The Johannesburg landfill gas-to-energy project, initially conceived as a carbon reduction project, aims to mitigate greenhouse gases from five landfill sites in Johannesburg, through converting its landfill gas to electricity. The five sites have a combined potential capacity of 18,6 MW of electricity, and the project will be by far the largest municipal-driven renewable energy development in South Africa to date.
In many South African cities it is common practice to vent landfill gas which negatively affects the air quality of surrounding communities.
The City of Johannesburg (CoJ) identified that methane emissions at some of their landfill sites were in excess of the prescribed air quality licensing thresholds. The city embarked on consultations with industry and found that harvesting the landfill gas to produce electricity would solve the air quality problem. An ambitious landfill gas-to-electricity project was initiated. The electricity produced will be sold to Eskom through the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP).
Expected waste (t/year)
Planned capacity (MW)
The CoJ’s Environment, Infrastructure and Service Department initiated the project and was assigned to manage the site and provision of the gas (the feedstock) to the project. Ener-G Systems has been awarded a 20-year design, build, own and operate contract for the five landfill sites. The operation will be run under a profit sharing agreement with the CoJ. At the end of the 20-year contract the plant will be transferred to CoJ.
Johannesburg’s electric utility, City Power, was unable to buy the electricity from Ener-G at rates above Eskom’s Megaflex, so Ener-G submitted bids to the IPP office and was selected as one of the preferred bidders in October 2013. At financial closure, reached in August 2015, a Power Purchase Agreement (PPA) was signed with Eskom at an indexed price of 94 c/kWh. This is the first municipal-driven project to participate in the REIPPPP.
The total potential electricity capacity of the CoJ sites, based on the expected waste per day, is estimated to be 18,6 MW. The average electricity output for all sites combined is anticipated to be 150 GWh/year.
By the end of 2014, the construction of the wells and piping systems at Robinson Deep and Marie Louise landfill sites were complete. Gas is being flared until the electricity generation equipment is ready for use.
The construction at Robinson Deep started in February 2011 and was completed after three months, with a total installation of 68 gas wells – the daily pumping capacity at Robinson is
1400 m3/h. The project was initially conceived as a carbon development mechanism (CDM) project and the Robinson plant generates 6000 verified emissions reductions (VER) per month.
Construction at Marie Louise was also completed in three months with a total installation of 28 wells – the daily pumping capacity is 500 m3/h to date and will be increased when the electricity generation equipment is commissioned.
Landfill gas (mostly methane and carbon dioxide) is produced during the anaerobic decomposition of organic waste in landfill sites. Landfill gas is extracted continuously from the landfill body through a network of pipes. These pipes are perforated tubes which have been drilled into the landfill. In the first stage, landfill gas is captured and destroyed by using a flare, while in the second stage the captured gas is fed to a modular electricity generation plant.
The generator combusts the methane in the landfill gas to produce electricity for export to a local power purchaser. Excess gas, and all gas collected during periods when electricity is not produced, is flared. The purpose of flaring is to dispose of the flammable constituents, particularly methane, safely and to control odours, health risks and adverse environmental and climate impacts.
Compliance with MFMA
Once the initial concept and feasibility of the project had been established, a series of legal opinions were sought to ensure that the project complied with the regulations stipulated in the Municipal Finance Management Act (MFMA, Act 56, 2003).
Section 33 of the MFMA stipulates a public consultation process for any contract with financial obligations longer than three years. CoJ sought legal opinion to determine whether the municipality was able to proceed with a request for proposals (RFP) towards a long-term contract prior to conducting a public participation process.
The city was advised to proceed with the RFP. Once a preferred bidder had been selected, the city undertook the required public participation process before signing the contract with Ener-G.
The city engaged extensively with legal opinion and National Treasury’s Private Public Partnership (PPP) unit around the issues of the disposal of municipal assets (section 14 and 90 of the MFMA) and PPP (section 120 of the MFMA).
Two legal opinions obtained by CoJ confirmed that landfill gas is not a municipal asset. It is a municipal liability and municipalities budget to manage the gas. It was thus concluded that the project did not involve the disposal of municipal assets and did not constitute a PPP.
Licensing and permitting
The licensing and permitting process for the plant was the responsibility of the contractors, although CoJ did assist in the process. Several departments were involved in both the licensing and contract development processes, including Environment and Infrastructure Services Department , City Power, Johannesburg Property Company, Pikitup, and the Legal and Contracts Department.
Power purchase agreement
It was initially foreseen that City Power would buy the electricity produced at the landfill sites. Negotiations started but an agreement could not be reached as the minimum price proposed by Ener-G of 71c/kWh was substantially higher than the average price of Eskom’s electricity tariff (52 c/kWh) at the time. In terms of the MFMA requirement to procure services at best value for money, City Power decided not to accept the proposed price offered by Ener-G.
The company submitted bids to the REIPPPP instead, and in October 2013 the project was selected as one of the preferred bidders. A PPA was signed with Eskom at an indexed price of 94 c/kWh at financial closure in August 2015.
Of the five landfill sites, three landfill sites will be connected to the Eskom grid and two to City Power’s grid. For these two sites and as per the REIPPPP processes, no wheeling arrangements were needed. This particular metering point on the network becomes an Eskom point of supply, delivering electricity directly to City Power. Eskom and City Power amended their delivery supply agreement to cater for this additional point of supply on the network.
Challenges, enablers and lessons learnt
The project is ambitious and pioneering. It represents the biggest municipal renewable energy project to date and the first landfill gas to electricity project in the REIPPP programme. As such, there have been delays and lessons learned. In particular, the REIPPPP contracting process and electricity price negotiations caused a series of delays in implementing the project.
Permit and licensing processes
Obtaining the project’s waste license took longer than expected as there was an amendment to the National Environmental Management: Waste Act which needed attention.
Procurement and contracting
The main challenges faced by the municipality were questions relating to the MFMA which governs financial management of municipalities and the development of the PPA between Ener-G and Eskom. A project of this nature had not been done before and required clarification around the legal status of the waste stream and the contracting.
Initially much time and effort went into negotiating a PPA between the service provider and City Power. The particular sticking point was the issue of the price of electricity. The price of the production of electricity from landfill gas was still marginally higher than the average purchase price of electricity from Eskom.
The MFMA states that service must be procure at best value for money. Where electricity may be procured more cheaply from Eskom, municipalities have interpreted this as essentially ruling out purchase of higher cost renewable-sourced electricity.
Turning to the REIPPPP was an innovation arising out of necessity, but has proved an important step in the project. However, the REIPPPP is a bidding process, and being selected into the programme cannot be counted upon during project development by a municipality. It is also a lengthy process, and added to the time delays on the project.
Since the project is the first landfill gas-to-electricity project approved under the REIPPPP and the first project with connection both to Eskom and municipal grids, finalising the contractual arrangements between Eskom, the DoE and the municipality have taken time. The concept of the point of intake into the City Power grid becoming a new Eskom intake point (embedded now within the City Power redistribution area) was an important innovation, bypassing cumbersome and unnecessary wheeling arrangements.
The approach taken by the municipality was innovative and led to a risk-sharing concept beneficial for the city. The municipality undertook only high level feasibility studies, transferring the technical risks to the service provider. Ener-G was also tasked with financing the investment, thus avoiding burdening the municipal budget. In so doing, the municipality avoided any financial risk in this project and successfully implemented the relevant conditions in Section 33 of the MFMA without much difficulty.
Delays in implementation largely relating to securing a willing buyer has had financial implications for the project. As operations will start later than initially planned, there are delays in the accrual of revenue from electricity sales and this increases the payback period of the project, pushing up financing costs.
Despite these challenges, the new direction of being selected as preferred bidder in the REIPPPP has enabled the project to reach the desired financial sustainability.
The project was registered as a CDM project with United Nations Convention on Climate Change (UNFCCC) in December 2012; it can thus sell carbon credits or certified emission reduction (CER) units, which were accrued from date of commissioning of the sites, in the compliance market. Prior to certification, the city may sell verified emission reduction (VER) units in a voluntary market.
Unfortunately, the international carbon market has collapsed. If carbon markets do not recover, the CDM would yield a disappointing outcome. Indeed the project hoped to gain additional financial co-benefit of its emission reduction efforts. Project financers are hoping for a reprieve with the introduction of a carbon tax in South Africa and the associated carbon offset programme, still to be implemented.
Contact Aurelie Ferry, SALGA, Tel 012 369-8000, firstname.lastname@example.org
Source: EE plublishers