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Renewables - Eskom's death grip - Moneyweb

Thursday, 15 September 2016

South African gold miners’ Gold Fields and Sibanye Gold are forging ahead with alternative forms of energy production, in a bid to ensure greater security of supply and a more stable and certain electricity price trajectory in future.

Sibanye is developing a R3 billion solar project near its West Rand operations, which is the biggest private solar power project in Africa. It will generate 150MW of power once completed, with the first phase of 50MW to be commissioned by December 2017. Gold Fields is in negotiations to build a 40MW solar photovoltaic (PV) plant, which is scheduled for completion in late 2018.

They are not alone. Other heavy consumers of electricity, including Sappi, SAB, Consol and Sasol are investing significantly in gas, co-generation and solar power in a bid to reduce their dependence on Eskom.

Not to be outdone, retailers such as Woolworths, Pick n Pay and Massmart have cut electricity consumption by up to 40% through electricity savings as well as solar electricity generation. Woolworths has committed to running the entire company off renewable power by 2030, something it admits is not technically feasible now, but with the rapid advances in renewable power generation and storage, should be by then.

Investing in power is costly, but companies are being driven to do so for a number of reasons. On the one hand they are concerned about maintaining energy security in the face of unreliable supply. “Companies are starting to understand the cost of unserved power. In other words, what is the cost to my business when the power is off for two hours? For many the costs are significant,” says Mike Levington, CEO of Kabi Solar and a member of the South African Photovoltaic Industry Association (SAPVIA).

“Our strategy is to reduce the risk of power supply from Eskom as a single source, through a combination of demand side initiatives and targeted investments in alternative sources of energy that will result in Sibanye increasing its influence in managing future costs,” adds John Wallington, CEO: Energy Division, Sibanye.

There is more to energy security than just the physical availability of power and the potential for power disruptions. Companies need security in pricing, says Tsakani Mthombeni, group head of carbon & energy at Gold Fields. “What we require is long-term visibility in pricing. If there are rises in energy costs that are high and unsustainable, then we are obliged to look at more cost-effective options.”

Shaun Nel, the head of the Energy Intensive User Group says that prices are increasing so rapidly that it is making energy-intensive businesses unviable. “We are unlikely to see energy-intensive industry investing in SA, and those that are here already will be reducing their output.”

For the gold mines electricity has risen from 9% of operating costs in 2007 to 22% of costs in 2015. And that is despite consumption declining by 15% over the period.

The other driving force is the maturation of the local renewable energy industry. Solar PV panel prices have dropped 80% since 2008, and pricing, thanks to the government’s renewable energy programme, is also transparent and predictable.

“While the pricing is coming down, we are also seeing increased funding for these projects. IPPs, who were involved in the government’s renewable programme are expanding and looking to partner with the private sector. This is something mining companies can take advantage of,” adds Mthombeni.

This trend is likely to increase as Eskom is no longer willing to sign power purchase agreements with IPPs.

Both Sibanye and Gold Fields intend to partner with developers who will build, own and operate the solar PV installations using their own balance sheets. This means that there are no upfront costs for the mines. Instead they will sign 20-year power purchase agreements, making the deals easier to sell to their boards.

These projects are the first step in a bigger energy strategy. In Sibanye’s case the solar plant will have capacity to provide about 30% of the gold division’s peak power needs and 10% of its total energy requirements. “We are exploring other base load alternatives including gas- and coal-fired power stations to supply an additional 200MW to 600MW,” says Wallington.

While increasing numbers of companies are actively exploring renewable options, the installed solar base remains small. In 2015 the industry installed 120MW of embedded PV solutions. SAPVIA expects this to grow to 200MW in 2016. “These are small installations, but these initial users are the ones that drive disruption and usage will grow exponentially from there,” says Levington.

Not all energy alternatives are solar based. Companies such as Sappi, Tongaat, Illovo and SAB, which produce significant quantities of plant-based waste are able to use this to produce electricity.

SAB, for instance, has reduced its total electricity demand by more than 50% since 2008 by implementing operational improvements and initiating capital investments across its manufacturing plants.

A new cogeneration plant at its Alrode Brewery will supply over 15% of its power needs.

The brewery uses biogas from its anaerobic digester, a gas-driven generator similar to a diesel engine, to fuel the cogeneration plant. The biogas runs the engine that in turn produces electricity. Steam is recovered from the exhaust and used to generate hot water for cooling, an essential part of the process.

This plant will ensure that the brewery, which produces a large percentage of SAB’s annual output of 29 million hl of beer, can continue to operate during power failures.

SAB plans to install similar plants at its Newlands Brewery in Cape Town, and ibhayi Brewery in Port Elizabeth.

As a result of these and other initiatives, the company is saving over 235 000 Megawatt hours per year, which is enough to supply over 100 000 standard-sized households.

Coal-fired power, supplied by Eskom, will not be wholly removed from these companies’ energy strategies for the foreseeable future. All of them have good working relationships with the power utility, and have received support in their initiatives to reduce their dependence on the utility.

However there is reason for Eskom to be concerned. As more large corporations (followed by municipalities and middle class households) make similar moves, it could spell financial disaster for Eskom.

The death spiral

Power utilities around the world are facing massive grid defections. So much so that the trend has a name: the utility death spiral.

Defections are being driven by the global imperative to decarbonise electricity generation as well as the fact that solar rooftop systems have become commercially viable. In some parts of the world it is conceivable to imagine a future in which people are no longer connected to a national grid.

The problem arises when too many customers leave and demand and revenue drops dramatically. The cost of maintaining the grid as a shared infrastructure is fixed and must be shared between fewer customers, forcing the utility to push prices up and so creating a spiral.

While South Africa is some years behind countries like Germany and the United States, the trend is there. This country’s electricity industry is on the cusp of rapid change – similar to that faced by the fixed line telephone industry. This is happening at a time that Eskom is facing the challenges of an aging fleet of power plants and transmission lines and needs to finance new investment in base-load power.

Renewables - Eskom's death grip - Moneyweb

Thursday, 15 September 2016

South African gold miners’ Gold Fields and Sibanye Gold are forging ahead with alternative forms of energy production, in a bid to ensure greater security of supply and a more stable and certain electricity price trajectory in future.

Sibanye is developing a R3 billion solar project near its West Rand operations, which is the biggest private solar power project in Africa. It will generate 150MW of power once completed, with the first phase of 50MW to be commissioned by December 2017. Gold Fields is in negotiations to build a 40MW solar photovoltaic (PV) plant, which is scheduled for completion in late 2018.

They are not alone. Other heavy consumers of electricity, including Sappi, SAB, Consol and Sasol are investing significantly in gas, co-generation and solar power in a bid to reduce their dependence on Eskom.

Not to be outdone, retailers such as Woolworths, Pick n Pay and Massmart have cut electricity consumption by up to 40% through electricity savings as well as solar electricity generation. Woolworths has committed to running the entire company off renewable power by 2030, something it admits is not technically feasible now, but with the rapid advances in renewable power generation and storage, should be by then.

Investing in power is costly, but companies are being driven to do so for a number of reasons. On the one hand they are concerned about maintaining energy security in the face of unreliable supply. “Companies are starting to understand the cost of unserved power. In other words, what is the cost to my business when the power is off for two hours? For many the costs are significant,” says Mike Levington, CEO of Kabi Solar and a member of the South African Photovoltaic Industry Association (SAPVIA).

“Our strategy is to reduce the risk of power supply from Eskom as a single source, through a combination of demand side initiatives and targeted investments in alternative sources of energy that will result in Sibanye increasing its influence in managing future costs,” adds John Wallington, CEO: Energy Division, Sibanye.

There is more to energy security than just the physical availability of power and the potential for power disruptions. Companies need security in pricing, says Tsakani Mthombeni, group head of carbon & energy at Gold Fields. “What we require is long-term visibility in pricing. If there are rises in energy costs that are high and unsustainable, then we are obliged to look at more cost-effective options.”

Shaun Nel, the head of the Energy Intensive User Group says that prices are increasing so rapidly that it is making energy-intensive businesses unviable. “We are unlikely to see energy-intensive industry investing in SA, and those that are here already will be reducing their output.”

For the gold mines electricity has risen from 9% of operating costs in 2007 to 22% of costs in 2015. And that is despite consumption declining by 15% over the period.

The other driving force is the maturation of the local renewable energy industry. Solar PV panel prices have dropped 80% since 2008, and pricing, thanks to the government’s renewable energy programme, is also transparent and predictable.

“While the pricing is coming down, we are also seeing increased funding for these projects. IPPs, who were involved in the government’s renewable programme are expanding and looking to partner with the private sector. This is something mining companies can take advantage of,” adds Mthombeni.

This trend is likely to increase as Eskom is no longer willing to sign power purchase agreements with IPPs.

Both Sibanye and Gold Fields intend to partner with developers who will build, own and operate the solar PV installations using their own balance sheets. This means that there are no upfront costs for the mines. Instead they will sign 20-year power purchase agreements, making the deals easier to sell to their boards.

These projects are the first step in a bigger energy strategy. In Sibanye’s case the solar plant will have capacity to provide about 30% of the gold division’s peak power needs and 10% of its total energy requirements. “We are exploring other base load alternatives including gas- and coal-fired power stations to supply an additional 200MW to 600MW,” says Wallington.

While increasing numbers of companies are actively exploring renewable options, the installed solar base remains small. In 2015 the industry installed 120MW of embedded PV solutions. SAPVIA expects this to grow to 200MW in 2016. “These are small installations, but these initial users are the ones that drive disruption and usage will grow exponentially from there,” says Levington.

Not all energy alternatives are solar based. Companies such as Sappi, Tongaat, Illovo and SAB, which produce significant quantities of plant-based waste are able to use this to produce electricity.

SAB, for instance, has reduced its total electricity demand by more than 50% since 2008 by implementing operational improvements and initiating capital investments across its manufacturing plants.

A new cogeneration plant at its Alrode Brewery will supply over 15% of its power needs.

The brewery uses biogas from its anaerobic digester, a gas-driven generator similar to a diesel engine, to fuel the cogeneration plant. The biogas runs the engine that in turn produces electricity. Steam is recovered from the exhaust and used to generate hot water for cooling, an essential part of the process.

This plant will ensure that the brewery, which produces a large percentage of SAB’s annual output of 29 million hl of beer, can continue to operate during power failures.

SAB plans to install similar plants at its Newlands Brewery in Cape Town, and ibhayi Brewery in Port Elizabeth.

As a result of these and other initiatives, the company is saving over 235 000 Megawatt hours per year, which is enough to supply over 100 000 standard-sized households.

Coal-fired power, supplied by Eskom, will not be wholly removed from these companies’ energy strategies for the foreseeable future. All of them have good working relationships with the power utility, and have received support in their initiatives to reduce their dependence on the utility.

However there is reason for Eskom to be concerned. As more large corporations (followed by municipalities and middle class households) make similar moves, it could spell financial disaster for Eskom.

The death spiral

Power utilities around the world are facing massive grid defections. So much so that the trend has a name: the utility death spiral.

Defections are being driven by the global imperative to decarbonise electricity generation as well as the fact that solar rooftop systems have become commercially viable. In some parts of the world it is conceivable to imagine a future in which people are no longer connected to a national grid.

The problem arises when too many customers leave and demand and revenue drops dramatically. The cost of maintaining the grid as a shared infrastructure is fixed and must be shared between fewer customers, forcing the utility to push prices up and so creating a spiral.

While South Africa is some years behind countries like Germany and the United States, the trend is there. This country’s electricity industry is on the cusp of rapid change – similar to that faced by the fixed line telephone industry. This is happening at a time that Eskom is facing the challenges of an aging fleet of power plants and transmission lines and needs to finance new investment in base-load power.


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