AMSA says regulatory changes could open way for 100 MW Vanderbijl solar farm

6th February 2020

By: Terence Creamer

Creamer Media Editor

     

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Steel producer ArcelorMittal South Africa (AMSA) believes there is potential to develop a 75 MW to 100 MW solar photovoltaic (PV) power plant adjacent to its Vanderbijlpark mill, in Gauteng. The JSE-listed company is also convinced that such a project could proceed relatively quickly should South Africa’s regulatory framework be adapted to support generation projects larger than 10 MW and be developed on the back of a long-term offtake agreement with an independent power producer (IPP).

CEO Kobus Verster said on Thursday that AMSA, which reported a net loss of R3.3-billion in 2019 and which faces an uncertain market outlook for the coming year, was not itself in a position to set aside capital for a solar PV plant. Nevertheless, there was a strong  business case for entering into a multidecade power purchase agreement with a third-party supplier, which could locate its solar plant on the AMSA-owned land surrounding the mill.

That business case, which has been under review for the past four months, has been further strengthened by the fact that Eskom has again resorted to load-shedding and is warning that power cuts could become more frequent over the coming 18 to 24 months as it ramps-up maintenance across its aged coal fleet.

AMSA is but one large electricity consumer considering solar PV generation as a supplement to Eskom, with the Minerals Council South Africa indicating at the Investing in African Mining Indaba that the technology has emerged as the overwhelming favourite among its members as an immediate self-generation solution.

The council estimates that its members could add 1 500 MW of mostly solar PV capacity in the near term should the country’s energy regulations be changed to support such investments.

In a speech delivered at the Indaba in Cape Town, Mineral Resources and Energy Minister Gwede Mantashe announced that, following concurrence by the National Energy Regulator of South Africa (Nersa), government would Gazette a revised Schedule 2 of the Electricity Regulation Act (ERA) to enable self-generation and facilitate municipal generation. “This will help close the energy gap caused by deteriorating Eskom plant performance. Depending on the circumstances, the generation plant may only require registration and not licensing,” Mantashe added.

REGULATORY HURDLES

Currently, Schedule 2 exempts only a limited set of generation activities from being licensed, most of which need to be below 1 MW in size. Generators between 1 MW and 10 MW can also proceed, but require a Nersa licence.

In a recent note, Webber Wentzel partners Jason van der Poel, Mzukisi Kota and Alexandra Felekis opined that if mining companies wished to generate own power greater than or equal to 10 MW, they would require a Nersa licence and a Ministerial deviation from the Integrated Resource Plan. They stressed, however, that such activities could be enabled through an amendment of Schedule 2 of the ERA to exempt their intended generation facilities from the licensing requirement.

Besides the solar PV opportunity, AMSA was also studying the potential of converting waste gas generated during steelmaking to electricity. The company already produces about 8% of its own electricity through such recovery processes.

Verster estimated that there was potential to develop between 30 MW and 40 MW of waste-gas-to-power capacity, but stressed that it would be an in-house project and could, thus, only be pursued once AMSA had developed greater financial resilience.

In the meantime, the group would prioritise programmes designed to reduce consumption and improve energy efficiency. AMSA, which has an electricity requirement of between 400 MW and 500 MW, currently consumes about 700 kWh of electricity to produce a ton of steel.

Another key focus is on electricity tariffs, with AMSA’s electricity bill in 2019 standing at R3.3-billion.

The group failed in its attempt to secure a two-year preferential tariff from Eskom under the negotiated price agreement framework and Verster warned again that South African power tariffs were becoming increasingly uncompetitive.

He was also concerned by the threat of yet further tariff hikes beyond those already sanctioned by the regulator for the period to 2022.

Through a new Regulatory Clearing Account application currently before Nersa, Eskom was seeking to recoup revenue of R27.2-billion for the 2019 financial year.

In addition, the utility was pursuing an urgent challenge of Nersa’s treatment of the R69-billion bail-out announced by Finance Minister Tito Mboweni in his February 2019 Budget. Should Judge Jody Kollapen grant the urgent relief being sought by Eskom, the wholesale tariff could rise by 16.5% on April 1, double the 8.1% already sanctioned. In addition, the tariff could rise by another 16.5% in 2021 instead of the 5.22% approved.

“We are now equipped to deal with load curtailment and load-shedding. Our problem is the cost of electricity, which is becoming unaffordable,” Verster said.

Likewise many miners are viewing long-term contracts with IPPs as a hedge against rising Eskom tariffs as Minerals Council CEO Roger Baxter explained this week: “Solar has a design life of 25 years. If it gives you 10% or 5% of your energy needs, you can hedge the cost for 20 years. You won’t have any cost increases. Effectively, you’ll be doing that at the level of inflation, not at the ridiculous rates that we’ve seen in the last decade from Eskom, where you’ve seen a 523% increase in the price.”

 

 

Edited by Creamer Media Reporter

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