Periodic symbols
2. Environmental management of mines
2.5. Pollution project funding models
HG Brand 2013 46
Managing the environmental impact;
Allowing companies to become ISO 14001-compliant;
Developing environmental plans;
Setting objectives;
Managing the companies’ adherence to objectives;
Generating reports;
Managing environmental compliance and documents; and
Tracking greenhouse gas emission.
It is evident that these systems are very similar, aimed at adhering to ISO 14001 standards and generating the necessary documentation. These systems help identify areas where environmental impacts can be reduced. Pollution and electricity-reduction targets are set and a systematic approach is followed to attain these targets. Unfortunately the problem with these systems is the availability of specific project identification and the funding for these projects, among other problems stated later in this chapter.
HG Brand 2013 47
Figure 17: Energy efficiency project profile
From the profile in Figure 17 it is evident that the electricity-savings are realised throughout the day. The next project category is the peak clip projects. These projects only save electricity during the peak electricity demand period (18:00 to 20:00) as this is the period where Eskom has the most difficulty in supplying the demand. This project profile can be seen in Figure 18.
Figure 18: Peak clip project profile
The final project category is for load shift projects. These projects do not save electricity, but rather shift electricity usage into periods that have lower electricity consumption. Eskom also funds projects that create a more manageable load during the peak periods even if it is consumed at a later stage. This ensures that electricity for industry is used at times when the general domestic population does not have a high consumption demand.
HG Brand 2013 48 A typical load shift project profile can be seen in Figure 19. Load shift projects allow the delay of electricity consumption during the evening Eskom peak periods to other periods when the demand can easily be met.
Figure 19: Load shift project profile
Funding these projects has traditionally been done by ESCOs utilising Eskom-IDM funding.
This has been lucrative for the ESCO and as a result, the mines as well. During 2014, the benchmark Eskom-IDM funding will be reduced with recent estimates indicating a reduction of 40% to 50%. This is due to the fact that the IDM funding made available to Eskom by National Energy Regulator of South Africa (NERSA) is only R5.18 billion of the required R13.09 billion (Creamer, 2014).
If the reduction of 50% is introduced, the benchmark Eskom-IDM funding becomes R2.625 million/MW for energy efficiency, R1.75 million/MW for peak clip and R1.75 million/MW for load shift projects.
The second funding model utilises tax incentives. On the 9th of December 2013, Minister Pravin Gordhan (Minister of the Department of Energy) announced the introduction of tax incentives for electricity reduction in the government gazette. Section 12L of the Income Tax Law of 1962 makes provision for tax breaks for the implementation of electricity-efficiency projects. This excludes renewable energy implementations.
HG Brand 2013 49 This is in an effort to reduce the country’s greenhouse gas production by 12% before the end of 2015. This target forms part of the National Energy Efficiency Strategy (NEES).
Qualifying for this tax break has certain requirements (Van der Zee, 2013):
A company must register with the South African National Energy Development Institute (SANEDI) which will manage the technical aspect of the tax incentive.
A M&V member that is part of the South African National Accreditation System (SANAS) must be appointed to verify the savings. This professional must submit the baseline report and M&V plan to SANEDI.
If the project delivered savings, SANEDI will issue a savings certificate.
This certificate then allows one to claim a tax break from the South African Revenue Service (SARS).
This incentive will give a registered company a tax break of 45 c/kWh (Government Gazette, 2013). This is an annual tax break of R3.94 million/MW and a tax saving of R1.1 million/MW per annum (at taxation in the 28% tax bracket). Since the previous year’s electricity usage becomes the new baseline, the tax break can only be claimed once at the end of the year. This is compared to present Eskom funding of R5.25 million/MW electricity efficiency, which will be reduced during the year to an estimated R2.625 million/MW electricity efficiency. In Table 7 a comparison is done between the two funding models.
HG Brand 2013 50
Table 7: Eskom-IDM and tax incentive comparison
Eskom-IDM Tax incentives
Funds can be used to
implement project Project must be funded by the mine
Funds are received once- off at the start of the project
Funds are received
annually with the previous year’s electricity usage becoming the new baseline
Approval for projects can
take years Project is analysed on the savings and does not need to be approved
Projects are assessed for a
three month period Projects must continually deliver savings to receive tax incentive
An ESCO is required to
implement the projects The company must be registered with SANEDI to receive incentive
Another funding model is carbon credits, also known as CERs. It is assumed that the average spot price for CERs is R3.5/ton of carbon dioxide-reduction. Using this information the financial position of the mine can be assessed for the different funding models on a 1 MW energy efficiency project. This comparison is shown in Figure 20.
Figure 20: Funding model comparison for a 1 MW project
HG Brand 2013 51 It can be seen from Figure 20 that the best alternatives are present and future Eskom-IDM funding. Utilising tax incentives is another viable option which may become the preferred option if Eskom-IDM funding continues to be reduced. CERs are not a feasible funding method for these projects. This is because of the R500 000 fee to register a carbon emission reduction project and the low CER spot price. It will take 17 years to recover the registration fee if a 1 MW project is submitted (Van der Zee, 2013).
This simple project funding comparison shows that involving an ESCO in electricity reduction projects will remain the most feasible option.