Energy and climate change

Energy and carbon management programme

Exxaro has consolidated its approach to clean energy at group level in recent years. The 2007 strategic map included initiatives around the regulatory environment, energy efficiency, implementation of cleaner technologies and reputational issues to thrive in a low-carbon economy. In 2009, this map was further refined to include a strong supporting programme.

In 2010, the focus has been on high energy-consumption areas, specifically electricity consumption. This includes special attention to items such as electric motors, lighting, water heating, conveyors and HVAC (heating, ventilation and air-conditioning). By questioning basic design and use factors, the energy teams have already made headway in all these areas. As an example, preliminary results on a conveyor installation at Grootegeluk show an efficiency saving of 25% - far above what was expected at concept and feasibility stage.

These initiatives will in time be expanded to other business units including other sources of energy such as diesel, illuminating paraffin and petrol. This will facilitate an accurate measure of total energy use from all sources across all business units, and how this relates to production measurements such as run-of-mine tonnes, making it easier to effectively compare and measure energy efficiency.

The next step will be to critically evaluate current plant processes. Continual improvement is embedded in Exxaro’s culture and we believe there is solid potential to increase energy efficiency and reduce emissions through operational and process improvements.

Energy and carbon footprint data

Total CO₂e Exxaro Group

Energy consumption management

• Consumption management (including managing Eskom’s power conservation programme allocations - refer to sidebar)
• Tracking and verifying electrical efficiency initiatives
• Verification of electricity accounts.

Exxaro now has a centralised real-time metering capability, independent business unit monitoring and is ready for Eskom’s power conservation programme (see below).

Total energy Exxaro Group

For the review period, actual average energy consumed was 12% lower than the collective Exxaro group baseline. The improved performance is a combined result of lower production in the current economic climate and work completed to get the largest Exxaro electricity baselines adjusted and accepted by Eskom. To date, Eskom has approved the Grootegeluk, Namakwa Sands smelter, Brand se Baai, Matla, KZN Sands smelter, Hillendale mine and Zincor baselines. These are subject to change in the new draft power conservation programme rules.

Preparing for power outages 

Following the 2007/8 power outages that resulted in widespread load shedding, a multi-stakeholder working group was established to develop a national code of practice on how future load shedding and load curtailment should be managed. As part of this process, South Africa now has a specification for the national power grid that provides three options for how customers like Exxaro are expected to act in a system emergency. 

Option 1: load shedding

When instructed by the national system operator (Eskom), the customer must immediately reduce consumption by at least 25% by disconnecting loads automatically or manually.  

Option 2: load curtailment

This happens in five stages, as shown below:

Stage		Type		Customer action
0		Unscheduled (pre-agreed)		Reduce consumption by 25% for two hours within an agreed time (typically 10 minutes
1		Scheduled (notified)		Reduce normal demand by 10% within two hours of notification (excludes customers who participate under stage 0)
2		Scheduled (notified)
3		Scheduled (notified)		Reduce normal demand by 20% within two hours of notification
4		Unscheduled (instructed)		Reduce normal demand as instructed

Option 3: demand market participation (DMP)

This is an agreement between Eskom and customer to interrupt loads on a commercial basis. Customers who participate in DMP are exempt from stages 0, 1 and 2 load curtailment, and receive monetary compensation for the load curtailment. While this compensation will not make up for the potential loss in production, in some cases (Namakwa Sands and KZN Sands) the impact is minimal.   

What this means to Exxaro

Namakwa Sands already participates in DMP and will be exempt from stages 0, 1 and 2. KZN Sands has selected the DMP option and is in the implementation stages. KZN Sands will also be exempt from stages 0, 1 and 2.   

As critical suppliers to Eskom, Zincor, Grootegeluk and Matla cannot allow their loads to be shed nor is DMP an option. These operations therefore have selected option 2 - load curtailment. 

Eskom’s power conservation programme

The South African electricity supply/demand balance is overly tight, and latest forecasts indicate this could worsen from 2011 to 2012. This means availability rather than capacity is the key challenge, and that the security-of-supply risk is high. To mitigate this, Eskom’s power conservation programme (PCP) is scheduled for implementation in January 2011. While not yet finalised, the programme is focused on lowering absolute electrical consumption by 10% (for businesses) and charging punitive rates for exceeding agreed baselines. The financial implications of this programme could be significant.  

KZN Sands, Namakwa Sands, Zincor, Grootegeluk and Matla are the five largest consumers (90%) of electricity in Exxaro and would potentially be impacted by the implementation of PCP. As key suppliers, Matla and Grootegeluk are excluded from the programme. Exxaro’s energy team will monitor both the finalisation of the programme and consumption at business unit level to optimise performance in terms of consumption versus allocation.

South Africa’s energy debate

The ongoing debate around South Africa’s energy industry, coupled with the fact that coal remains the country’s most affordable electricity resource, raises a serious question: how do we as a nation balance the need to reduce our carbon footprint with the need to provide significantly more power at a price that keeps the industry competitive?  

The question of price versus demand is one of the issues central to the government’s recently released second integrated resource plan (IRP), a 20-year plan that predicts how much electricity the country will need in the next two decades, how this demand could be met, and what it will cost.   

The IRP 2010 sketches the ideal scenario for electricity generation in South Africa, the sources of that energy, and the price at which it will be sold to the industry and public. It takes into account carbon emissions, production costs, security of electricity supply, sustainable job creation and water use.  

The summary of the balanced scenario which the IRP 2010 proposes as the optimal electrical energy mix by 2030 envisages coal comprising 48% of the feedstock mix (compared to 80% at present), with baseload nuclear and renewable energies comprising 14% and 16% respectively (see pie chart below). Expectations are that the IRP 2010 proposal will be promulgated by early 2011.  

IRP 2010 balanced scenario

What does this mean for Exxaro?

In its current draft, the IRP could have major implications for Exxaro’s business:

• The only coal-fired power to be implemented after Kusile will be in 2027. This will temper Exxaro’s current coal ambitions in South Africa
• The significant roll out of renewable energy sources supports Exxaro’s plans to develop its renewable energy business
• The IRP gives an indication of the long-term electricity price, which is more than 150% of the current price. This will significantly increase operating costs at Exxaro’s smelters.

What does it mean for consumers?

• The long-term electricity price is even higher than current indications from Eskom and the National Energy Regulator of South Africa. This will put households under even more financial strain
• The burden of higher electricity prices will make local industry less competitive on a global scale, which could affect employment
• Positively, however, the draft IRP 2010 provides for the large-scale roll out of renewable and nuclear energy, which will result in cleaner air and fewer carbon emissions.

Energy efficiency improvement projects

• Reduce costs by improving energy efficiency from 2009 baseline by 10% by 2012
• Promoting the use of sustainable and renewable energy
• Promoting the use of clean technologies.

In 2009, the electricity baseline was established for all business units. In 2010, energy audits were conducted at Leeuwpan, North Block Complex, New Clydesdale, Tshikondeni, Grootegeluk, Namakwa Sands, Arnot, Matla, Inyanda, and KZN Sands, as well as the research and development unit and corporate office. The top projects were identified and common solutions are being investigated.

Becoming carbon neutral

Further co-generation studies are under way for projects at our own and other organisations’ operations with a potential 150MW generation capacity, equating to a potential 1,5Mt CO₂e per annum.

The objective is to minimise energy waste, thus increasing energy efficiency. The carbon footprint of electricity from these sources is virtually zero.

Despite delays due to the global economic slowdown, Exxaro remains committed to reducing its carbon footprint by implementing these projects as well as renewable energy initiatives (subject to the roll out of an enabling policy environment).

The group is also participating in carbon capture and storage developments by playing an active role in establishing the South African Centre for Carbon Capture and Storage (SA Centre for CCS).

Carbon disclosure project reporting

• The carbon disclosure rating focuses on disclosure of emissions, the degree to which a company has identified its risks and opportunities from climate change, and the development of internal structures for information management and governance. Exxaro ranked fourth with a score of 87% (compared to the first mining company at 93%)
• The carbon performance rating, introduced in 2010: this indicates the degree to which a company is taking positive actions that contribute to climate change mitigation, adaptation and transparency. Companies are ranked in four performance bands - leading, fast-following, on the journey and just starting. Exxaro was rated in the second category.

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