LIGHT MATTERS - JSE MAGAZINE

LIGHT MATTERS

SA’s future energy security will lie on much more than monolithic Eskom’s presence

LIGHT MATTERS

While the programme of purchasing renewable energy from independent producers has been described as ‘the most successful public-private partnership in Africa in the last 20 years’ (according to a publication co-authored by University of Cape Town energy specialist Anton Eberhard and published this year by the World Bank Group), there are other key elements to consider.

There is no doubt that the Renewable Energy Independent Power Producer Procurement (REIPPP) programme has delivered. A total of 64 projects were approved in its first three bid rounds and the private-sector finance leveraged is over $14 billion.

In two-and-a-half years, average solar photovoltaic tariffs have dropped 68% and wind energy prices have come down 42%.

Of the 28 projects approved in the first bid window, 14 were on-stream by the time new Minister of Energy Tina Joemat-Pettersson made her maiden budget speech in July this year. However, some dark clouds have been gathering over the energy sector and it is becoming evermore apparent that the status quo ante – a time of plentiful and cheap electricity – will never be restored.

SA’s energy users are looking more seriously than ever at complementary programmes to reduce energy consumption.

Firstly, renewables were never intended to be the entire solution to SA’s energy gap. Total renewables capacity (3 625 MW) planned over five bid rounds will be less than 10% of the country’s capacity when completed. SA will remain heavily dependant on conventional energy and it is here that problems are re-emerging.

In early September 2014, Business Day reported on an Eskom publication, which argued that electricity supply will remain ‘highly constrained’ for five years. The problem is that the ageing plant has been pushed too hard for too long and it is now starting to break down.

renewable-energy-Infographic

The publication quotes energy analyst Chris Yelland as saying that the parastatal is ‘paying the price of its “keeping the lights on at all costs” policy’.

Eskom’s availability factor (the percentage of plant available after planned and unplanned shutdowns) has dropped from 85% in 2010 to 75% in 2014. The generating capacity lost (4 200 MW) is almost equal to the entire planned output of the Medupi power station (4 800 MW) and greater than the entire planned renewables programme.

Possible threats to the renewables programme itself have also emerged. Joemat-Pettersson has both delayed financial closure for third round REIPPP programme projects, from 30 July to the end of November, and spoken of greater intervention in
the last two rounds. After her controversial tenure as Minister of Agriculture and Fisheries, the appointment of Joemat-Pettersson at Energy earlier this year was greeted with some dismay.

The minister has hardly enhanced the confidence of the renewables industry with her insistence that future nuclear power options are non-negotiable.

The official reasons given for delaying financial closure are concerns regarding the volatility of the rand and Eskom’s capacity problems in feeding in new grid connections.

It appears that no one in the renewables sector is prepared to say outright that these reasons are spurious. But it is worth pointing out that a recent WWF publication goes into some detail about how these two specific problems were (successfully) dealt with in earlier bid rounds.

The publication also points out that currency risks are usually exacerbated, not lessened, by delays. ‘While projects endeavour to reach financial close as soon after DOE [Department of Energy] signing as possible, any delays expose the projects to substantial market risk,’ it says.

While the WWF publication does argue that the feed-in process has ‘placed significant resource demands on Eskom’, it seems unlikely that the parastatal’s capacity suddenly declined just as a new minister took office.

It may be that nothing baleful is happening here. However, another issue raised by Joemat-Pettersson – local content – has been built into the programme from the outset.

The programme is intended to expand alongside local manufacturing capacity with a 25% (local content) requirement being imposed in round one, rising to over 40% in round 3 with an ‘eventual target’ of 65%. Bid winners face high penalties for non-compliance.

There doesn’t appear to be a single data source for developments regarding the local content aspect of the REIPPP programme. But the fact that government departments – Energy and Economic Development – are not up-to-date with a fairly straightforward monitoring and evaluation issue, should surely not be used to penalise either the public sector or national energy security in general.

There is, in fact, considerable evidence of local manufacturing take up. Wind tower manufacturing facilities have been set up in Atlantis, north of Cape Town (GRI Wind Steel South Africa) and the Eastern Cape’s Coega industrial development zone (DCD Wind Towers).

DCD’s factory is expected to build between 120 and 150 towers a year for the REIPPP programme. Around 150 to 200 operational positions and over 600 construction jobs will be created, according to DCD Wind Towers’ general manager Gerrit Viviers.

‘The benefits to the economy will penetrate beyond local skilled jobs and training to include logistics and value chain opportunities,’ he says.

Meanwhile, solar panels are being manufactured by SunPower Africa in Cape Town and ART Solar in New Germany outside Durban, and Black Lite Energy based in East London’s industrial development zone. It is unlikely that these are the only initiatives.

The uncertainty that has been injected into SA’s renewables industry since the May 2014 general election has once again raised an issue that was dormant: whether renewables are indeed an important part of the answer to SA’s energy security problem, or an ideological indulgence? At a panel discussion at the launch of the WWF publication, senior Industrial Development Corporation account manager Piet Badenhorst raised the issue of the hidden costs, related to the intermittent output of solar – and especially wind power plants. His comment sounded like an old point but may turn out to be an indicator of a shift in direction.

renewable-energy-pull-quote‘Energy efficiency is more than just good corporate citizenship, it makes business sense’

NDIVHUHO RAPHULU, DIRECTOR, NCPC-SA

SA manufacturing has borne the brunt of the uncertainty. According to Manufacturing Circle chairperson Stewart Jennings: ‘The sector has lost 300 000 jobs since 2010 …No manufacturer can … [deal with] a huge increase [in electricity prices] when your prices are actually coming down because of the rand. Most manufacturers use a significant portion of electricity.’ There are, however, crucial initiatives to help firms cut the use of electricity in manufacturing that are reaping impressive benefits. 

One of these is the Industrial Energy Efficiency Project (IEE Project) implemented since 2010 by the National Cleaner Production Centre of South Africa (NCPC-SA), a programme of the Department of Trade and Industry (dti) hosted by the Council for Scientific and Industrial Research.

The IEE Project supports industry in the implementation of SANS/ISO 50001-based energy management systems. The system is a proven mechanism for reducing energy intensity in manufacturing, adopted by the South African Bureau of Standards in 2011.

The NCPC-SA, which has regional offices around the country, has focused the IEE Project on resource-intensive sectors, including the textiles/clothing, agro-processing, chemicals and automotive sectors.

Auto catalyst manufacturer Johnson Matthey attained ISO 50001 certification in 2014 after a two-year process, through the assistance of the NCPC-SA. The company achieved energy equivalent savings of R7.7 million in its first year of implementation in 2012.

Another automotive component manufacturer, Port Elizabeth-based Tenneco, has achieved ISO 50001 certification at two of its plants and saved over R2 million thus far in the process.

ArcelorMittal’s Saldanha Steel plant has effected even more dramatic savings through energy use reduction. Starting in 2011, it saved R176 million in the first two years, and anticipates a total saving of R362 million by 2016. Examples of interventions include optimising the use of fans and pumps, maintaining the water-cooling system temperature, preventing the unnecessary use of burners, and reducing the consumption of liquid petroleum gas.

‘Energy efficiency is more than just good corporate citizenship, it makes business sense,’ says NCPC-SA director Ndivhuho Raphulu. ‘We are only scraping the surface of the vast socio-economic potential of energy – and other resource – efficiency in industry.’

The NCPC-SA’s results are highly desirable, and the strategy, from a national perspective, will help contribute to saving existing manufac-turing capacity – what is required under current conditions. However, for the aggressive national re-industrialisation envisaged by the dti’s Industrial Policy Action Plan to take off, the national energy constraint needs to be addressed – and quickly.

By David Christianson
Image: Mr.Xerty © www.nomastaprod.com