Sugar producer Illovo says there is a major opportunity to alleviate South Africa’s immediate power crisis and reduce rural poverty by more fully exploiting the industry’s electricity cogeneration potential. But MD Gavin Dalgleish says this potential will only be fully exploited once there is greater policy certainty on the role of bagasse-based cogeneration in the country’s electricity mix, supported by a viable tariff structure.

The group is already in a position to meet over 90% of its own 10 000 GWh electricity requirement through cogeneration and it also sold a record 51.6 GWh to the Swaziland Electricity Company during the year to March 31, 2015.

But in an interview with Engineering News Online, Dalgleish explains that the potential of the South African industry, which is estimated at between 800 MW and 1 000 MW, cannot be pursued until the policy and pricing constraints are resolved.

Despite the industry’s generation potential being limited to the crushing season, which endures from April to November, Illovo believes there is still a strong case for such generation as the season coincides with South Africa’s high-demand winter months.

In addition, it aligns with the country’s aspiration to increase economic activity in the rural areas, as electricity generation could add to the demand for sugar cane produced by small-scale canegrowers.

However, the required tariff is likely to be substantially higher than some of the other renewable-energy sources and the development of the sector could require a “policy intervention”, whereby a balance is struck between the tariff and the socioeconomic benefits.

The other value proposition lay in the fact that additional capacity could be introduced relatively quickly, with Dalgleish estimating that generation could begin within 18 to 24 months of a final investment decision.

Illovo is, therefore, maintaining a watching brief on the potential for a cogeneration bidding process, which is likely to be initiated in the not-too-distant future by the Department of Energy. In fact, Energy Minister Tina Joemat-Pettersson has indicated that a 1 800 MW cogeneration tender is being prepared and government is hoping to select preferred bidders during the third quarter of 2015.

For Illovo, meanwhile, electricity generation forms part of a larger downstream diversification strategy, designed to lower the group’s reliance on sugar prices.

Besides power, the JSE-listed group is also moving to expand its ethanol production in South Africa, Tanzania, Zambia and Swaziland, while producing a number of other niche products such as furfural. It will also consider biofuel prospects where the policy and regulatory environment is supportive.

In 2015, downstream products contribute 16%, or R268-million, to operating profits of R1.65-billion and Dalgleish says it is aiming to increase the contribution of the downstream business to over 20%, excluding an additional cogeneration.

“Last year, our profits from downstream increased by 50%,” he enthuses, adding that it is actively pursuing further diversification prospects.