Bushveld Energy - Eskom Battery Mandate 2018

Phase 1 (800MWh)

BigBiteNow

8 November 2018

In the last couple of weeks I posted on the LSE Bushveld Minerals (BMN) forum that I believed that I have found out where the first ‘large scale mandates’ for Bushveld Energy were going to come from and that it was, to begin with, circa 800MWh. Almost immediately after that, considerable developments took place on this front, driven by the announcements made by Eskom at the South African Energy Storage Conference, and in particular their phase 1, 800MWh battery energy storage system project (BESS). Given these recent developments, I have reviewed the details thoroughly and am delighted with what I have found.

In the article Bushveld Energy - Your Time is Coming I discussed the findings of the US Trade and Development Agency (USTDA) sponsored report ‘South Africa Energy Storage Technology and Market Assessment’ and the influence that the South African Industrial Development Corporation (the IDC) had on the process as a whole.

As discussed at the time, "The objective of the South Africa Energy Storage Technology and Market Assessment was to provide advisory services to the IDC and Steering Committee that will help guide and promote the adoption of energy storage technologies in South Africa."

What that study revealed was that there were a number of technologies that offered South Africa significant near to long term utility scale energy storage solutions, and that these included 3 electrochemical battery storage systems.

Those were;

  1. Lithium ion
  2. Vanadium Redox Flow (VRFB)
  3. Zinc-Bromine Flow

In the subsequent Environmental and Social Management Framework  document released by Eskom for phase 1 of it’s proposed BESS project, Eskom writes on page 3 : “The Electrochemical/battery storage system was selected as the preferred solution to meet the strategic requirements.” Whose exact strategic requirements, we will discuss a little later on.They then go on to describe a number of main examples. However, on page 11 they state that “The battery storage technology is currently being piloted in South Africa" - so let us look at that first.

Eskom's Battery Test Facility

The Eskom presentation at the SAESA conference states there are currently 4 battery technologies being tested at Eskom’s Rosherville facility. Of these the GE-supplied Sodium-Nickel-Chloride battery looks to have fallen away because on slide 10 it says “one system under test is not suitable for use within Eskom.” Whilst the actual name is not given, I would challenge anyone to conclude that they were talking about the Lithium-ion battery.

Therefore, unless Eskom are testing another undisclosed battery, then the Eskom BESS is being targeted towards those very same 3 electrochemical battery storage systems that the USTDA identified in its assessment. Thus the USTDA assessment has done its job (Remember Eskom along with the Department of Energy and NERSA, worked closely with the steering committee that delivered and reviewed the USTDA assessment).

The suppliers of these battery technologies are as follows :

  1. Lithium-ion – This is a BYD of China supplied battery but “deployed by local construction and property development company, Afri-Devo” Neither company is listed in the USTDA techno-assessment’s known supplier list.
  2. VRFB – Bushveld Energy
  3. Zinc Bromine – Primus Power

I am under no illusions that there won’t be ample other ‘suitable’ battery manufacturers willing to tender for this work, but in terms of physically having one’s battery tested by the customer, only the above 3 companies have done so, and one looks dodgy at best.

Now some may say that BE have yet to have their battery fully tested because it won’t be commissioned until Q4 2018. Well that shouldn’t be of too much concern because as the following article states, the tender will not be released until Q1 2019 with the contracts awarded in Q2, so there is ample time for Eskom to test and assess the BE led battery. That therefore at the very least, puts all 3 technologies on an even keel such that other factors will now play their part.

Since the release of the USTDA sponsored assessment, a number of telling developments have taken place. On 22nd Aug 2018 it was announced that the USTDA was awarding a $500,000 grant to Bushveld Energy to help demonstrate their energy storage system at Eskom.

“The goal of the pilot is to demonstrate how UniEnergy’s vanadium redox flow battery technology can reduce energy costs for commercial and industrial operations, offset the need to use diesel and other fossil fuels for peaking power, increase the capacity of South Africa’s electric grid to successfully integrate renewable electricity generation sources, and improve the operating efficiently of existing baseload plants.”

“This pilot will also highlight the value of innovative U.S. technologies in a growing sector in South Africa.”

If we compare that to the wording employed in the Eskom ESMF document for the proposed Battery Energy Storage System, we find they will be ;

“installing and operating distributed battery storage infrastructure at Eskom sub-stations including sub-stations located at existing Variable Renewable Energy (VRE) plants operated by Eskom Renewables (including the Bank-funded 100 MW Sere wind farm), upcoming distributed solar PV to be implemented by Eskom Distribution, and the new REIPPP sites.”

Sound similar to you?

The USTDA awarded that grant just 2 months prior to the Eskom announcement. The USTDA is not a charity; it is a promoter of US companies abroad. The USTDA sponsored the Techno-assessment, whose entire existence was driven by The IDC of SA, therefore the USTDA is also central to the process that the assessment has driven, they will therefore know in which direction it is heading and they will be keen to ensure that US companies play a part in the process that they have helped pay for.


Furthermore, since the release of the techno-assessment and since the demonstration testing at Eskom got under way, The IDC has continued to back Bushveld Energy to the point that they are partnering on an electrolyte plant construction in SA and with it the assembly and eventual manufacturing of VRFBs in SA.

As Christo Fourie head of the New Industries Strategic Business Unit for the IDC said way back in June 2016 ;

“The signing of the Agreement with Bushveld Energy marks an important milestone for the IDC’s initiative towards development of a sustainable Energy Storage Industry for South Africa”

Jump forward a little over 2 years and Bushveld Energy doesn’t just have the IDC in it’s corner, but through UniEnergy Technologies (UET) and the direct issuing of a grant, it also has the USTDA on it’s side. So the key driver and assessor for the development of a South African energy storage industry both support Bushveld Energy.

But the key factor to all of this will be the tender itself and the requirements for local content. That is where not just the lithium-ion and Zinc-Bromine batteries will struggle but all other VRFB manufacturers as well.

In his last interview with ProactiveInvestors dated 17th October, just a few days prior to the Eskom announcement, FM actually referenced Eskom’s pending “moves into procuring energy storage” [9:00]

“with VRFBs which comprise when they are assembled in SA of more than 70% local content, we can't think of any better battery solution for SA than VRFBs." [9:15]

 
 


What FM is actually saying is that because Eskom is an SOE, it must follow the SA Department of Industry requirements under SATS 1286:2011. He has known that for a very long time. That is the reason BMN tweeted that they have “been working towards being ready for this since launching Bushveld Energy in 2014.”

This SA dti document deals with local content (page 1)

“the local content of a product is the tender price less the value of imported content, expressed as a percentage. It is, therefore, necessary to first compute the imported value of a product to determine the local content of a product.”

This is dealt with in more detail in the Eskom ‘Supplier Development and Localisation Evaluation Criteria’ document, where it says on Page 1;

“Supplier Development and Localisation (SD&L) as an evaluation criterion will be allocated 20% of the total tender evaluation points, i.e. a maximum of 70% must be allocated for price and technical criteria (including SHEQ), and 20% allocated for SD&L, and 10% for BBBEE”

and

“Participating Suppliers must score a minimum of 60% against the stated targets for SD&L in order to qualify for further tender evaluation.”

Now the true local content requirements will be defined in the tender documentation itself, but it is highly unlikely that they are going to be watered down to allow foreign companies access to Eskom work. Those days are at least for the foreseeable future, behind SA. As an example, the current Eskom led REIPPPP non-negotiable local content targets are between 45% and 65%. BMN are likely close to 40% just because they mine the vanadium in SA, but as FM states, when they assemble the VRFBs in SA, plans that are highly likely now further developed than we currently think, they will be over 70% and likely unassailable in this area of the tender process, and that is before we even start discussing the 10% for BBBEE and the use of local suppliers etc.


However, what FM is also alluding to is the opportunity that the awarding of those Eskom contracts will open up for SA as a whole.

Nowhere is that opportunity better pronounced than in the UK government’s own statement regarding the Eskom battery project ;

“will use an innovative technology to transform the country's energy system” “enabling the creation of thousands of jobs for young South Africans"


I can certainly buy that both lithium ion and zinc bromine are innovative but would any firm tendering for this work really be able to guarantee “thousands of jobs for young South Africans” other than Bushveld Energy and their plans for SA based electrolyte production and VRFB assembly ?

I am sure that the process will be fair for all firms that tender but Bushveld Energy not only has the best technology for the applications involved, it will have easily the highest local content, and will be able to demonstrate a clear path to those jobs. Most of all though, BE are going to have the political will on their side, driven by The IDC’s desire to see a new local industry built that can offer jobs to South Africans and support the ailing SA economy.

As I have already said, the size of this opportunity, initiated by an ever increasingly desperate utility in Eskom, delivers the necessary opportunity and justification for investing in a “Energy Storage Industry for South Africa.” As Bertie Strydom of the IDC said back on 13th October 2017 ;

“energy storage could unlock local opportunities in mining and beneficiation, research and development, commercial exploitation and industry development, as well as opportunities in the global market.”

It should not be lost on anyone that Ramaphosa himself secured the necessary investment with Theresa May, and it is he that needs those jobs more than anyone. But it must be understood, this is no flash in the pan, the opportunity is simply huge. The VRFB opportunity was never about how good the technology was. What the vanadium industry and the VRFB have been waiting for is the political willpower and drive to see VRFBs given their chance. In SA a combination of a weak and previously captured economy and state utility, a utility I might add that still supplies 45% of the electricity in Africa today, has perhaps opened up this opportunity faster than would normally have been expected.

I therefore cannot see how with such will and such fine positioning by Bushveld Energy (remember Mikhail Nikomorav is the chairperson of the recently formed South African Energy Storage Association and it was at the recent South Africa Energy Storage Conference where Eskom chose to announce the details of their initial Phase 1: 800MWh / Phase 2 : 640 MWh BESS project), that they won’t succeed here.

Through their long standing partnership with The IDC, Bushveld Energy has known from the very start what it has to do to ensure that Eskom battery contracts, when they come, will be won by them.
Together with UET and The IDC, they have been busy preparing and lobbying for this day to come.

No other battery manufacturer or miner has been doing that because they simply could no foresee that Eskom would announce one of the largest combined battery storage projects in the world. A development that Eskom notes as being merely a pre-cursor for the main event, when it says in it’s ESMF for the project ;

Should the technology prove successful, there is a potential of scaling up similar technology to allow increased capacity in energy storage from future wind and solar powered projects.”

“Electricity storage can also be used to help integrate more renewable energy into the electricity grid. Electricity storage can also help generation facilities operate at optimal levels, and reduce use of less efficient generating units that would otherwise run only at peak times”

But BMN through Bushveld Energy certainly did and they are ready for what will be a far greater opportunity than ‘just’ 800MWh of batteries.



Infographic courtesy of the Black Eye Project

We will find out soon enough whether their preparations were indeed good enough, but from what I have read and understood, it will not be about if, but simply how many MWhs Bushveld Energy wins in this 1st phase. What that achievement will mean for BMN as a business, what it will open up in terms of opportunities for both the mining arm but more importantly in Southern Africa and world wide, is simply staggering.

The Eskom project opens the door to significant global VRFB recognition and take up, and with it considerable vanadium production expansion. Thus it is the key to Aladdin’s cave.

Bushveld Energy, the IDC, Eskom, the USTDA, and the government of SA, all know it, so what are the chances really that they will let this opportunity slip by awarding the contracts to someone else.

Answers on a postcard please.


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