VW to take its huge Uitenhage plant off the Eskom grid

Volkswagen Group South Africa (VWSA) is poised to implement a plan to move its manufacturing plant in Uitenhage, plus some of its component suppliers in an adjacent supplier park, off the national electricity grid.

Thomas Schaefer, chair and MD of VWSA, has confirmed that a planned project for the company to invest in a biogas facility that uses organic waste to produce electricity is in its final phase and that the Uitenhage plant would be off the electricity grid within the next two to three years.

Schaefer says an entire biogas facility, including a waste separation setup, would cost about R3.5-billion, but usually achieves break-even after 28 months — and would create about a thousand jobs.

He says VWSA already has approval from its German parent company for the project, which would see it getting a company to operate and manage the biogas facility that will feed electricity directly into its plant.

Schaefer says the company has almost completed the analysis of the project, with the funding package expected to be completed by early next year. He says it will take about 18 months to build the biogas plant.

Once operational, the plant will also produce fertiliser — some 600kg per ton of organic waste used — which could be sold for up to US$400/ton.

“We are thinking of investing in it rather than going to get the World Bank to do it and get an off-take agreement,” says Schaefer. “We think it’s quite a cool idea that we spend a couple of million and be a shareholder in it, but have somebody else running it.”

Sign-off

Schaefer confirms that VWSA will need sign-off from the minister of energy as well as a permit for the project, but is confident that approval will be forthcoming because electricity supply in Uitenhage is a problem.

He says there is a sustainable supply of organic waste for the facility from the abattoirs and chicken and fish farms in the area, together with the organic waste generated by food companies.

Many businesses in the Nelson Mandela Bay Metro have been experiencing problems with the supply of electricity from Eskom.

“The robots are in the welding process, which takes about 30 seconds. If you get a spike in between, the robot forgets where it is. It’s an immediate shock and everything comes to a standstill.

“For safety reasons, you have to bring everything back into zero position but have potentially lost all the bodies in the body shop that are half welded or damaged, which is a complete disaster.

“The spikes happen at least once a week,” he adds. “The cost of these lost bodies is easily into the double-digit million rand and impacts our profit margins. We are spending a fortune on inverters that keep the spikes out of the system but we can only do so much.”

Attempts to obtain comment from the Nelson Mandela Bay Business Chamber on the electricity problems in the region were unsuccessful.

Schaefer says a further problem is that Volkswagen allocates production volumes according to the cost per car. The exact cost per vehicle from the Uitenhage plant is tightly tracked every month and compared to producing the same car in the group’s plant in Pamplona in Spain.

“If the cost is not favourable, the next volume from sales gets allocated to Spain,” he says.

With government’s Automotive Production and Development Programme and VWSA’s own cost-saving measures, its cost per vehicle is currently 2% below that of the plant in Spain, says Schaefer.

“This is great, and explains why we are chock-a-block, with 160 000 (cars in annual production). But if more of this nonsense happens, you lose the volumes so quickly,” he says. “We need a fully utilised factory to compete.”

Footsteps

If the biogas project comes to fruition, VWSA will be following in the footsteps of BMW South Africa, which in October 2015 started receiving power from biogas renewable energy company Bio2Watt from its first plant at a Beefcor feedlot in Bronkhorstspruit.

At the time this was the first viable commercial biogas project in South Africa.

The bulk of the power produced by Bio2Watt went to BMW SA for use in its production plant in Rosslyn in Pretoria in terms of a 10-year off-take power purchasing agreement signed in 2014.

• This article was originally published on Moneyweb and is used here with permission