Sappi says SA power crunch coming

South African paper group Sappi, which is to supply state utility Eskom with 45 MW power from its plants, said on Friday companies should prepare for another power crunch by cutting their reliance on Eskom and on fossil fuel wherever possible.

In late 2008, a series of blackouts crippled gold and platinum production facilities in South Africa, sending prices for both commodities soaring.

Rising power tariffs and Eskom's vulnerable power reserve margin make it more compelling now than ever for South African industry to look at relying less on the grid, Sappi Group Head Corporate Affairs Andre Oberholzer told Reuters.

"At some stage you know another power crunch is coming and you'd rather have everything in place," he said.

Sappi first proposed supplying power to the grid from its plants three years ago and is yet to sign the final agreement with Eskom, he said.

"We had two projects to use our internal generating capacity which matched Eskom's criteria and prices offered making up 45 MW in total," Oberholzer said.

Sappi is just under 50 percent energy self-sufficient by using waste from its pulp production factories to power steam turbines, he said.

"If you make paper pulp from wood chips you cook out the fibres and leave a lot of organic waste which you can recover and burn as biomass to make heat and steam - the steam can dry paper and also drive a power turbine," Oberholzer said.

In South Africa, the only other ways to generate energy on site is to burn coal or expensive oil in a captive generator, he said. The pulp industry is one of the few which has readily available waste for fuel, he said.

THREAT TO GRID

Sappi, in common with the bulk of South African industry, did not pursue plans to produce its own power until recently despite the widespread knowledge for decades that the grid was likely to be overstretched, Oberholzer said.

South Africa has enjoyed some of the cheapest electricity in the world for so many years that there was no incentive for independent generation.

"The potential threat to continuous power supply and the increases in tariffs means it's a lot more advantageous for us to optimise our internal generation capacity," he said.

"We've looked at small capital spending we can do to increase that as well as at more expensive options so at least we've done all the thinking and the planning for future investments," he said.

As part of its drive to release dependence on the tottering grid, Eskom is asking all consumers to use less power and trying to buy back from heavy users.

"If Eskom were to say what else have you got in the cupboard we could pull out some of these plans. If they paid us more, we could go ahead with other investments," Oberholzer said.

The government's Integrated Resources Plan 2 due at the end of May will give industry the clarity it needs to see how in practical terms it can use less power or make more of its own through renewables such as solar, for example, he said.

"The important thing is to work with government and convince them to move forward as fast as they possibly can," he said.