Submission on the cogeneration of electricity

25 July 2013

• Introducing Prana Energy

• The type of projects covered by our submission

• Characteristics of Waste Energy Recovery projects

• What we need from Government

• Questions

AGENDA

Introducing Prana Energy

Prana Energy

• Prana Energy started developing cogeneration projects in 2006;

• We are considered to be one of the leading project developers in the cogeneration space;

• We formed a JV with Exxaro in 2007 (“Exxaro On-Site”) with the specific aim of the JV being developing cogeneration projects as these projects were perceived to be the “low-hanging fruits” back then;

• Exxaro On-Site submitted cogeneration projects with a combined capacity of 930 MW into Eskom’s Pilot National Cogeneration Programme (“PNCP”) in 2007 but withdrew these due to a poor PPA;

• We have roughly 200MW of projects which can be delivering electricity within 24 months if an appropriate regulatory environment existed

The type of projects covered by our submission

The type of projects covered by our submission

Combined Heat and Power (CHP)

Electricity recovered from waste

•Pulp and Paper•Sugar•Biomass•Natural gas•Etc.

The co-generator has significant control over the fuel source

The co-generator has no control over the fuel source - at the end of an industrial process

•Ferrochrome smelters•Ferromanganese smelters•Cement kilns•Steel manufacturing•Etc.

Not covered by our submission

Covered by our submission

Characteristics of Waste Energy Recovery projects

Cogeneration from waste energy recovery

• Quick to implement relative to new-build coal (circa 24 months)

• As “green” as electricity from wind, solar and hydro – i.e. it reduces carbon emissions

• It also typically have further environmental benefits – e.g. reduced air pollution

• The grid connection points are already in place – no additional transmission infrastructure required

• The electricity is not exported back into the grid as generation is typically less than the on-site consumption – i.e. reduced grid losses

• Fantastic grid alignment (almost like base-load) – see next slide

Fantastic grid alignment

If the demand from the industrial process on Eskom is HIGH, the cogeneration plant produces A LOT of electricity

If the demand from the industrial process on Eskom is LOW, the cogeneration plant produces LESS electricity

Economic Comparison of Technologies

c/kWh

Avoid peaking / mid merit

plant costs?

Avoid deep grid

connection costs

Reduction on transmission

losses

Solar (PV) 140* X / X / X

Solar (CSP) 165* X / X / X

Wind 100* X / X / X

Hydro (small) 106* / X / X

Biogas 80* / X / X

Biomass 140* / X / X

Natural Gas 80-150** / X / X

Coal 80-120** / X / X

Peaking (diesel) 320-420** / X / X

Energy recovery 80-130

* Based on REIPPP round 3 caps** Estimates

What we need from Government

What we need from Government

1. We need continuity of policy....

• We have been developing 2 cogeneration projects (Waste Energy Recovery) with generation capacity of 60MW;

• These projects are only viable if there is an IDM type subsidy available but given that this was the case until April of this year, we spent in excess of R15m on developing these projects;

• In April, the IDM subsidy was abruptly taken away as part of NERSA’s MYPD3 ruling;

• No alternative is being offered... i.e. a total discontinuity in policy

• These projects may have to be terminated at a time when the grid desperately needs it

• The Prana projects are not the only casualties

What we need from Government (cont.)

2. The cheapest / quickest / best way to make these projects happen is a once-off up-front capital subsidy

This is similar in nature to the IDM subsidy which existed at Eskom for cogeneration projects until March / April this year and which already enabled a number of cogeneration projects successfully

Our request is that the IDM subsidy which previously existed within Eskom be re-activated (very easy to do) until such time as an alternative mechanism exists (as per the NERSA ruling)

Our further request is that sufficient funding be made available to Eskom (from an alternative source?) and that they be given a temporary mandate to tailor the amount of the IDM subsidy to enable these projects as long as pre-agreed economic and commercial criteria are met

Up-front capital subsidy

Subsidy makes the price of cogenerated electricity comparable to that of Eskom

Up-front capital subsidy (cont.)

• Cheap.... the IDM subsidy at ZAR 5.25m/MW works out to roughly 8 c/kWh for the Prana projects already submitted to Eskom. It is far cheaper than anything else but the size of the subsidy required will differ from project to project

• Quick.... the IDM infrastructure and legal framework already exists at Eskom and is being used for other energy efficiency projects

• Alignment of interest.... There is perfect, self-regulating alignment of interest as the owner of the cogeneration plant has to provide the rest of the capital – i.e. there is a very strong incentive to make sure the plant produces electricity

• A proven mechanism... It already worked in South Africa and is widely used internationally

Thank you