpful to the Committee as it intended to learn both conceptually and practically from the public hearing.

South Africa National Energy Department Institute (SANEDI) Presentation

Mr Kadri Nassiep, Chief Executive Officer, SANEDI started the series of presentations scheduled in the public hearing by helping to contextualise cogeneration. Cogeneration referred to combined heat and power, a phenomenon where a fuel source would produce energy while producing thermal energy at the same time in a process. Trigeneration was also a possibility and would emerge if the production of cooling was combined with cogeneration. Cogeneration could be sourced from both renewables and fossil fuels, but was different from waste recovery technology, which had an efficiency of approximately 58%. Cogeneration would be able to fit in more with energy generation efficiency as it had the potential to achieve an overall efficiency of up to 90% compared to a conventional coal power plant that which had about 35% efficiency. Cogeneration needed a fuel source that could be procured separately and was typically generated on-site at industries, or off-site for district heating and or district cooling.

In the South African context, Mr Nassiep remarked that National Energy Regulator of South Africa (NERSA) had been at the forefront of defining the type of programmes that should be looked at in supporting both cogeneration and the broader renewable energies. Such programmes included the Renewable Energy Feed in Tariff (REFIT) programme that was overtime replaced by the Renewable Energy Independent Power Producer Procurement (RE-IPP) programme. The Cogeneration Feeding Tariff (COFIT) programme had however been designed and had been in operation, and this included the concept of cogeneration, which involved industrial biomass, waste heat and waste fuels. The COFIT programme was designed to provide support to the cogeneration industry, and this was further reiterated by the Department of Energy, which excluded cogeneration from renewable energy sources in the RE-IPP programme. Cogeneration would thus have to be considered outside of the existing support programmes.

Mr Nassiep highlighted the features of cogeneration to include lower greenhouse gas emissions, higher load factors as opposed to base load power generation, lower water usage, relative quicker implementation, low transmission and distribution losses, reliance on host operating fuel and the assurance of private investment at a lower cost to consumers. Despite the great potential for cogeneration, South Africa had made little progress due to some factors. These factors included the lack of mechanism to incentivise industry, difficulties encountered in grid access, the difficulties in obtaining cogeneration licence from NERSA and the Department of Energy, lack of a ‘wheeling-friendly’ environment and lack of coherent plan to deal with issues relating to wheeling, high cost charged by Eskom for the use of its networks for wheeling, and the lack of a clear national long-term programme to procure cogeneration.

Mr Nassiep stated that there were two important enablers that were needed to make cogeneration work in South Africa. These were procurement programmes, especially the Power Purchase Agreements (PPAs), and capital incentives such as tax incentives for cogeneration projects. Access to finance was also important to make cogeneration work. The fixed capital grant as was done by Eskom Integrated Demand Management (IDM) office to accelerate investment at a low cost to South Africa for embedded generation needed to be reinstated. PPAs that were being processed through the independent power project (IPP) office must be fast tracked. There must also be clarity and certainty of medium to long term policy direction and supporting regulations to develop projects on cogeneration and this must be clearly linked with the Integrated Resource Plan (IRP) and the Integrated Energy Plan (IEP). 

Energy Intensive Users Group (EIUG) Presentation

Mr Mike Rossouw, Chairman, Energy Intensive User Group (EIUG) noted that the key challenge in South Africa’s attempt at diversification of its energy sources was a product of its natural environment and history. South Africa was predominantly dependent on coal as over 75% of South Africa’s energy production was from coal. Growth in the gross domestic product (GDP) would also be associated with growth in energy tons emission. The energy intensity of South Africa’s GDP was however going down. It was expedient for South Africa to change its economic structure to produce more industrial goods, change its energy mix and reduce carbon emission. The changing of South Africa’s energy mix was the area cogeneration could play a major role as cogeneration had energy efficiency benefits and could contribute in reducing the nation’s carbon footprints. Less utilised sources such as wind, nuclear, solar and geothermal presented opportunities for cogeneration. Variation in energy use in the industrial sector was flat because it had no peak. The commercial and residential sectors however had peak consumption of energy. South Africa was therefore building capacity to satisfy peak demand from the two sectors that were also being largely subsidised. There was the possibility of overbuilding capacity especially at the off-peak periods of the residential and commercial sectors and this problem called for urgent attention.

Mr Rossouw identified two forms of cogeneration - ‘own use’ and ‘produce and sell’. Electricity generation by own use could either be produced on site and used at the site or produced at the energy sources and wheeled to use at site. On the other hand, electricity generated by the produce and sell method could either be sold to a national buyer or wheeled to a customer’s “bilateral”. South Africa currently had in operation producing in a Power Purchase Agreement (PPA) and selling to a buyer [Independent System and Market Operator (ISMO) and Eskom] systems as well as the wheel to a customer bilateral approach to cogeneration. South Africa needed to use in the right proportions, all the options of cogeneration. There was also no policy in place to promote cogeneration, and regulations that addressed wheeling charges were not conducive for business in the business sector.

Mr Rossouw proffered a solution to the different challenges of cogeneration in South Africa. He argued that South Africa did not need subsidies but rather cost effective tariffs, and that the market should be enabled and not disabled. The nation must recognise the full benefits of cogeneration especially its ability to take the onus for electricity generation away from the state and Eskom and give it to consumers to produce their electricity. A framework and policy on cogeneration must be put in place, and the wheeling charges and arrangements from Eskom and municipalities must be fair and equitable. There must also be simple, quick, fair and equitable processes in the actualisation of cogeneration.

South African Sugar Association (SASA) Presentation

Mr Tim Murray, Vice-Chairman, South African Cane Growers Association (SACGA) and a member of the South African Sugar Association (SASA) commenced SASA’s presentation on the cogeneration potential of the sugar cane industry by stressing that sugar industries globally were transforming to coproduce sugar, ethanol and electricity. The South African sugarcane value chain was cost competitive, but not revenue competitive. There was a dire need to increase power generation in South Africa and the sugar industry could contribute significantly in electricity generation. The sugar industry and its renewable energy projects were principally regulated by the Department of Trade and Industry and not the Department of Agriculture, Forestry and Fisheries.

Mr Murray indicated that all the 14 sugar mills presently matched their fuel supply with their own energy use, and hence they were cogenerators of electricity. However, there was a generic sugar industry in place to make the sugar industry a significant cogenerator of electricity. The proposal included the development of a new power island, which would comprise additional areas to grow sugar cane and to develop additional fibre sources. This development would also ensure mill energy efficiency and agricultural yield improvements. Cogeneration would supply steam to the sugar mill and the sugar mill would procure electricity from the grid. Power stations would be critical in the operation of the sugar mill while the tariff would be based on capital return, operating and fuel cost. The potential of sugar cane in agriculture, processing and energy generation was enormous as fibre from sugarcane was being used for electricity generation, animal feed, paper and chemical. Sugar from sugar cane could also be sold in the market or converted to fuel ethanol. The sugar industry was also a water generator as sugar put water back into the system.

Mr Murray highlighted the advantages of utilising the sugar industry as a cogenerator of electricity. The time frame needed for the implementation of the sugar industry cogeneration was relatively lower. Sugar industry cogeneration would also contribute to agricultural and rural development, jobs and skills development, and more broadly social and economic development. It would also contribute to emission reduction, industrialisation and sustainable land reform. The proposed sites, which were KwaZulu-Natal and southern Mpumalanga, would have a biomass competitive advantage.

He noted that the sugar industry cogeneration proposition envisaged the generation of 712 megawatts of electricity from a total of 15 projects with a commercial operation date that would last from 2014 to 2024. The total project cost was in the region of R20.4 billion and would generate approximately 32 786 jobs. A comparative assessment across renewable technologies revealed that sugar industry cogeneration was relatively more viable. Members of SASA had responded to the Request for Registration and Information (RFRI) that was put up by the government. However, in order to be able to significantly contribute to cogeneration, the association required an enabling procurement programme that would fulfil both the electricity (Department of Energy) and sugar industry (Department of Trade and Industry) objectives. It also required contractual agreements, procurement approach and timing, a process to engage on ‘low hanging fruit projects’, as well as the inclusion of biomass cogeneration in long term energy plans.

 

Discussion

Mr J Selau (ANC) asked why SANEDI’s recommendation did not include the option of cooling and why EIUG did not have more recommendations for the operators. He commended the fact that the sugar industry was doing more than cogeneration and sugar production, noting that there were lots of by-products being derived from sugar cane. He however asked for clarification on the potential for cogeneration in the sugar industry and how much sugar was in a ton of sugar cane.

 

Mr Murray replied that sugarcane was made up of 15% sucrose, 15% fibre and 70% water. About eight tons of sugar cane would be needed to generate a ton of sugar.

Mr Nassiep replied that SANEDI focused on heating because there were lots of takers or interested investors on the heating side.

Ms N Mathibela (ANC) requested further clarifications on what the sugar industry was presently doing on electricity cogeneration and for black people.

Mr Murray replied that the energy that was being generated by the sugar mills was presently used by the mills. He indicated that the sugar industry was presently meeting all the ten points of President Zuma’s Medium Term Strategic Framework. The industry also met the strategic objectives of the Mbeki Plan on Agriculture, as well as the Comprehensive Agricultural Support Programme (CASP). The industry presently had a trust fund for education, while R10.7 billion was being spent yearly on training and developing the 24,000 black small-scale sugar cane farmers. The industry had also leveraged about R206 million on the redistribution and restitution programme from the Department of Rural Development and Land Reform. 

Mr L Greyling (ID) commended the initiative to have the public hearing. He noted that cogeneration urgently needed the right incentives and a proper institutional framework. There was the need to act on and change the institutional framework, especially the issues raised by SANEDI which included wheeling, ISMO Bill, among others. He asked how EIUG intended that companies and organisations would be incentivised if subsidy was not needed. He asked what the alternative to subsidy was or what the best scenario to incentivise would be.

Mr Rossouw replied that subsidies were not needed on top but by the side. It was however important to consider the rural poor in whatever plans the nation would implement.

The Chairperson asked EIUG what it thought the role and contribution of Eskom in cogeneration should be.

Mr Rossouw replied that Eskom’s role and contribution to cogeneration would be to grant access to the grid and or free up the wires. The grid belonged to the nation and must be used for the benefit of everyone. Everyone must have access to the grid and Eskom must be able to wheel power in a far equitable manner. Eskom could also serve as backup on cogeneration and ensure fair and equitable access to the backup power. Eskom’s role however should not include the setting and or determination of tariffs as this was the responsibility of NERSA. A situation where the nation was being continuously confronted with tariff proposals by Eskom must be jettisoned. EIUG had submitted a proposal on subsidy and wheeling which had already been discussed with NERSA and a meeting was also being set up with the National Treasury to discuss the proposal. It was important that the National Treasury be involved in the determination of subsidies and levies.

The Chairperson also asked SANEDI if there was any national plan on cogeneration or if what the nation had were only ingredients and mentions on cogeneration in its various policies and programmes.

Mr Nassiep replied that there was no clear coherent plan on cogeneration. There were incentives to work with on the short term but a long-term plan was expedient.

The Chairperson requested SASA to unpack how it would actualise the cogeneration plans in its proposal. He asked what the time frame would be for the sugar industry to generate the 712 megawatts of electricity in its proposal and the enablers that government would need to create for the implementation of the proposal.

Mr Murray replied that currently the sugar industry had a turnover of about R12 billion. The investment of R20 billion in the renewable energy project would add another R6 billion to R8 billion in turnover (not profit) to the sugar industry. The industry was not sure what the profit would be as it currently did not know how the tariff would turn out and what the dispensation with respect to ethanol was likely to be. If the industry were to engage in a large scale ethanol programme, then it would replace the sugar export as the sugar would be converted into ethanol. This would not have an effect on local supply of sugar as the industry was mandated by legislation to meet local demand for sugar. It would take approximately two years for a plant to commence operation, and all the plants could not be initiated simultaneously.  

The Chairperson stated that it was important for the Committee to have an in-depth look at the sugar industry’s proposal, noting that the Department of Trade and Industry would be invited for a critical assessment of the proposal.

Paper Manufacturing Association of South Africa (PAMSA) Presentation

Mr Dave Long, an energy consultant representing Paper Manufacturing Association of South Africa (PAMSA) commenced his presentation by identifying common themes of cogeneration in South Africa. He stated that because of South Africa’s history, cogeneration now meant a lot more than combined heat and power. While the Renewable IPP (RE-IPP) programme, which had been running since 04 August 2011, included wind and solar biomass, it did not include the sugar industry’s biomass and the forest biomass if they were associated with any industrial undertaking. Cogeneration for PAMSA was however forest biomass and the industrial biomass to produce heat and power in South Africa. Many of the plants used for cogeneration in South Africa were old due to old and outdated boilers, and therefore unable to produce power in the desired quantity. Infrastructure investment especially in boilers was thus needed in the industry for cogeneration to work. Biomass grew on trees in the forest and this had to be sourced and gotten to the industrial plants. The trees had to be felled, logs would be used for processing for pulp or sawmilling but the biomass that would remain in the plantation would need collection, conditioning, chopping off, drying and transportation to the industrial plants. This was an inherently difficult task, and hence cogeneration was not a cheap source of power, and not necessarily cheaper than Eskom.

Mr Long indicated that PAMSA had met with the Department of Energy and National Treasury, which were the procurers of national power, to present its proposal to them in April 2013. PAMSA’s proposal comprised 17 projects with almost 400 megawatts of capacity. The projects would utilise a combination of new, existing and refurbished boilers. Huge capital investment would come from the procurement of new boilers and new turbine automatons were also needed. PAMSA’s projects could produce power within 12 months of initiating action on the projects and all the projects should be completed in approximately two years.

Mr Long however identified numerous barriers to cogeneration in South Africa. He emphasised that there were no ready takers of power and selling power to Eskom was a daunting task. There was also no way of selling power on a national procurement basis and getting NERSA licensing was problematic. Incentives needed, especially due to the high cost of boilers, were also lacking, and hence it was difficult to compete with Eskom. The Integrated Resource Plan (IRP) did not critically address cogeneration, and wheeling was also uncertain and risky as municipalities could also be difficult to deal with.

He suggested that the nation needed a national plan on cogeneration as there was virtually no coherent plan on cogeneration. There was also the need to have a coherent national cogeneration procurement process. If these were done, it would be easier to remove other barriers.

Wartsila South Africa Presentation

Mr Wayne Glossop, Business Development Manager, Wartsila South Africa, stated that Wartsila was an international company whose areas of specialisation included cogeneration from natural gas. He noted that natural gas was the preferred fuel for new cogeneration plants due to its flexibility with regards to the heat to power ratio and its better environmental performance compared to liquid fossil fuels. It was also support friendly to owners, grid and the nation. Globally, Wartsila had applied cogeneration through natural gas to produce power for airports, hospitals, cement factories, pulp and paper industries, petrochemical industries, shopping centres, amongst others. There were two main technology types in the application of natural gas for cogeneration and these were the engine technology and turbine technology.

In the context of South Africa, Mr Glossop noted that cogeneration had been applied and examples included the 2 megawatts MTN trigeneration, the 11 megawatts ABSA Energy Project, as well as the 175 megawatts Sasol Plant. The scope of growth in natural gas use was however limited due to lack of gas. All piped gas in South Africa was from Sasol and there were also limited gas supply and capacity from Mozambique. Major future gas networks could potentially originate from underground coal gasification (UCG), coal bed methane (CMB), shale gas, West Coast gas fields, East Coast gas finds, as well as liquefied natural gas (LNG) or compressed natural gas (CNG) imports.

The challenges for the adaptation of natural gas for cogeneration included space constraints, foundational requirements, emissions compliance, noise pollution and vibrations, access to site and construction, and the need to perhaps tie to existing facilities on gas and electricity. These issues were the actual makers and breakers of projects on cogeneration from natural gas, and needed to be considered critically.

Despite the challenges, Mr Glossop indicated that cogeneration from natural gas has a bright prospect in South Africa as it had been used by Wartsila with significant success in various parts of the world, and these included Barajas Airport in Spain, Linate Airport in Italy, and Sasolburg in South Africa. It was also relatively viable compared to some other sources of cogeneration. Techno-commercial calculations however favoured engine technology over turbines for applications that did not require high pressure steam.

Chamber of Mines of South Africa Presentation

Mr Dick Kruger, Deputy Head: Techno Economics, Chamber of Mines of South Africa, commenced his presentation by emphasising that cogeneration must be economically viable, otherwise it would not be a credible option to explore. He noted that economically viable cogeneration had the inherent ability to promote economic transformation, reduce dependence on Eskom, reduce the need for new generation, reduce the cost of electricity, mitigate green house gas emissions, and eliminate environmental hazards. Electricity could be produced through cogeneration by using waste, by-products, and waste heat. Electricity generated through cogeneration could be utilised on site, transmitted to a contracted customer using the national grid, or sold into grid through an independent power producer (IPP).

Mr Kruger identified three forms of cogeneration opportunities in the mining industry. Firstly, heat could be recovered from metallurgical processes thereby enhancing the energy efficiency of such plants, and plans for this were at the implementation stage as proposals were being developed. Secondly, methane emissions from mines could be used to generate electricity, and hence reduce the associated green house gas emissions. Thirdly, coal fines from discard dumps could be utilised for electricity generation. South Africa had many coal discard dumps and the utilisation of these dumps would contribute meaningfully to their rehabilitation and further help mitigate environmental hazards.

Mr Kruger noted that there were impediments to cogeneration in South Africa. Charges imposed by Eskom for the use of the national grid discouraged cogeneration initiatives, while some municipalities were not willing to accept cogenerated electricity. It was therefore imperative for the nation to formulate and adopt a comprehensive national policy on cogeneration aimed at facilitating cogeneration projects.

Prana Energy Presentation

Mr Johan Posthumus, representing Prana Energy, started his presentation by giving brief overview of Prana Energy and its cogeneration projects. Prana Energy, which started developing cogeneration projects in 2006, formed a joint venture with Exxaro On-site in 2007 with a view to developing cogeneration projects. Exxaro On-Site submitted cogeneration projects with a combined capacity of 930 MW into Eskom’s Pilot National Cogeneration Programme (“PNCP”) in 2007 but withdrew these due to a poor PPA. Prana Energy presently had approximately 200 megawatts of projects that could be delivering electricity within 24 months if an appropriate regulatory environment existed. Prana Energy specialised in cogeneration through waste recovery. The distinguishing characteristic was that the co-generator had no control over the fuel source as opposed to Combined Heat and Power, where co-generators had control over the fuel source.

Mr Posthumus stated that there were numerous benefits associated with cogeneration from waste energy recovery. These advantages included a faster implementation period, carbon emissions reduction, reduced air pollution, reduced grid losses and good grid alignment.  Additional transmission infrastructure was also not required as the grid connection was already in place.

Mr Posthumus however noted that there were policy inconsistencies and lack of an enabling environment for cogeneration in South Africa. Prana Energy had been developing two cogeneration projects with a generation capacity of 60 megawatts and these projects relied on the Integrated Demand Management (IDM) type subsidy to assure its viability. The subsidy was however taken away as part of NERSA’s Multi Year Price Determination 3 (MYPD3) ruling and no alternative was been offered. Subsidies were important, as it would make the price of electricity comparable to that of Eskom. Prana had invested over R15 million in the project and this recent development was affecting Prana’s work. Prana projects were not the only casualties and these projects may have to be terminated at a time when the grid desperately needed supplies for the projects.

He stated that government needed to be consistent in its policies, noting that the best and quickest way to actualise the cogeneration projects was an up-front capital subsidy similar in nature to the IDM subsidy that was removed in April. With up-front capital subsidy, electricity would be cheaper and there would be alignment of interest between project stakeholders. It would thus be good if the IDM subsidy that previously existed was activated and sufficient funding be made available to Eskom for the IDM subsidy. The subsidy on cogeneration was a proven mechanism that had worked both in South Africa and internationally.

 

 

Discussion

Mr Greyling stated that he was glad to hear about Prana’s concern with prices as electricity prices as comparison across different sources of cogeneration were going to be critical going forward. The Chamber of Mines’ comments about the municipalities was not really the fault of the municipalities as they had been legally restricted from buying electricity that had a higher price than that offered by Eskom. The only to actualise cogeneration was for it to be part of the Integrated Resource Plan (IRP) or through directives from the Minister of Energy. It was therefore imperative to update the IRP as soon as possible and it should provide a basis for the comparison of prices across cogeneration sources. The issue of wheeling must also be dealt with as it was constantly resonating, and this might entail taking the grid away from Eskom. The Independent System and Market Operator (ISMO) Bill needed to be passed.

Mr Greyling also noted that PAMSA did not give details as to what the price of electricity would be per kilowatt per hour. 

Mr Long replied that pricing presented a wide range of opportunities and while some were expensive, some were relatively cheap. In terms of the whole package, PAMSA in view of NERSA’s hearings on COFIT had a renewable benchmark cap of R1.40 for biomass.

Ms Mathibela stated that tri-generation as expounded by Wartsila was going to be a good thing if it indeed materialised.

Mr Selau noted that cogeneration was particularly helpful for the reduction of green house gases emissions, the production for own-use, and the engagement of wheeling. It was however unfortunate that Eskom was not present in the public hearing, as it would have opposed all that the presenters had been saying. If the cogeneration route was followed, then the purpose of having Eskom would be defeated. The question of where we would go from here still remained unanswered. There was a need to consult other important stakeholders that were not present in the hearing.

The Chairperson asked if PAMSA had engaged with their colleagues in the industry on the issue of expanding the definition of cogeneration.  PAMSA had not provided enough facts and figures on its prices and projections, as well as what percentage it was going to utilise for own-use. These were important as the Committee might further engage with PAMSA and the Department of Trade and Industry on PAMSA’s proposal.

Ms Jane Molony, Executive Director, PAMSA replied that the cogeneration definition ended up being expanded because the industrial biomass was excluded. Over the last three years, both the Department of Energy and National Treasury had been contacted and PAMSA’s initial point of entry was to try to get them to change the definition of mass. PAMSA submitted a new definition of biomass for renewable energy programme incorporating and including industrial biomass, a definition that would have also suited the sugar industry. However, this was not accepted.  The renewable energy programme involved a competitive bidding programme, and hence PAMSA was confident of its own prices. PAMSA had submitted a number of projects for 275 megawatts and the investment value for this was a little over R5 billion. PAMSA could generate about 71 megawatts within a year, and 87 megawatts was projected to be generated within two years.

Mr Long added that in relation to own-use, PAMSA could not compete with Eskom because of prices. Own-use was maximised but there were opportunities being presented as Eskom’s prices were going up. If PAMSA was going to export the grid and earn better than Eskom, it needed a buyer. However, there were no readily available buyers to buy power. 

The Chairperson also stated that government would have to consider the issue of incentives critically, particularly IDM. He requested clarifications by NERSA on the reason for deviation on policy and why IDM subsidies were dropped.

The Chairperson asked what the overall efficiency of Wartsilla’s Sasol project was.

Mr Glossop remarked that the Sasol project was divided into two phases. The initial phase, which had been completed, had an efficiency of 45% to 46%. It was estimated that the overall efficiency of the project after the completion of the second phase would be around 60% to 65%.

The Chairperson asked Prana Energy to elaborate on the poverty of the Power Purchase Agreement (PPA), as well as the appropriated regulatory environment. He also asked why the deal with Eskom fell through.

Mr Posthumus replied that an appropriate regulatory framework would consist of a procurement programme and, a cogeneration license and the IDM subsidy. Cogeneration was not specifically mentioned in the IRP 2010 and this created a problem. The project with Eskom was withdrawn because Eskom did not agree with Prana’s proposal. It was important to act fast on cogeneration because Eskom’s energy generating capacity was stressed, as it was over 3 000 megawatts short. The withdrawal of the IDM subsidy was affecting Prana’s cogeneration project and it might have to disband the project team. This situation was not peculiar to Prana as there were other companies affected by the subsidy withdrawal.

The Chairperson requested Prana to furnish the Committee with details of the other companies affected, as well as their respective positions on the issue.

Sebenzana Consulting Presentation

Mr Andrew Carr, Managing Director, Sebenzana Consulting stated that his presentation would represent the views of many industrial players that his company worked with. Industrial players in the cogeneration sector could be divided into two: large industrial players such as pulp and paper mills, refineries, steel producers, and small industrial players such as niche plastic and chemical producers and hospitals. Industrial cogenerators could either be net importers of electricity, in which case they would be referred to as embedded generators, or net exporters of electricity and this comprised IPPs that sold power. The planning horizons for both net importers of electricity and net exporters of electricity respectively were about one to three years and seven to 20 years.

Mr Carr emphasised the importance of creating an enabling environment for cogeneration. The cogeneration sector needed support in form of incentives to develop cogeneration projects. The incentives were enablers that would enhance the viability of cogeneration projects, and these were PPAs through procurement programme and capital incentives for cogeneration. The key incentive in the embedded generators would be capital incentives such as the IDM initiatives. A typical incentive for IPPs was the PPAs, although capital incentive might be applicable too.

Mr Carr noted that a capital incentive programme would accelerate efficient cogeneration from the private sector. No power purchase agreement (PPA) would be involved, as power would be used on-site and it would have impact on the grid. These projects represented Demand Side Management (DSM) or Integrated Demand Management (IDM) projects, and would help alleviate the already overburdened grid. Eskom had an IDM programme but had suspended the initiatives due to funding constraints. This had dealt a severe blow to the potential of the embedded cogenerator. It was important to accelerate the reinstatement of such capital-intensive scheme to realise cogeneration in the sector.

Material and Process Synthesis (MaPS) Engineering Research Unit, University of South Africa (UNISA) Presentation

Professor Diane Hildebrandt, Director, MaPS Engineering Research Unit, University of South Africa, stated that sustainable cogeneration of electricity from waste would help solve environmental problems while providing jobs for the people of South Africa. She noted that any waste stream that contained carbon could be used as a feed for cogeneration. This included municipal waste, agricultural waste, invader plant species and plant grown specifically for conversion into energy, sewerage sludge, coal fines amongst others. This would be processed and converted into electricity and transport fuels, as well as waxes and oils.

Prof Hildebrandt indicated that South Africa generated 59 million tons of general waste in 2011, and about 10% of the total waste generated was recycled while the remaining waste was land filled. Between 28 to 63% of this waste could however be converted to electricity or synthetic crude. If 28% of waste going to landfill was utilised, MaPS could generate 3 500 megawatts of electricity. If 68% of waste going to landfill was used, MaPS could produce up to 7 500 megawatts of electricity or 40 million barrels per annum of synthetic crude. The production of electricity from waster could be increased to 10 000 megawatts and would generate about 10 000 sustainable jobs. There was also a series of technologies that might be used ranging from micro waste producers with the ability to convert a ton of waste per day to 75 kilowatts of electricity, medium waste producers that could produce 10 to 50 tons of waste per day and convert that to 750 to 3 250 kilowatts of electricity, and large producers like landfill sites and coal fines where 100 tons of waste could be generated by day and could be converted to 7 500 kilowatts of electricity.

In the South African context, the technology would offer an effective and economic solution to waste reduction and localised energy supply challenges. It would make use of small-scale South African technologies and would benefit diverse range of stakeholders. The smaller plant units were also easily portable and mobile, while the project would also create job for unskilled workers. 

An enabling environment was however needed in order for the project to materialise. Access to waste was surprisingly problematic and spaces were needed to build the plants. It was also important to have off take agreements for both electricity and synthetic crude. Supportive and coherent legislation, as well as possible tax breaks would help in fast tracking the project.

Electricity Governance Initiative of South Africa (EGI-SA) Presentation

Mr Robert Fischer, representing the Electricity Governance Initiative of South Africa (EGI-SA), commenced his presentation by highlighting the electricity challenges South Africa was confronted with. He noted that Eskom was having difficulties in maintaining existing generation and building new plants. In the midst of global and local uncertainties, only 84% of households had access to electricity in South Africa. There were also local impacts of resources exploitation on environment and people, hence the need for better sources of electricity.

Cogeneration, Mr Fischer noted, should not be confused with own-generation using fossil fuel. There was an underutilisation of cogeneration in South Africa due to historically low electricity tariffs, high capital investments and long term return on investment. IRP 2010 briefly mentioned cogeneration, noting that Eskom’s cogeneration, own generation and renewable generation targets for the next three to five years must be achieved. There was also a commitment by the Minister for Energy in December 2012, who indicated that 800 megawatts of electricity would be generated through procurement from cogeneration sources. The Committee must thus find out and or clarify the status of those commitments.

Mr Fischer reported that about 0.8% of electricity generation in South Africa was cogeneration as opposed to 9% globally. It was also estimated that South Africa could generate about 3.4 gigawatts, about 8% of total generation in 2020. By 2030, cogeneration could potentially rise to 17% representing 17% of the potential total electricity generation in South Africa.

Mr Fischer emphasised that it was time every stakeholder in the electricity sector actively participated in the sector. There must the continual implementation of the Energy Efficiency and Demand Side Management (EEDSM) and short to medium term supply options must be explored. This included solar, wind, natural gas, hydro, waste, biomass, biogas, and cogeneration. There was need to urgently review legislation and regulations on cogeneration.  IPP, PPA and licensing regulations must be reviewed in order to remove barriers to cogeneration while IEP and IRP should include potential for cogeneration. There must also be a commitment to support sector and sub-sector potential analysis as well as skill development, research and local content criteria for cogeneration.

Discussion

NERSA stated that NERSA was only charged with the implementation of policy. There used to be a public participation process before any decision was made. NERSA looked at the cogeneration potential in 2009 and discovered that it could generate 2 000 megawatts of electricity. NERSA initiated work on predetermination of tariff to aid cogeneration but it was told by the policy makers that the Energy Regulation Act (No 4 of 2006) did not allow for NERSA to do that. NERSA also tried to introduce wheeling rules to govern the way Eskom and municipalities would charge entities that were considering wheeling power to them and this underwent a public participation process. After the process, NERSA was approached by Eskom, EIUG and some other stakeholders that said that they were not satisfied with what was in the document. The document was presently being considered with a view to reviewing the provisions in the document. The MYPD3 application was not about cogeneration but specifically targeted towards plant optimisation. A decision was eventually made not to allow cogeneration. This was due to the fact that, although cogeneration had the potential to improve efficiency from about 30% to 90%, this would in the long run benefit the industry to the detriment of the users. It was not right that users should pay for the efficiency of the industry while the industry would keep the benefit of the efficiency. Request and justification for deviation from the IRP should not be sent to NERSA but must go to the Minister who had the power to grant the request. There was however the provision for the procurement of 800 megawatts of electricity through cogeneration within the IRP, and the Department of Energy was working to make sure this was procured.

 

The Chairperson asked MaPS Engineering Research Unit, UNISA, if it had any project that had been implemented, and with whom it had worked in government, either in the province or municipality.

MaPS replied that it had been in contact with SANEDI and some municipalities. Municipalities wanted it but could not commit to it, as they could not make the decision. MaPS was frustrated with responses from government and had taken the project to private investors. There existed no project in South Africa but MaPS had built plants in China and Australia.

Mr Greyling asked for clarification of NERSA’s position on tariff on energy efficiency, which was hitherto funded by the government. He asked if NERSA was of the opinion that companies should bear the cost on their own and should not be subsidised whether from the fiscus or from the tariff.

The Chairperson asked Sebenzana if South Africa had the technical capacity to embark on cogeneration projects, and what the requirements for training and safety would be like.

Mr Carr replied that South Africa had the capacity for cogeneration, although this could be strengthened. Most projects aligned with South Africa’s heritage and the onshore capacity for construction companies, engineering, and procurement was available. Measures were also in place to ensure that the local content was executed optimally. The nation also had the heritage and relationship with countries and companies for offshore projects. Safety would not pose a problem and projects would build on existing capacity due to the fact that many of the projects were decentralised and would take place in industrial centres. In relation to NERSA’s comment about tariff and subsidy, it was important to stress that while companies may benefit, the nation would also benefit significantly. There was going to be an alignment of interest and shared benefits. A critical look at trading partners globally showed that such projects received subsidies. There was a lot of evidence to suggest that incentivising plant optimisation process and cogeneration projects were certainly a good thing to do.

Mr Long commented that NERSA and the Department of Energy had not provided any framework and time frame for the procurement of the 800-megawatt, and that they both had not acted on the deviation.

The Chairperson responded that NERSA was a regulator and had strict rules guiding its work. If the deviation was going to be attended to by the Minister for Energy, one could not expect NERSA to act on deviation.

Mr Greyling stated that the Committee must seek for clarity from the Department of Energy on the procurement process for the 800 megawatts and whether it had been allocated. It was also important that the IRP be updated.

The Chairperson proposed a second phase of the public hearings on cogeneration, which would take place at a later date. The Department of Energy, Eskom, NERSA, non-governmental organisations and other relevant stakeholders would be invited for the second phase. He stated that he had just been shown a document that indicated that 277 out of the 800 megawatts for cogeneration procurement had been signed off by the Department of Energy. This would therefore be helpful in the work of the Committee and in seeking clarifications from the Department of Energy on the procurement process. The Committee would also do its best to do an international comparison of best practices in cogeneration.

The Chairperson thanked everyone present.

The meeting was adjourned.     

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