COMMENTS ON THE NERSA COGENERATION REGULATORY RULES AND FEED-IN TARIFFS

3 May 2011

Sawmilling South Africa (SSA)

Represent 85% of SA Sawmilling Industry

Represented in all regions of the Country

Central office situated in the Southern Cape

Represent the sawmilling industry with Government

Represent industry with other allied associations

Promote the use of South African grown and produced lumber

SAWMILLING IN SOUTH AFTRICA

Background First mechanical sawmill in SA in 1802 in Knysna.

Formal industry from 1930’s

Mills located close to the timber resource & gather logs at central sites (Sawmills)

Often remote, rural and self sufficient for own needs

Biomass electricity for own needs. Current power generation limited a few mills in E/Cape.

For some local communities, was the only source of electricity.

Employs ~ 20,000 people with additional 10,000 secondary jobs.

Sawmills are no longer just lumber producers.

By-products sold for use in other industries:-• wood chips are used in the Pulp industry• wood chips and sawdust in the Hardboard and Medium

Density Fibre Board (MDF) industry• bark for use in the fertiliser and growing medium

industry• electricity for own use and surrounding communities

• Residual woody biomass underutilised:-• From sawmilling operations• Left in-field in plantations that could be gathered in

the same operation.

• Shrinking forest resources means full utilisation is crucial

Current Situation

Well placed to be a significant player in REFIT and COFIT

For sawmill residues, COFIT Type lll “Mill Wastes” is relevant.

Process heat required for timber drying.

Low temperature steam or hot water used.

Ideal opportunity for the cogeneration of electricity.

But ........the incentive at R0.761 /kWh is too low to stimulate investment.

And .... A sea of uncertainty about escalations, PPA provisions, procurement programme, New Generation and Licensing Regulations and more.....

SSA’s Interest in COFIT

SSA View on LCOECOFIT “Wood Chips” SSA’s VIEW UNITS

Capital cost 3400 4 750 $ /kW

Land cost 1.0 % 1.0 % of capital cost

Funds under

construction 25.6 % 25.6 % of capital cost

TX/DX integration

cost 1.0 % 1.0 % of capital cost

Total investment cost 4 354 6 084 $ /kW

Plant lead time 4 4 yrs

Economic life 15 15 yrs

Load factor 80.0 % 80.0 %

Fixed O&M 36.29 47.5 $/KW/Yr

Variable O&M 0.00454 0.00454 $/KWh

Fuel Cost 1.30 4.42 $/GJ

Fuel Cost 0.02014 0.0684 $/kWh

Heat rate 15 494 15 494 kJ/kWh

LCOE 0.761 1.0878 R/kWh

Motivating the differences INVESTMENT COSTS:

$ 6084 vs $ 4 750 / kW

NERSA’s base plant – 15 to 20 MW ?

Typical SSA plant 5 to 12.5 MW

Need fuel storage and handling, preferably drying as well

Boiler redundancy - Single boiler is not reliable enough

Rural so plant transport and construction costs higher

Tx AND Dx INFRASTRUCTURE

1 % retained – poorly researched, but looks light

Could be up to 10% in difficult locations

Remote locations

Benefits to Eskom regional networks

Will reverse Eskom’s reticulation I2R losses.

Motivating the differences....... FIXED O & M :

$ 47.5 vs $ 36.29 $ / kW /Yr

Driven by Investment Costs

Proportional increase.

FUEL COSTS:

$ 4.42 vs $ 1.30 / GJ

Residual biomass in a sawmill:-

Sold ex mill for pulp and board manufacture

R150 to R200/t

45 to 50 % moisture, CV = 7 to 8 GJ/t

Fuel cost = $ 4.00 to $ 4.50 / GJ

R1.0878/kWh in Context Megaflex will be higher than this from April 2015.

About the same as revised REFIT for solid Biomass

56 % of CSP proposal

47 % of proposal for PV

About 100 % of IRP 2010 long term price path.

IRP 2010 Price curves

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Possible price paths

Base Case

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Revised Balance

Source: Department of Energy presentation to Nedlac Energy Team, 18/11/2011

IRP 2010 Price curves

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Source: Department of Energy presentation to Nedlac Energy Team, 18/11/2011

Lots of this – don’t capCogeneration

Expensive - cap

Solar

Wind

Wood

Waste

R1.0878/kWh in Context Megaflex will be higher than this from April 2015.

About the same as revised REFIT for solid Biomass

56 % of CSP proposal

47 % of proposal for PV

About 100 % of IRP 2010 long term price path.

Much the same as EPRI report for biomass

SSA VS EPRI Biomass

SSA’s VIEW EPRI Biomass UNITS

Rated Capacity 8 25 MW

Capital cost 4 750 4500 $ /kW

Plant lead time 4 3.5 to 4 yrs

Economic life 15 30 yrs

Load factor 80 % 85 %

Fixed O&M 47.5 131 $/KW/Yr

Fuel Cost 4.42 2.64 $/GJ

Heat rate 15 494 14 185 kJ/kWh

LCOE 1.0878 1.072 R/kWh

The Advantages of SSA Power The fuel resource is currently poorly utilised

Well established technologies and know-how

The fuel is accessible

Leverage existing infra-structure

Leverage the forests and manufacturing base

Its rural, green, sustainable with a good LF.

It will reduce Eskom’s reticulation losses

It will reduce rural Dx strengthening costs

Furthers NERSA and the ERA’s goals of “Universal Access” and diversity of energy sources.

Will create rural jobs

Woody Biomass Produced in Sawmilling

Industry in-take % Tons

Out-put Sawn Board 48% 2,000,000

Chip Produced for sale 17% 720,000

Sawdust & Shaving 19% 780,000

Bark 12% 500,000

Solid Wood 4% 175,000

Total ‘Residue’ Biomass 52% 2,175,000

Biomass Available

A portion of this ‘residue’ biomass is required for internal use for process steam production.

1 000 000 to 1 500 000 tons pa potentially available for energy production.

This could be converted into approximately 85MW. Potential to import plantation residues & invader species. EPRI estimate of potential is 10 times this amount.

SSA recommends a more attractive COFIT tariff for “Wood Wastes”.

The increase in power generation will be significant and carry with it a host of benefits.

Thanks to the Executive Director of SSA and members for support and assistance.

We thanks the Board of NERSA for providing this opportunity to participate in this public hearing.

Conclusion

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