NFTN (proud initiative of the dti) Foundries and Energy Efficiency Portfolio committee on energy

1. NFTN(proud initiative of the dti) Foundries and Energy EfficiencyPortfolio committee on energy 31 January 2013 Presenters: Adrie El Mohamadi David Mertens

2. Agenda • SA Foundry industry and NFTN • Existing incentive programs • Energy tariffs and efficiency in the sector • Success stories • Challenges • Recommendations

3. NFTN overview • NFTN: National Foundry Technology Network • The DTIestablished the NFTN as part of the IPAP as a key action programme under the metals fabrication, capital and transport equipment cluster of sectors. • The NFTN is administered by the CSIR to adhere to PFMA requirements • NFTN is the culmination of a significant government and industry association-led effort

4. Vision The NFTN will facilitate the development of a globally competitive South African Foundry industry through the provision of appropriate services; in order to reduce import leakage, increase local production and increase investment in the industry Some of our stakeholders

5. SA Foundry Industry Metal Melting and pouring of castings • 180 production plants in SA • Big plants (1000 people +) to very small (20 People) • International companies to family business • Some in-house foundries • Iron, Aluminium, Zinc, Bronze, Special alloys • High level of flexibility and engineering versatility • Added Value: machining, coating, assembly • Spread all over country: Gauteng, KZN, WC, EC

6. Industry structure by type Industry in decline since 2007

7. Foundries and Employment • Direct Employment estimated between 12,000 and 15,000 • 20,000 people employed in processing of components • Employment is estimated to have reduced by 10%-15% since 2008 (from 42 companies surveyed) • Recent Plant closures: • 2010- Eclipse West Plant- 500 jobs lost • 2010- Eclipse East Plant partial closure • 2011- Eclipse Dimbaza in EC- 350 jobs lost • 2011 Krynie Brothers in Gauteng – 22 jobs lost • 2011 Belmec in EC– 70 jobs lost • 2011 Alfa Foundries Springs – 60 jobs lost • 2012 Crown Cast closed its doors – 130 jobs lost • Many plants have reduced employment • Investment in the Foundry industry in SA in last 4 years have been insignificant but there are exceptions

8. *The appropriate multiplier for the foundry sector is debated, and ranges from 2,5 – 7. A conservative figure of 3,5 has been selected. The determination of a multiplier is subject to further research by ABSA Bank.

9. Markets served by the SA foundry industry • Export and local markets • Highly Competitive environment • Competing with the rest of the world

10. Foundries and its Markets • Main customers are global companies • Market is extremely well developed and pricing must be globally competitive • Buyers are price sensitive and can choose from global supply locations • Foundry products are commoditised • Scale of local projects often too small to fill up foundries in SA • Automotive contracts imply price reductions over life time • Increased imports in SA as a result of rising costs

11. Product examples

12. NFTN Cleaner Production Objective: Assist foundries to embrace principles of cleaner production that include materials and energy management

13. Existing incentive programs ESKOM Demand Side Management programs • Industry utilises IDM incentives for efficient water heaters and light • Potential savings are where we use most energy: in metal melting and thermal processes • Esco’s are not specialised in metal melting and overcharge • Eskom programs not focussed on municipal users and process is cumbersome; • Investment rebates require upfront funding • No incentives for investment in alternative energy (gas, coal)

14. Existing incentive programs - comments IDC/Kfw Green Energy Efficiency Fund (GEEF) • Loan offered at prime – 2% to support competitiveness through energy savings The dtiMetals Manufacturing Efficiency Fund (MCEP) • An incentive programme that aims to support competitive improvement interventions such as energy efficiency improvement • Many foundries have attempted to apply for the above with very little success due to requirements, processes and disbursement policies • Energy efficiency programs from government reside in many governments and agencies • Discussions are underway with the dti to try and bridge these gaps

15. Foundries and energy costs • Foundries convert metal through melting and pouring. Products have a high energy content. Foundries b belong to the energy intensive users. For Iron foundries, typical energy cost can be 18% of overall cost or more than 30% of added value (2012). Energy has a massive impact on foundries’ costs. Escalating Energy cost : From very competitive in 2008 to uncompetitive in 2011 Foundries must have access to competitive Energy tariffs Energy Efficiency is a matter of survival

16. Foundries and Electricity Tariffs • Most foundries procure electricity through Municipalities (>95%) Discrimination in tariffs between municipal and Eskom direct customers makes electricity uncompetitive for foundries (typical mark-ups of 50%) • Power already more expensive than in main competing countries since 2011 • Escalation of tariffs over a very short time have not given the industry sufficient time to adapt . Timing was very poor (2008/2009 recession) • Electricity tariffs for industry are not cost reflective (e.g. peak usage funded by industry) • Eskom requested increases as per MYPD3 add to uncertainty Need national strategy for electricity tariffs for energy intensive users. We cannot depend on local government for strategic matters

17. Electricity cost escalation 2000-2015 NMBM *2010 increase was the point where SA lost its competitiveness regarding industrial electricity costs for most municipal users

18. Energy efficiency in foundries is a matter of survival • Warning: during 2011, prices became uncompetitive: users will reduce and close rather than invest in energy intensive industries • The surviving industry is under continuous cost pressure and has reduced it’s energy consumption to a large extent. • -Improved operational practices (reduce wastage) • -capital investment (more efficient equipment) • -recession 2008/2009 • -hurdle as a result of uncertainty regarding regulated tariffs • Plants have moved towards competitive energy efficiency mainly by reducing wastage; investment is lagging and could improve efficiencies further

19. Examples of energy efficiency improvement 1. Eastern Cape cast iron foundry • 2009 energy usage 48 GWh: 3850 KWh/tonne sold • 2012 energy usage 33 GWh: 2760 KWh/tonne sold • Peak reduced from 9.5 MVA to 6.5 MVA • Target 2013 is to reduce to 2400 KWh/Tonne Savings achieved through: - Refocused production around lean energy usage - Shutting down of older spare equipment - Improved foundry processes focussed on reducing energy usage - Shutdown procedures and systems for intermittently used equipment - Eskom IDM such as water heating and lights (contribution 1%) Employ “energy saving” specialist and also had AIDC engineer on site for 18 months.

20. Examples of energy efficiency improvement 2. Iron foundry group in Gauteng Reports savings of 10% in energy between 2006 and 2012, saving 13GWh/annum Intensive application of Eskom IDM 3. Iron foundry In Cape Town Foundries introduced a peak control system in 2012 Reported Reducing peak from 31 MVA to 24.5 MVA Note: Eskom IDM projects are utilised in foundries, but only contribute to a small portion of savings.

21. Hurdles towards a prosperous and energy efficient Foundry industry • Electricity is too expensive: investment in foundries is unattractive • Investment incentives difficult to access or not attractive (Eskom IDM) • Eskom only targets IDM savings of <1% of total usage for MYPD3 • Incentive must be optimised in line with Eskom avoided cost -Current investment grant approximately R4000/KW -Eskom avoided cost is R 25000/KW • Upfront investment payments required by customer • Direct access requires complicated administration and management from users • Access through Esco’s is expensive and annihilates investment credits • No incentives for power factor investments • No specific investment credits for using alternative energy sources (e.g. gas versus electricity) • Municipalities’ involvement in IDM is non existing; municipalities have no interest

22. Recommendations to create a prosperous and energy efficient foundry industry National strategy for energy tariffs for the industry is required Discrimination Municipal/Eskom direct customers must end Energy intensive users must get competitive and cost reflective tariffs Remove municipalities from value chain Intensify IDM investment with specific incentives for the industry -Energy efficiency improvements -Conversion to alternatives to electricity

23. Thank You http://www.nftn.co.za