2. Company confidential Page 1
TABLE OF CONTENTS
PROJECT CONCEPT 2
INTRODUCTION 2
GEOGRAPHIC COVERAGE 2
CONCEPT 3
KEY PROJECT METRICS 3
FEASIBILITY STUDY 3
TECHNOLOGY 4
EXPECTED CONTRACTUAL/ COMMERCIAL STRUCTURE 6
EXPECTED CAPITAL COST REQUIREMENT 7
FINANCIAL FEASIBILITY STUDY 7
PROJECT TIMELINES 9
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PROJECT CONCEPT
Introduction
The world has experienced the need for energy, in various forms, since the earliest of times.
Three major concerns in the world energy environment today are high oil prices, global
warming and scarcity of funding for energy projects in developing countries. Inherent to
addressing these concerns is the continuous improvement of energy efficiency through
boosting economic performance and industrial competitiveness, while reducing air pollution
and greenhouse gas emission. South Africa is not unique in these experiences, with the
country still facing energy supply constraints.
Maraswi Consulting Services (Pty) Ltd (MARASWI), a 100% Black Owned Engineering company
based in South Africa, has identified an opportunity to develop a 2MW Biomass Gasification
Energy Plant in the Greater Tzaneen municipality. In addition to supplying 2MW of power into
the electricity grid, the project aims to create 17 permanent jobs in the area. In addition the
Biomass Gasification Project utilises a South African owned biomass-gasification technology.
Geographic Coverage
The proposed project site is in the Greater Tzaneen Municipality (as shown below).
Figure 1. Locality Map
The Greater Tzaneen Municipality is situated in the Mopani District of Limpopo Province in the
Republic of South Africa. The municipal area is further characterized by extensive and
intensive farming activities (commercial timber, cash crops, tropical and citrus fruit
production).
The proposed project will be in the Agatha Forestry, on the Agatha Sawmill cc plantation as
indicated above.
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Concept
The main objective of the project is to construct and develop a 2MW renewable energy plant,
which uses the existing biomass waste (woodchips), from the current timber mill operations.
The energy produced will be transferred into the existing electrical network grid for MARASWI
to enter into a Power Purchasing Agreement (PPA) with either the Municipality. The other
option is to enter into a wheeling agreement and sell the power to those municipalities that are
exceeding their planned electricity allocation. These municipalities are penalised just like the
other LPUs.
In general, renewable energy systems are more labour intensive than fossil fuel systems,
although a higher proportion of the jobs are relatively highly skilled in the former. For example,
employment opportunities are created, particularly in rural areas, in both the operation of a
bioenergy plant and the provision of its fuel, which would be the case in the development of
this project, which there are opportunities in the enterprise development for the supply of
feedstock to the project.
KEY PROJECT METRICS
Feasibility Study
Renewable energy is core to the sustainability of all economies. Due to the historical low costs
and excess capacity of electricity in South Africa, there was no incentive for any
operation/business to engage in alternative energy generation options. Since the advent of
limited capacity of generation and network constraint, many have experienced interruption of
operations due to power cuts and load shedding. There has since been interactions amongst
various stakeholders which culminated into the Integrated Resource Plan (IRP 2010) and
development of Renewable Energy Feed In Tariff (REFIT) policy. REFIT was replaced in August
2011 by the IPP Procurement Programme, where Bidders will now be required to bid on tariff
and the identified socio-economic development objectives of the Department of Energy. The
tariff will be payable by the Buyer pursuant to the PPA to be entered into between the Buyer
and the Project Company of a Preferred Bidder. The guideline for the “solid biomass” tariff is
max R1.07/kWe.
Eskom, in an attempt to manage the demand side of electricity is urging the large consumers,
of which municipalities are categorised as but one, to reduce energy consumption by ten
percent, although this is not mandatory at present. Also with the approval of an average
increase of 25% starting from 2010, imposes a steep increase in the main component of costs
of operation for electricity intensive users. Most of these users have reviewed their operations
and looked at opportunities for self-generation with probable sale of excess electricity sold back
into the Grid using the above mentioned guideline pricing of R1,07/kWe.
The Greater Tzaneen Municipality has identified energy supply as a constraint to attracting
investment in the area, as well as addressing electrification backlogs ( currently sitting at
18,6%) which would include supplying power to the villages, schools, clinics and farm labour
housing which will address the needs of the community both in poverty alleviation and
economic growth.
The biomass gasification plant will also assist to address the impact of outages or maintenance
and also to allow the shifting of loads when networks become overloaded due to seasonal or
other reasons. The position of the proposed plant will be within the Agatha network ring.
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In addition the Integrated Resource Plan (IRP 2010 - 2030), was adjusted from a cost-optimised
scenario developed under a carbon emission constraint of 275 million tons per year from 2025,
incorporating localisation objectives and bringing forward the renewable roll-out. The proposed
energy supply from renewables is estimated at 11, 4 GW, and also promotes local job creation.
Technology
Biomass, one of the oldest sources of energy, is a product of one or other form of life – plants,
animals or human beings. The biomass from plants is largely sourced from the two sectors
with the closest link to land as a production factor: agriculture and forestry. Although a
country like South Africa is contributing a considerable share of total renewable energy
capacity, it has not been benefiting fully from all of the various renewable energy technologies -
despite being in a situation where energy services are in short supply. Some renewable energy
technologies have been extensively applied in industrialized countries, the latter accounting for
92% and 88%, respectively, of wind power and photovoltaic cell installed capacity in 2003.
MARASWI will be utilising a System Johansson Biomass Gasification Power Generation
technology (SJG) was developed by Carbo Consult & Engineering (Pty) Ltd (CCE), a South
African company. MARASWI acquired the right to utilise the CCE-SJG technology in 2011. In
November 2010, CCE was awarded the Frost and Sullivan award for Innovation. The award
document is attached.
While Biomass gasification has been around since World War II, the challenge for this
technology has been to produce a tar-free gas. In the early eighties, the inventor of CCE’s
technology made a breakthrough by “cracking the tar” during the gasification process, thus
becoming the only biomass gasification technology provider with a tar-free process. Carbo
Consult’s system is environmentally friendly and carbon neutral.
The CCE-SJG technology gained international recognition by subject-related academics and
interested parties alike, but Carbo Consult lacks a truly commercial demonstration plant to
demonstrate commercial viability. The company has licensed the technology to Kawasaki Heavy
Industries of Japan, after they had researched tar-free Biomass Gasification around the world
and found our technology to be the only system suitable to their quest to enter the Renewable
Energy field. They added their own Intellectual Property (IP) for system automation and are now
operating three commercial plants successfully. See attached document from Kawasaki.
In addition, two plants were built by CCE in the early nineties for clients in the UK (Banks Plc)
and the Netherlands (HoSt Energy Projects), but both companies lacked funding to
commercialise and adapt the systems to local needs and conditions.
Locally, CCE was contracted by Eskom in 1997 to build an 180Nm³/h Gasifier technology
demonstrator for the Research and Development Centre in Rosherville. After extensive testing
by the CSIR and ERGOSAF, the system was declared tar-free and its minimal wastes were
certified non-toxic. Contractually, Eskom was to market the system on behalf of CCE and to
promote the technology on the African continent. Thus far, only one other plant was built as an
operational unit by Eskom for a community upliftment project for Melani Village in the Eastern
Cape, and as a demonstration plant at Eskom’s Rosherville location. The plant was mothballed
and is in being brought into operation.
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Process Overview
Biomass gasification is the thermo chemical conversion of biomass materials into a producer
gas, which is a mixture of Carbon Monoxide (CO), Carbon Dioxide (CO2), Methane (CH4),
Hydrogen (H) and inert gases such as nitrogen (N). This gas mixture has a heating value of
approximately 6MJ/kg and it is used for heating (direct burning) and electricity generation
using turbo charged / intercooled gas engines.
FUEL SUPPLY
Figure 2. Process Description
The most efficient way of preparing the feedstock is to use dry woodblocks, tailored to the size
required by the Gasifier type (110mm length). The Greater Tzaneen area is characterized by
extensive and intensive farming activities (commercial timber, cash crops, tropical and citrus
fruit production); which are potential sources of biomass. Agatha saw mill processes over 100
tons of timber per day (shown above), of which 40% or 40 tons is available for use as feedstock
in the plant.
Due to the “tar-free” nature of the gas, the maintenance requirements are very low compared to
other types of gasification processes. The plant design should have one extra gasification plant
to allow planned maintenance without affecting the output of the overall plant. Approximately
1, 2 kg of biomass generates 1KW of electrical power. The plant is modular allowing additional
units to be added in stages as dictated by business requirements. The main consideration has
to be the availability of feedstock for the plant to ensure optimal electricity output.
The Gasifiers run on various types of woody biomass (or briquetted sawdust/chips/agricultural
waste), powering Gensets with converted gas- or petrol engines and diesel engines, the latter in
"dual fuel" operation, replacing up to 80% of diesel (biodiesel) fuel with CCE-SJG gas. The
advantage of dual fuel operation is that the electricity supply will continue, if the biomass
supply runs out for short periods of time for whatever reasons.
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Expected Contractual/ Commercial Structure
The plant will be owned by the Maraswi Consulting Services (Pty) Ltd, Tymos Projects cc
(Darryl Devenish) and Agatha Sawmill cc in the structure below. This leaves sufficient room for
a financier to participate either at the level of Maraswi Consulting Services, or at the project
level, which is the Agatha Generation Plant.
Agatha Generation
Plant
Maraswi (Agatha)
Consortium
Maraswi Energy
Corp (80%)
Darrell Devenish
(5%)
Agatha Saw mill (or its
shareholders) (15%)
85%
15%
Figure 3. Shareholding Structure of the Plant
There will only be direct shareholder, the MARASWI Consortium (or the MARASWI Agatha
Consortium), and the Agatha Saw mill or its shareholders. This structure will be replicated for
all other generation projects so that the partners who assist Maraswi Consulting Services, as
the project developer, to acquire the rights to build a plant belong in the same voting pool as
the project developer.
A feedstock supply agreement has been signed with Agatha Sawmill to supply 100% of their
woodwaste to the project at a reduced rate of R 155/ton in the first year with an agreed
escalation yearly. To mitigate the risk of feedstock supply to the project, the plantations
typically leave a lot of off-cuts in the field when harvesting timber. These offcuts are typically
the bottom ends of the tree that are too narrow for the traditional business. They are
eventually burnt before the next planting cycle. This presents an opportunity for enterprise
development where people in the community can collect this timber and sell it to the plant at a
price close to the R180 per ton, but possibly 5% – 10% higher since the purchases will be
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based on a spot price without a long-term contract. This additional feedstock will be purchased
from small business that will be established through the community.
In addition, Agatha Sawmill cc have agreed to utilise the first 400kW of the power plant at cost
plus 20%, whilst the excess will be sold to the grid at agreed PPA rate.
Expected Capital Cost Requirement
The expected Capital Cost Requirement for the project is R 33 million, which includes the
design, installation and commissioning.
In addition, in order to get the project to bankable feasibility, the following costs will be
required for project development, at a cost of R 2 million. This will include the Project
Management Fees, Engineering Work and Environment Studies.
Financial Feasibility Study
It was established that Agatha Saw Mill has a daily electrical peak demand of 400kW and the
terms of the agreement in the attached Memorandum of Agreement is that the sawmill will
purchase power from the plant. That leaves 1.6MW available to be sold at maximum market
value.
As an incentive to get the first reference project, we also offered Agatha Saw mill an added
incentive which pegs the escalation of feedstock to increases of electricity. This will also allow
the mill to produce timber even if it is for the purposes of the running the gasification plant.
When fully built to capacity of 2MW and running 16 hours per day, and the cost of feedstock is
at R155 per ton, the plant produces electricity at R0.75 per kWh. By the time the plant is
commissioned in the second half of the year, Eskom would have enacted the next 25% price
increases, which would make our price very competitive. Our ideal target price is the NERSA
REFIT ceiling for biomass currently at R1.06 per kWh.
The remaining 1.6MW will be sold in three forms:
1) Option 1, which already under negotiation, is to sell the power to the municipality of the
Greater Tzaneen Municipality.
2) Option 2, will be to participate in the Small Scale Renewable Energy Procurement
Programme which the bids were opened for participants in December 2012, with the National
Department of Energy.
3) Option 3, is to enter into a wheeling agreement with the municipality and Eskom, and
we directly market the power to any of the Large Power Users in the country. This includes
companies such as Foskor, and other mining houses, and industrial companies such as
Arcellor Mittal. We have already initiated contact with Forskor.
This can potentially be the most lucrative because the Large Power Users are under pressure to
reduce their overall electricity consumption and will be paying penalty induce rate of R1.21 per
kWh, which will also be increasing by 25% to R1.56 per kWh.
The intended project will be co-located with the Agatha Saw Mill. The mill will enter into a
power purchase agreement with the project and pay electricity prices of cost +20%.
Future Buy-out
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The Agatha Saw mill was also offered the first right to buy the plant completely, in exchange of
them giving land for the plant for free. The land required is 2 hectares for the location of the
plant, stock piling, and drying of feedstock.
Our financial model is attached, and our analysis shows that the plant will have a payback
period of 6 years based on the following parameters:
• R35 million Capex: This includes the complete plant manufacturing and installation on
site
• R3.37 million Fixed Cost: including wages, spares, maintenance, site lease and
insurance for the first year of operation.
• R2.38 Variable Costs: including travel, stock controls and contingencies, also for the
first year of operation.
The total operating expenditure in the first year will be R5.76 million.
The plant will break even after year 3 and produce an IRR of 19.43%, see Chart 1 below.
Chart 1: Net Present Value vs. Discount Rate
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Project Timelines
0 1 2 3 4 5 6
Project Origination Development
Fuel supply commitments
Negotiate power purchase agreements
Initial Marketing to Financiers
Project financial viability and development financing
Preliminary plant engineering
Site engineering
Initiate permit applications
Draft Environmental Impact Report
Market/ Contracts
Financial Closure
Stage
Months
