Globally diversified mining and metals company South32 faces a huge challenge in meeting an ambitious target of halving its Scope 1 and 2 greenhouse gas (GHG) emissions by 2035: its coal-hungry Hillside Aluminium smelter in Richards Bay.
The biggest aluminium smelter in the southern hemisphere, Hillside accounts for about 59% of the company’s Scope 1 and 2 emissions. CEO Graham Kerr told Business Day the group would not be able to meet its emissions target “if we don’t find a way to make Hillside green”.
The group also needs to respond to the risk posed by the implementation of the EU’s carbon border adjustment mechanism (CBAM) which will impose a carbon tariff on imports of certain energy-intensive goods.
CBAM entered into force in 2023 and companies must now submit reports to the EU declaring the embedded GHG emissions of products shipped to the trading bloc. For South32 that includes aluminium products shipped from SA.
From 2026, EU importers will need to purchase CBAM certificates representing a calculated carbon price for the embedded GHG emissions of those products, except to the extent they can demonstrate that a carbon price has already been paid.
Kerr said that for most EU CBAM goods that included direct (Scope 1) and indirect (Scope 2) GHG emissions. However, indirect GHG emissions — in the case of South32 this included emissions from Eskom’s production of coal-fired electricity — were not now included in the payable tariff for aluminium, but could be included in the future.
The company is looking for ways to reduce Hillside’s emissions intensity to meet its climate targets and reduce its potential exposure to CBAM. The smelter is one of the single largest electricity users in SA, drawing about 1,100MW from the Eskom grid which is predominantly sourced from coal-fired power.
“By 2035 we need that contract [with Eskom] to be green,” Kerr said.
South32’s contract with Eskom expires in 2031 and it hopes that the utility will be able to offer a greener energy mix when a new contract is negotiated.
“One of the options we have been talking to Eskom about is where we are now allocated 100% coal electricity there is an opportunity to potentially pay a premium to access some nuclear power as part of that mix,” Kerr said.
“We don’t view this as an approach to make Hillside green, but it will potentially protect access to the European market, which we believe is important for the long-term viability of the business.”
However, it is not clear whether this would qualify, according to the EU CBAM’s GHG emissions calculation methodology, to reduce tariff exposure.
To explore other options South32 completed a formal request for information process to understand the cost and availability of renewable energy from SA independent power producers (IPPs) over the past 12 months.
“We were surprised at how the costs have come down, and the costing came in much more affordable than what we expected,” Kerr said. “The only challenge is that with the smelter, which we have to run 24/7, the [intermittent] nature of renewable energy means we would need some kind of grid firming backup to ensure we would always have constant electricity supply.”
To reserve that capacity for South32 as a backup option when there isn’t sufficient renewable energy being generated Eskom would need to charge a standby fee.
Renewables on their own were an economically feasible option, but when the cost of paying for the backup power from Eskom was taken into account it destroyed the economic viability of running the smelter in that way, Kerr said.
Recent changes at Eskom and the improvement in its performance over the past six months had bolstered the company’s confidence in Eskom. “We are seeing more security of supply and believe Eskom is heading in the right direction,” Kerr said.
For this reason, South32 believed there was scope to consider not only buying renewable energy from an IPP, but also for Eskom to add more renewables to its network so that the share of renewables in the power South32 purchases from Eskom could increase.
“We believe that is a viable long-term solution for [Hillside],” Kerr said.
One of the solutions already being implemented is converting Hillside pots to AP3XLE energy efficiency technology which reduces electricity consumption without cutting production. So far, 36% of Hillside pots have been converted.
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