Eskom has obtained regulatory approval to fund most of the power infrastructure cost as part of its grid expansion costs, as provided for in the South African grid code.
The smelter will consist of two potlines that will be built in successive phases. The aluminium smelter is expected to require some 1 355 MVA after commissioning of both potlines.
The supply agreement between Eskom and Alcan, signed earlier this year, requires that Alcan provide a notice to proceed (NTP) for the first potline. This is expected to take place between July 1 and September 30, 2008.
Eskom Holdings states that initial production from the first potline will commence 26 months after the NTP, which will reach full capacity of 675 MVA in 2011. The NTP for the second potline is scheduled between June 1, 2011 and May 31, 2012. The full capacity of 680 MVA for the second potline will be required by 2013.
In preparation for the necessary infrastructure and to ensure that supply of electricity for this project is sufficient, a network strengthening plan (NSP) has been established. This plan takes into consideration Alcan’s and other customers’ load requirements. The plan also details new and additional infrastructure and servitude requirements to ensure that the network is sufficiently able and reliable to meet the new load.
To date, approval for the cluster of projects required for this new load has been obtained.
The projects that have been released for execution include the Zeus-Hydra 765 kV strengthening project, which entails the construction of 765-kV lines and substations from Zeus near Standerton to Hydra near De Aar and the Hydra–Omega 765-kV strengthening project, which is the construction of 765-kV lines and substations from Hydra, near De Aar, to Omega, near Cape Town with the section up to Gamma, located in Victoria West, linked to Alcan.
Additional strengthening projects include the Port Elizabeth strengthening phase two and the Southern Grid Strengthening phase two project. The former requires the construction of a 400-kV Dedisa substation in the Coega IDZ, and a 400- kV line from Grassridge near Port Elizabeth to Poseidon near Cookhouse. The Southern Grid Strengthening phase two requires that Iziko and Serumela Series capacitors be constructed close to existing transmission lines.
Several contracts for the seven electrical substations and the 1 741-km transmission lines have been established and a number of local and international suppliers will be employed. The contracts are divided into categories including civil and building works, transformers, stringing and cabling as well as tender-type contracts, which are based on a preapproved tender list.
Eskom says that open tender procedures are followed as part of their procurement strategy instead of a single supplier or contractor for the transmission line contracts. Open tender type contracts are based on a preapproved tender list, electricity line construction takes the foundations into account, as well as towers, line stringing and insulators.
Eskom affiliated contractors and Eskom internal staff will also be employed during construction.
Although it is not specified which technologies will be acquired from foreign sources, technology import is necessary as certain technologies are “only available from overseas manufacturers and suppliers and there are also capacity constraints in the local markets in some areas”.
It is expected that local industry will benefit from an increase in contracts and orders and will also improve its skills through skills transfer during the installation of new imported equipment.
Eskom follows a set of commercial policies that drive the procurement process. These policies include black economic-empowerment and Accelerated and Shared Growth Initiative of South Africa initiatives.
The Alcan project is the first project to benefit from the Department of Trade and Industry's developmental electricity pricing programme (DEPP), which provides pricing guidelines for Eskom.
In arriving at the electricity costs for the aluminium smelter, Eskom has applied the pricing principles specified in the programme’s guidelines for the electricity price.
Pricing guidelines attempt to ensure that “the price be globally competitive, that it covers the cost of supply of electricity eliminating subsidies to other customers as far as possible, is adjusted annually in accordance with Eskom’s projected forward pricing curve at the date of quotation, [and] is to be compared to a standard tariff at selected reference points”.
Where the electricity price and the standard tariff diverge by more than the agreed percentage, the electricity price is adjusted to track closely the standard tariff and actual cost escalation.