Industrial Development Corporation & SACC

11 June 2013

Towards Green Industrialisation

Focus on Cogeneration & SA Calcium Carbide Cogen Project

Rentia van Tonder SBU Head: Green Industries

Raoul Goosen Specialist: Green Industries

Hennie de Jager Production Manager: SA Calcium Carbide

Presentation to Parliamentary Portfolio Committee : Energy

2

Content

Fuel Based Green Energy

2

3

Background: Green and IDC Green SBU 1

SA Calcium Carbide 4

5

Conclusion 6

SA Calcium Carbide Cogen Project

Cogeneration

Green Industries SBU: Focus

Energy efficiency

Heat,

Electricity

& building

efficiency

Cleaner

production /

Industrial

Efficiency

Transport

Efficiency

Waste to Energy

Fuel Based Energy

Co-generation

Emission and pollution mitigation

Air pollution

control

Waste

Management/

Recycling

Clean

stoves

Bio Fuels

Bio Ethanol Bio Diesel

Renewable Energy: Non-Fuel Power

Wind Power

Generation

Concentrated

Solar Power

Solar Photo

Voltaic Power

Services related

to renewable

energy & energy

efficiency

Local

manufacturing

related to

renewable

energy & energy

efficiency

Hydro

Fuel Based Energy

12% Energy Efficiency

4%

Renewable Energy

76%

Biofuels 8%

Green Portfolio R10,4 bn

R7.5 bn

R1.4b

R422m

Green Industries SBU: Committed portfolio

High-Level Sector Development Strategies to achieve objectives

Indu

stry

Goa

ls

To be carbon neutral by 2050: Emissions in SA should be reduced to 1 tonne per person per annum

IDC

Goa

ls

To play a leading role in the development of the green economy through investments in Green Industries

Foc

us

Are

as

Energy Efficiency Renewable Energy Fuel based green power Bio fuels

Key

Str

ateg

ies/

Initi

ativ

es

• Increased focus on

implementation of GEEF and

Afd funding aligned with key

objectives

• Implementation of EE &

usage of local components as

identified

• Support, develop & fund

Esco’s

• Develop and Finance wind power

projects to stimulate local wind

turbine manufacturing

• Develop and finance

concentrated solar power

projects with focus on

diversifying post COD

• Develop and finance photo

voltaic solar power projects to

stimulate local PV component

manufacturing

• Increase focus on Hydro and RE

in rest of Africa

• Develop commercial or

demonstration waste to energy

(include biomass) projects

• Initiate and develop co-

generation opportunities with

large industrial players • Fast track focus and projects on

Biogas as feedstock for clean

transport

• Development of Bio Ethanol industry,

create conducive regulatory

environment, focus on Cradock

project & its implementation

• Biodiesel: review approach & way

forward

• 2nd generation technologies: review

viable technologies and partner

where appropriate.

Pot

entia

l

Con

stra

ints

• DSM fund availability

• Roll out for SWH,

affordability

• Limited local manufacturers

of components ie LEDs and

CFLs

• Tariffs to come down

significantly and RE to reach

grid parity in 5 years

• Costly Bid process

• Small IPP process to be

confirmed asap

• COFIT / wheeling

• Incentives for biogas

• Feedstock security

• Legislation: Fuel blending specs &

cost

• Mandated upliftment

• Feedstock – biodiesel

• 2nd generation – viable

technologies

Fuel Based Green Energy: Industry structure

Municipal solid waste or

Biomass or Tyres

Grown biomass

Organic waste

Sewage sludge

Animal litter

Feedstock

Waste Gas

Pyrolysis

Sorting

Anaerobic Digestion

Combustion Incineration or

Waste heat

Gasification

Primary Process

Steam turbine or organic rankine

cycle

Electricity

Industrial fuel

On-site heating

Vehicle fuel

End Use

Recycling

Co-generation Internal gas combustion

Gas Cleaning

Liquefied Biogas (LBG)

Compressed Biogas (CBG)

Steam

Piped gas

Secondary Process

• Fuel to co-generation plant (waste-heat or off-gas) is a by-product from an industrial process which

manufactures carbide, cement, ferrochrome, steel, glass, platinum, etc.

• Industrial process itself is heart of the core business of the fuel supplier / host

• Co-generation at end of industrial process is an “add-on”, not under control of the co-generation plant

Fuel Based Green Energy: “Waste” to energy and Co-generation

Feedstock

Offtakes

Revenue

Process various options

Investment decision

Project

Feedstock (Fuel) security:

• No feedstock security, no start

• Challenge: Long term supply agreement to cover

debt tenure + 2 years

• Quality, quantity, price & period

• MFMA requirements for municipalities

Process/Investment options:

• Driven by feedstock qualities, quantities term

and off take options

• Typical cost R15-35m/MW

• High load factors (eg >75%)

Offtakes:

• Low O&M cost, so if Offtake/feedstock price

RATIO strong, then repay debt quickly and low

cost power

Co-generation

Opportunities:

Electricity from waste heat or fuel to make

existing industry more efficient &

reduce electricity cost

Large industry with furnaces and kilns :

ferro-chrome, ferro-manganese, silicon,

carbide, platinum, cement, lime, steel ,

carbon black (ca 2000 MW potential)

Sugar Industry (1000 MW from bagasse);

Pulp & Paper (500 MW from waste)

Over lifetime generates electricity at

lower cost than Eskom supply, due to

“free/low cost” fuel

– Capital repayment 40-80 c/kWh for

ca 8 years and cash cost (O&M) of 10-

25 c/kWh

Positive drivers (applicable for biogas as well):

Increasing power prices,

Carbon Tax proposed,

Tax incentives for efficiency (12I & 12L),

Eskom IDM for own use – cancelled by NERSA

DTI MCEP & CIP grants - uncertain

Negative factors:

• Not core business; Lack of commitment from

large players to participate in feasibility

studies/project development.

• Paybacks longer than core business projects;

• Relies on core business for feedstock

IDC approach:

• Developed senior debt term sheet for Co-gen

• Sub debt with equity kicker,

• Equity/development funding (minority stake)

if host co-fund feasibility and obtained board

approval.

SA Calcium Carbide factory in Newcastle

SA Calcium Carbide

SA Calcium Carbide Operations

• SACC produce some 72,000 tons of calcium carbide per annum with a capacity to produce up to 90,000 tons pa

• From local materials – limestone (largest customer in SA); anthracite and electricity

• uses 50 % of Newcastle’s electricity

• SACC are the only producer of calcium carbide on the African continent

• Annual turnover of some R 500 million per annum (approx. US$53 million)

• Supply all local users – steel industry (to desulphur steel) ; to make acetylene welding gas and acetylene carbon black (as pigment and to make zinc carbon batteries)

• More than 50 % of production exported – so R 500mil forex +ve

• 300 direct employees, and many more in value chain (raw materials mining, logistics)

SA Calcium Carbide Furnace

SACC Process

Principal objective : Electricity supply (demand reduction)

Previous SACC Operation

SACC – after Cogen Project

Engine Genset 1 of 4

SACC Cogen Project Highlights

• 8MW electricity co-generation project

• utilizing the submerged arc furnace waste off-gas

• displace Eskom fossil fuel derived electricity

• saving 20 % of SACC use (10 % for Newcastle)

• as a Clean Development Mechanism (CDM) initiative;

• commissioned Dec 2013 – after 1st soil turned in Jan 2012

• R105 million capital cost requirement for this project over

a financing period of 10 years

SACC Carbon Credits

Eskom IDM Support

• Eskom on a massive drive to reduce consumption from National Power Grid, so supported this initiative by SACC by partially fund this DSM project by compensation for electricity saved over the next three years (during weekdays from 06:00-22:00)

• All this electrical energy generated is consumed on site, thus reducing SACC’s consumption from national grid. Resulting in reduced emissions of greenhouse gasses and CO2 emissions from Eskom - due to reduced electricity demand from SACC from grid

0

5000

10000

15000

20000

25000

30000

35000

40000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Actual Furnace Grid Consumption Pre-Implementation [kWh]

Expected Grid Consumption Post-Implementation [kWh]

SACC Cogen Project Benefits

• 15 - 20% reduction in electricity (energy) utilisation by SACC

• Energy efficiency supporting growth needs of Newcastle Municipality (10 % more power)

• Support of the local community with a rural school green (solar) energy solution

• Contribute favourably to the Sustainable Development of the Newcastle municipal region by introducing job opportunities to plant operators, plant technicians, contractors, maintenance personnel and plant equipment suppliers

• Maintaining SACC operations by mitigating power price increases (30 % of costs) and hence protecting 300 jobs and 1000 indirect jobs as well as SA value add of R 500 mil pa

• Combatting climate change - registered CDM project with United Nations Framework Convention on Climate Change (UNFCCC) - carbon credits for international sale

Typical Co-generation opportunity

• Host generates “waste” fuel or heat

• “Waste” fuel or heat cannot be stored or limited storage is possible

• Could be augmented with additional fuel such as coal or gas

• Host can produce 5-20% of own needs, some cases much more

• Requires integration with existing process

• Host company has extensive engineering and operating competence but maybe limited project power implementation experience

• Electricity generation is not core business

Fuel Based Green Energy: Attractiveness of Cogen

• High Load Factor (24x7) – directly reduces demand when industry uses (load following)

• Utilises “waste” and produces “green” power at low cost (“free” fuel)

Fuel Based Energy

Why has little cogen happened?

• White Paper on Renewable Energy (2003) - 10 000GWh by 2013

– Highlighted technologies to be deployed in the 1st phase (2005 to 2007) included sugar-cane bagasse (fibre that comes from crushing the sugar cane) for cogeneration

• (Eskom) MTPP in 2008 – prices from 2013/14 reducing to 35 c/kWh in 2018

• PNCP and COFIT floundered

• IRP 2010 – 2030 (May 2011): MTRMP for power before 2016, but slow progress.

• 800 MW determination Dec 2012

so now a RFI/P is due, but requirements and PPA uncertain

PPA options and issues:

1. “traditional PPA” based on an energy-

charge (c/kWh) - includes penalties for

non-delivery; for LT (15 yrs) – NOT AN

OPTION, as Fuel not guaranteed

2. PPA akin to a feed-in tariff (COFIT

concept) - an energy-payment (c/kWh), but

difficult to guarantee fuel supply (like wind),

but different – needs significant DSCR or

guarantee

3. PPA with a capacity charge (fixed

component) plus a variable charge. ie.

buyer takes on some/all of fuel-supply risk

4. Simple capital subsidy as per the IDM

subsidy arrangement from Eskom

Conclusions

• Cogen - using “waste” heat or fuels, and increased efficiency of CHP (2x efficiency of power only, ie. Eskom generation) - saves fossil fuel usage & makes SA more energy efficient

• Due to “free” fuel, after capital investment repaid, produces at low cost

• It reduces demand directly, so reduces peak demand and has excellent load factor, unlike other renewables (without storage) – so reduces national investment required in power generation capacity directly (unlike wind, PV)

• In national interest to facilitate investment soonest, especially given tight power supply - it is lower cost than Medupi and Kusile and cleaner & saves coal use

• IDC positioned to support industry/developers who have the opportunities (“waste” fuel)

Also supporting development and use of fuel cells (improved efficiency) that can substantially increase platinum demand (if power of Eskom supplied by FC would double PGM demand - increase SA revenue 4x)

Offtake/Incentive to invest (PPA or capex grant) is needed, as otherwise industry may not

invest, as not core business, and best return given when power prices peak in real terms (4

years away)

Industrial Development Corporation

19 Fredman Drive, Sandown

PO Box 784055, Sandton, 2146

South Africa

Telephone 011 269 3000

Facsimile 011 269 2116

E-mail callcentre@idc.co.za

Thank you

SA Calcium Carbide factory in Newcastle

CHP (Cogen) Technologies