Tighter Power Boosts Case for Cogeneration

Johannesburg — TALK of tight power supply from next year improves the attractiveness of cogeneration – electricity produced as a result of industrial processes – for SA’s industrial companies.
Cogeneration can play a significant role in the reduction of electricity demand. Eskom’s 138 industrial customers consume nearly 40% of the utility’s electricity, while its largest 40000 customers consume 75% of its electricity. These are the customers who can drastically reduce energy demand and ease the pressure on the national grid.

Given the expected strain on electricity supply, cogeneration is not a luxury. Kannan Lakmeeharan, Eskom MD for system operations and planning, says demand- side management and energy efficiency are essential in the next three years in order to ensure adequate power supply.
Mr Lakmeeharan says high load factor supply options such as cogeneration will be needed in this period.
Despite the preparedness of various companies to generate their own power through cogeneration, there has been little incentive for them to do so. Until recently, Eskom could not enter into long- term power purchase agreements as it was not clear how it would be able to pay for the power.

The National Energy Regulator of SA’s (Nersa’s) recent Eskom tariff determination for the next three years was a necessary catalyst to “jump-start” cogeneration.
In terms of the determination, Eskom will have R2,3bn to buy private power in the current financial year. The allocations for next year and 2012 are R4,3bn and R5,8bn respectively.
In a positive development for independent power production, Eskom has now signed power purchase agreements with petrochemicals group Sasol , Tangent Mining, AltX-listed power producer Ipsa and pulp and paper group Sappi . The output from the projects is about 400MW in total.
Mr Lakmeeharan says the utility wants to have about 300MW commissioned by next month and the other 100MW by March next year. This, he says, depends on the approval of the power purchase agreements by some of the companies’ boards and Nersa.

“Business and Eskom’s assessment is that the potential for more cogeneration projects is there. Possibly 10 00MW-30 00MW, based on various studies.
“The current electricity price trajectory and possible energy conservation measures already provide an incentive for businesses to consider this,” he says.
Sasol has indicated its intention to generate its own power, thus reducing its reliance on Eskom electricity. With electricity prices poised to rise for the next few years, companies have another incentive to generate their own power.
Sappi has said that higher tariffs would hurt the company’s profit and make it uncompetitive. The company has a history of generating its own power and in November 2008 submitted bids for three cogeneration projects at its Saiccor, Ngodwana and Tugela mills.

The projects will boost the self- sufficiency of its South African units, it says. It has cogeneration projects in Europe and the US.
Business Leadership SA, an association of SA’s largest companies, has also said that its members can contribute an extra 5 000MW of electricity.
This can be achieved through a combination of members’ cogeneration activities, independent power producers “and a number of initiatives to save electricity”, executive committee member Jayendra Naidoo says.
The Interim Integrated Resource Plan makes provision for about 4 000MW from Eskom’s medium-term power purchasing plan programme, an initiative to address power needs by giving private sector companies an opportunity to sell their electricity to the utility.
Business Day (Johannesburg)

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