South African smelters that have been hard-hit by rising electricity costs and electricity demand outstripping supply can reduce their dependence on State-owned power utility Eskom by engaging in energy conversion agreements (ECAs), says energy analyst Dr Johann Wingard.

South Africa’s energy shortage has curtailed the expansion of ferroalloy smelters in particular and their present supply position has been reduced, resulting in a loss of international market share.

“Currently, the smelters’ future activities are determined by Eskom and not by the smelters themselves. Several companies will be paid to take some of their smelters off line this winter, causing a loss of market share. Future expansions are also determined by the availability and reliability of Eskom power, which is a flawed strategy,” Wingard tells Mining Weekly.

Through an ECA, the smelter will supply its own coal to a power plant adjacent to the smelter, which is owned and operated by a separate operating company.

As ferroalloy smelters use coal as one of the reductants in the smelting process, which is under the control of the smelting company, coal supply for the power plant is assured, Wingard says.

The smelter will, therefore, not buy electricty from Eskom, but will instead pay for the conversion of its energy from coal to electricity through the ECA.

“It is important to note that the ECA concept does not sell electricity, but converts the smelter’s own coal from one form of energy to another. The smelter, therefore, pays a fixed facility charge each month, which escalates by 6% a year, and all the power generated by the plant belongs to the smelter,” he says.

Through this approach, the smelter will save money, Wingard says.

As a result of Eskom’s inflated tarrifs, the economies of scale enjoyed by smelters’ 3 000 MW plants no longer apply and the ECA cost for a 120 MW plant will be lower than the cost of buying power from the grid. An ECA agreement will also make the smelter’s power supply more reliable.

“For a 120 MW plant, the electricity costs for the smelter will start at 5% below Eskom’s tarrifs, increasing to 21% after ten years. In monetary terms, this amounts to savings of R34-million in 2015 and R287-million in 2025,” he explains.

The smelter will not be required to provide any funding for the power plant other than paying for half of the prefeasibility study as a special-purpose company will be created to own and operate the plant, which will, there- fore, be owned by its investors, he explains.

“Private investors have indicated that they would be prepared to invest R3.2-billion in a 120 MW project. At an escalation rate of 6% a year, [their] average earnings before interest and taxes [would be] 24% a year,” he says.

As a separate company will run the power plant, the smelter can concentrate on its core business.

Further, the smelter receives a state-of-the-art, high-efficiency power plant, with a plant life that will exceed the ECA period of 20 years.

The best technology option will probably be an integrated gasification combined-cycle (IGCC) plant that gasifies the coal, with the resultant syngas being used to drive the combined-cycle gas turbines or the internal combustion engines, depending on the size of the plant, and the gasifiers reducing carbon dioxide (CO2) emissions, he says.

The CO2 can also be captured more economically for sequestration elsewhere.

“IGCC technology has an energy conversion efficiency of 42% and has successfully been used overseas,” he adds.

Wingard says he is not aware of any smelters currently using the ECA concept, as the concept is new.

“[As] the technologies used will be equip- ment-based, it is possible to get a 120 MW plant up and running within 30 months after approval has been granted. However, environ- mental and regulatory requirements will increase the lead time on such a project,” he says, adding that if government was serious about the energy situation in South Africa, ECAs could be accelerated.