Response to NERSA REFIT Review Consultation Paper. 6 th May 2011

Transcription

1 Response to NERSA REFIT Review Consultation Paper 6 th May 2011

2 Introduction to PAMSA Represents Pulp & Paper Industry (P&P) Members: Mondi, Sappi, Kimberly-Clark & Nampak The forest and forest product sector contributes: - 1.4% to GDP - 14% to national manufacturing employment - R3.1bn to trade balance Directly employs 119,000 people Sector provides an additional 51,000 jobs PAMSA s role is to: - Promote the interests of the industry - Provide a forum for the development and presentation of common industry views 2

3 Background SA fossil fuel dependent Coal main contributor to GHG and carbon emissions. Recent power shortage and Eskom s load forecasts. Opportunity for renewal energy generation & energy diversification. Most Pulp & Paper plants generate for self use. P&P renewable forests allow renewable energy through biomass PAMSA fully endorses renewable energy principles and the REFIT process. 3

4 Summary of Issues Timing of the Tariff Review Process Biomass Eligibility Criteria LCOE Methodology General Recommendations 4

5 Timing of the Tariff Review Process Timing of the review is premature. The REFIT procurement process is imminent. Review creates confusion, uncertainty and delays. Review tariffs affect project feasibility and timing How is this affected by the review? Disillusionment Frustrated by delays and diverting funds. Supercedes REFIT 1 & 2 5

6 Biomass Eligibility Criteria Limits on Pulp & Paper developers P&P mills not close to fuel source Some as much as 200 km away Increased transport cost true cost of biomass fuel higher Use of biomass residue vs forest trees Fibre before fuel principle Threat to fibre source for forest products industry More value add in P&P higher Fibre recyclable 6-7 times Creates more jobs LCOE should not create competition for fibre. 6

7 Biomass Eligibility Criteria cont Exclusion of In-mill biomass- industrial waste Not enough renewable waste in-plant to justify investment. Must be mixed with forest residue /biomass residue Cannot build 2 separate plants REFIT mechanism needs to cater for a single plant with multiple fuels and tariffs Exclusion of REFIT projects embedded within industrial complexes Not practical to ring fence Advantages of existing infrastructure and support services Only new projects allowed. Opportunities exist for upgrading/expanding existing plants. Needs to have a mechanism to cater for these projects Industrial complexes embedded with municipalities 7

8 LCOE Methodology Support the LCOE principle of determining REFIT rate ROE of 17% in the WACC do not reflect the P&P expectations. Investors seek higher returns due to uncertainties WACC should increase by 1-1.5% Rebasing the entire LCOE for exchange rates Only certain portion of costs are exposed to foreign exchange fluctuations Replicate NERSA LCOE model Release the model for transparency Let debate be on the input parameters and not how to calculate 8

9 LCOE Methodology Real value of fuel costs Fuel is not free Labour to collect Capital equipment needed for processing Transport to site - long distances and low bulk density Higher moisture content of tops ( 50%), Lower heating value ( 7-8 MJ/kg) Realistic fuel cost of R0.48/kwh to R0.66kwh 9

10 General Comments Single buyer not appointed. Timing of the final REFIT PPA year PPA could be restrictive - We support the flexible PPA approach with option for generators to off-set own use or sell to a third party. Timing of New Gen Regulation promulgation Biomass supplementary fuels for start-up etc. - include in-plant biomass Tariff escalations standardised - Escalation of only variable O&M and fuel portion not supported - To void crossover with Megaflex and REFIT rates REFIT should always be at premium to Megaflex 10

11 REFIT Crossover with Megaflex 11

12 Recommendations Implementation to be suspend until 1 st procurement process completed Feedstock eligibility (whole trees) that provides P&P fibre to be excluded Adjustment of fuel input rate required to cater for collection, processing and transport costs Supplementary in-plant fuel for biomass projects. Upgrade projects should be allowed. Financial model to consider a higher WACC. REFIT /Megaflex cross over should be avoided: REFIT should always be at a premium above the standard Megaflex rates. 12

13 Thank You 13