ATC140313: Report of the Portfolio Committee on Energy roundtable discussion on co-generation and tri-generation of electricity on 30 January 2014, dated 12 March 2014

Report of the Portfolio Committee on Energy roundtable discussion on co-generation and tri-generation of electricity on 30 January 2014, dated 12 March 2014

1. Introduction

1.1. Subject of the report

The subject of this report is to report back to the National Assembly (NA) on the Portfolio Committee on Energy’s findings after scheduling a roundtable discussion on: Co-generation and tri-generation of electricity.

1.2. Background

Improving the energy efficiency of our manufacturing facilities, buildings and homes can help us meet our energy challenges affordably. It can save consumers money of their energy bills, drive business competitiveness and economic growth and jobs, enhance grid reliability and flexibility, and help protect public health and the environment. Combined Heat and Power (CHP) systems are strong examples of how energy-efficiency technologies can help achieve these significant benefits for end-user facilities, utilities and communities.

Co-generation or CHP is the simultaneous generation of both electricity and heat from the same fuel, for useful purposes. The fuel varies greatly and can include coal, biomass, natural gas, nuclear material, the sun or the heat stored in the earth. In the South African context, cogeneration also refers to the production of electricity and useful heat from a fuel/energy source which is a co-product, by-product, waste product or residual product of some underlying industrial process. It differs from conventional generation in that it is coupled to an industrial process of the host plant.

Co-generation is attractive to policy makers and private users and investors because it delivers a range of energy, environmental and economic benefits, including:

• Dramatically increased energy efficiency.
• Reduced CO ₂ emissions and other pollutants;
• Increased energy security through reduced dependence on imported fuel;
• Cost savings for the energy consumer;
• Reduced need for transmission and distribution networks; and
• Beneficial use of local energy resources (particularly through the use of waste, biomass and geothermal resources in district heating and cooling systems), providing a transition to a low carbon future.

Just over 40 people, representing Parliament, Industry, Academia, Municipalities and Financial institutions attended the Roundtable on Co-generation and Tri-generation, organised by the PCE at the South African National Energy Development Institute (SANEDI) offices in Sandton on Thursday, 30 January 2014.

Members who formed part of the delegation included: Mr SJ Njikelana (Chairperson of the PC on Energy and Leader of the delegation) , Mr S Radebe, Ms B Tinto, Ms N Mathibela and Mr L Greyling . The delegation was supported by the following staff members: Mr A Kotze (Committee Secretary), Mr P Rampersadh (Content Advisor), Mr S Maboda (Researcher) and Mr M Dodo (Committee Assistant).

Stakeholders who were invited to attend the roundtable discussion included:

· ABSA

· MTN

· Vodacom

· City of Johannesburg

· Chamber of Mines

· Energy Intensive User Goup (EIUG)

· ESKOM

· Industrial Development Corporation (IDC)

· Illovo

· National Energy Regulator of SA (NERSA)

· SA Local Government Association (SALGA)

· Tongaat Huletts

· SA Sugar Association

· Vuselela Energy

· Department of Public Enterprises

· MaPS Engineering (UNISA)

· Banking Association of SA (BASA)

· ArcellorMittal – Saldanha

· Exxaro

· Pulp and Paper Manufacturers Association of South Africa (PAMSA)

· Sebenzana

1.3. Objective

The objective of the report is as follows:

· Provide an overview to members of the Portfolio Committee on Energy of the implications and impact of a carbon tax in the South African context;

2. Opening remarks by the Chairperson of the Portfolio Committee on Energy, Hon SJ Njikelana

The Chairperson, the Hon. Sisa J. Njikelana welcomed everyone and indicated the reason for the roundtable.

Subsequently thereafter various industrial players were invited to discuss their successes and issues related to their experiences with co-generation and tri-generation.

1. Industry input

a. Telecommunications Industry

The telecommunications industry, represented by Vodacom and MTN indicated that they have focused on Solar and gas generation options to reduce their demand on the grid and to ensure energy security. In terms of their industry, they have successfully introduced solar and tri-generation into their energy mix but some challenges remains, these were listed as:

· The price of methane gas

· The availability of gas

· The small incentives to reclaim heat

· The above solutions reduce the energy load but cannot take them off grid as yet.

b. Bio Co-generation Industry

Next, broadly speaking, the bio fuel industry, represented by the sugar, pulp and paper and sawmilling industry presented their viewpoints. They indicated that these industries have been producing co-generation power for years as there is ample availability of “fuel” being the by-products of their industries. The industries utilizes not only the electricity, but also the heat generated within their processes and have an over capacity that can be fed into the grid. The sugar industry indicated that they have 14 mills that utilize less than 10 MW each and hence can export 700 to 1000MW to the grid. Pulp and Paper, and indicated that they each can generate an additional 300MW for export. These industries indicated that they are looking for a procurement programme, similar to the REIPPP, and that barriers be removed, for them to re-invest in generation capacity. This industry indicated that there are issues with wheeling charges and Nersa was engaged on this in November 2012 with no outcome to date.

c. Mining

The coal mining industry also indicated that there is massive potential to generate electricity from coal fines that are discarded by the mining industry. Most mines have a lifespan for 20 to 40 years, producing this waste and hence have the potential to generate power for this period. In summary, coal mines can generate power from:

· Coal fines

· Low grade waste (coal)

· Methane exhausted from coal mines

· Hydro (by dropping water down mineshafts.

Points raised that are a concern for the industry to invest in generation capacity include:

· Wheeling costs

· Regulatory issues

· Market structure

It was indicated to the Portfolio Committee that in India, coal mines are not allowed to discard coal hence they have invested in generation capacity, to utilize the waste. The Ferrochrome industry also indicated the potential to generate power and can generate power at below Eskom’s rates. At lease 200MW can be generated from waste gas and a further 180MW from thermal power (steam). This can be installed at a cost of R18m per MW and the projects need about eight years to break even.

d. Energy Intensive User Group (EIUG)

The Energy Intensive User Group raised the following issues that affect investment in co-generation:

· A secure supply of gas is required, process gas can be utilized but a secure supply, e.g. from Mozambique is required.

· The period offered by the Municipalities for the Power Purchase Agreements, e.g. three years, is not acceptable for companies to raise finance for own generation

· The EIUG also indicated that there are problems with grid connections and wheeling.

2. Government Input

a. Local Government

Local government, represented by SALGA, had the following input. SALGA agreed there are challenges around the PPA’s with Municipalities, however there are also some success stories and some players in the sugar industry in KZN are beneficiaries of this. They also indicated that it is not the intention of Municipalities to frustrate industry. Some industries, watching developments in the REIPPP programme, have been moving the goalposts making it difficult for municipalities. Municipalities also indicated that, contrary to belief that Municipalities will lose out if industry starts co-generating, it is not the case. Municipal tariffs for electricity are made up of tariff costs and infrastructure costs. The tariff costs are mostly the Eskom costs and as such are of no benefit to Municipalities, whereas the infrastructure costs will need to be paid by co-generators when using the grid. This is utilized to maintain the grid. In conclusion, Municipalities indicated that they are willing to negotiate and discuss challenges with industry. The telecommunications industry indicated that this is already happening, at the request of Municipalities.

b. Eskom

Eskom indicated that they have contracted in 400MW of co-generation (this has been there for eight years) but indicated that there is no market for co-generation currently. The demand for co-generation will increase and industry needs to study the IRP documentation carefully as Nersa will only licence what is in this document. Further, if DoE makes a declaration, Eskom will purchase that power as specified in the declaration. Industry needs to note that there needs to be a willing buyer buyer-willing seller within an acceptable policy environment for this industry to succeed. Eskom also indicated that the MYPD3 cycle has funded co-generation till the cycle is completed and hence cannot purchase co-generation for the next four years. Hence industry needs to deal with the policy environment, to bring in more co-generation. Further, industry needs to note that there will be wheeling charges and these will be cost reflective.

c. Department of Energy

The DoE indicated that the REIPPP is a new programme in SA and hence there were a fair degree of permutations and problems that needed to be managed down. Further SA has a vertically integrated utility and this posed further challenges. This was a steep learning curve for them and hence although government agreed that co-generation should be part of the energy mix, the roll out of policies has been slow. DoE also indicated that some policies reside outside the DoE, making the policy environment more difficult. The DoE indicated that it aims to have some of the policy documentation ready by March and requested that all players involve themselves in the process and issues at hand.

3. GIZ (German Society for International Cooperation)

On an international perspective, GIZ Germany, did an assessment of the co-generation market in SA and indicated that they were not convinced that this was required as SA does not have cold winters. Hence SA needs to look into the market and potential for co-generation in large industries. GIS Germany feels that Eskom should fund co-generation but that there should be incentives from industry also. Institutions like SANEDI can play a role by addressing the skills shortage issue and setting up training programmes.

4. Financial Institutions input

The Industrial Development Corporation (IDC) indicated that they do have an appetite for these types of investments but the Power purchase investment periods need to be long enough. Further, there needs to be a fair and consistent market, for them to finance projects. There also needs to be a market and if one is not available, it should be created.

5. Discussion and Outputs

· With regard to generation of power from the coal, Members indicated environmental concerns but the industry responded indicating that environmental issues can be managed.

· Members also indicated that the DoE needs to push this forward and ensure delivery of the appropriate policy documents, as changes are required to enable supply options, not making it onto the grid.

· The Members strongly supported the call that the participants submit comments on the draft IRP document that was recently released for public comment

· The roundtable supported the proposal that a meeting/conference be held soon so as to ensure issues raised be addressed.

· The Members further indicated that Development Financial Institutions and SALGA need to assist the industry by addressing their concerns.

6. Closing remarks by the Chairperson

In Conclusion, the Chairperson indicated that a keenness and willingness of all parties to engage, as well as an adequate skills base, is required, to ensure success of this industry. This must be through a national platform to ensure commitment from all.

7. Recommendations

• The Speaker’s office endorses the facilitation of a national symposium by the Portfolio Committee on Energy, assisted by any relevant body/ ies that will create a National Platform for commitment and promotion of co-generation and tri-generation.
• In the interim, the South African Local Government Association (SALGA), the Department of Energy, the Development Financial Institutions and those businesses who are affected, convene meetings to address concerns that have been raised during the discussions.
• The Speaker’s office endorses commissioning of in-depth research on comparative analysis on legislation that enables co-generation and tri-generation.

Report to be considered.