Gold producer Harmony Gold Mining Company has received a Section 12L tax incentive for energy savings achieved on the compressors of the miner’s Tshepong gold mine, in the Free State.
Section 12L of the Income Tax Act incentivises businesses to save energy through a tax allowance of 95c for every kilowatt hour saved.
The verified and measured energy efficiency saving must be over a continuous period of 12 months, which is known as the implementation and assessment period and is compared with the 12 months of baseline measurement. A South African National Accreditation System-accredited measurement and verification (M&V) team was assigned to assess the baseline and savings.
Pretoria-based engineering company ETA Operations compiled the Section 12L tax incentive application on behalf of Harmony, and the South African National Energy Development Institute approved the application with a value of R5.7-million.
“This amount is a deduction from taxable income, which means that the true benefit, therefore, is the tax that you would have paid on an income of R5.7-million,” says ETA senior consultant on Section 12L initiatives Dr Walter Booysen.
The tax certificate was issued last month.
The energy savings achieved at Tshepong was the result of an innovative partnership between Harmony and ETA to improve the operational efficiency of Harmony’s deep-level gold mines in South Africa, according to ETA CEO Dr Marius Kleingeld.
He explains that the energy savings on Tshepong’s compressors were achieved through the implementation of an integrated optimisation strategy. This strategy involved the implementation of Industry 4.0 technologies such as the Internet of Things and Big Data analytics to retrieve operational data (flows and pressures) of the compressed air system.
The operational data were analysed, modelled and transformed into valuable information that was used to develop an updated control system for the compressors. This updated control system uses Robotic Process Automation technology to automatically control the operation of the compressors. The control system is closely monitored and maintained on a daily basis to ensure efficient operation.
Air leaks were also repaired and the importance of energy efficiency was promoted.
A year-on-year comparison of the electricity consumption showed a reduction of about 6 000 MWh for 2016, compared with the 2015 baseline year. The energy savings were verified by a third-party M&V team.
Harmony also benefited from the compressors using less electricity, which represents a yearly electricity cost saving of about R4.5-million, based on current State-owned power utility Eskom tariffs.
“This approved application demonstrates the value of energy efficiency and the Section 12L tax incentive for the mining industry,” Booysen says.
He notes that it is generally difficult to quantify the operational cost savings associated with energy efficiency projects, as the normal day-to-day variance in mining operations tends to mask the effect of these projects.
“The 12L tax certificate presents a clear, undisputable quantification of the benefit in addition to the operational cost saving,”Booysen says.
Kleingeld agrees, highlighting an uptick in demand since the incentive value was increased from 45c/kWh to 95c/kWh.
“The industry can certainly benefit further from increased operational efficiencies, reduced energy costs and incentives related thereto. The potential value of the tax incentive is an opportunity that should be considered,” he advises.
Booysen adds that, while the mining industry needs to realise that the Section 12L tax incentive can add significant value to energy efficiency projects, there are stringent technical requirements that applications must adhere to.
“Further, the timeline is important, as the process typically spans more than two years – one year baseline, one year assessment, as well as additional time to compile and review the application – before the certificate is received,” Booysen says, reiterating the importance of mining companies using the services of specialists in this area.