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Renewable Energy

The global sugar industry has seen a fundamental shift take place, as increasing quantities of sugarcane are directed at renewable electricity generation and ethanol production as an effective carbon dioxide (CO2) mitigation strategy and an alternative to crude oil based fuels. The need to create jobs and the crisis in electricity supply in South Africa, together with the carbon mitigation drive, will continue to maintain the focus on the development of renewable energy. Tongaat Hulett currently produces 52 MW at its four South African mills and this can be increased to between 320 MW - 360 MW. The capital cost of converting one sugar mill, together with making it energy efficient will currently cost some R4 billion. The coming year should see the company bid for its first 80 MW power station.

The electricity planning of the South African Department of Energy focuses on the development of renewable electricity and energy efficiency such as cogeneration through Independent Power Producers (IPPs). No additional coal based power stations by ESKOM are included in the 2010 to 2030 plan. The electricity procurement through IPPs continues to gain momentum and is being aligned with the government objectives to grow the economy significantly. With one new job typically being created for every 3,5 hectares of additional sugarcane planted, this is an important consideration particularly when viewed within the context of the need for job creation and rural development.. A further key component of the Renewable Energy Independent Power Producer Procurement programme (RE IPPPP) and Green Economy is localisation of supply and the associated development and growth in the manufacturing sector of South Africa. The first round of 28 RE IPPPP projects generating 1 400 MW and valued at R47 billion was concluded in November 2012. The Ministerial Determination which accommodates power generation from sugarcane fibre was published in December 2012. It is likely that the Request for Bids is expected to be completed by the end of 2013.

Obtaining an attractive capital return on an electricity plant and ensuring that bagasse is given the appropriate value, will contribute to an increase in the sugarcane price, which will positively impact sugarcane supplies and therefore sugar production.

In terms of the business’s strategic approach to ethanol production in South Africa, Tongaat Hulett is advocating a framework which would see 4 to 5 of the industry’s existing sugar mills attach a large scale ethanol plant to the back-end of the mill and possibly draw some sugar streams from other mills within close proximity. This would allow the industry to convert all export sugar to ethanol and would provide sufficient ethanol for approximately an E6 blend provided that all of South Africa’s sugar mills are running at full capacity.

In the medium term, ethanol is perhaps the largest expansion opportunity which the sugar industry in SADC faces. This offers governments of the region an excellent opportunity to create jobs and improve the lives of rural communities. If SADC were to follow the Brazilian model over the next 20 years, with 60 percent of petrol being derived from ethanol and all growth in demand captured by ethanol, it would require the construction of about 120 mills the size of the Felixton mill, create 1,8 million new direct jobs, and create at least as many indirect jobs. The associated power generation would be equal to Medupi and Kusile combined. For South Africa, it would provide between 13 and 25 percent of the required carbon footprint reduction needed to meet the target which South Africa has committed to.

Unlike electricity generation, which can be started from a South African perspective large scale ethanol production as described above requires a regional ethanol regime. Some 70 percent of the market for ethanol lies in South Africa, with the bulk of the production potential lying within other SADC countries such as Mozambique, Zimbabwe, Zambia and Angola. The starting point therefore is a biofuels strategy within South Africa which takes into account these dynamics. Tongaat Hulett is continuing to work with the South African Government to promote this regional strategy.

During 2012, the regulations for blending biofuels in South Africa were published, and it is planned that the support mechanisms for the South African market will be finalized and implemented by the end of 2013. Tongaat Hulett has continued to engage with various key government departments in terms of the design and implementation of the support mechanisms.

The company’s aspiration over some 10 years is to complete the construction and commissioning of a large scale electricity plant at each of its South African mills and to install at least one large scale bio-ethanol plant at one of its mills. Given the current anticipated programme for procurement of electricity from sugarcane fibre, it is anticipated that Tongaat Hulett will commence investment in its first electricity plant in 2014/15.