The Eskom Grid Intensity Problem for South African Aluminium Smelters

The Eskom Grid Intensity Problem

South Africa's electricity grid is one of the most carbon-intensive in the world. Eskom's generation mix is dominated by coal-fired power stations, resulting in a grid emission factor of approximately 0.95 tCO₂/MWh — compared to the EU average of ~0.25 tCO₂/MWh and Norway's hydropower-dominated grid at ~0.02 tCO₂/MWh.

For aluminium smelters, which consume approximately 14 MWh of electricity per tonne of aluminium produced, this grid intensity is the dominant driver of CBAM liability.

The Numbers

South African aluminium produced on the Eskom grid has a carbon footprint 53 times higher than Norwegian hydropower-based aluminium, and 3.8 times higher than EU average-grid aluminium.

Why This Matters for CBAM

The EU CBAM default value for aluminium (12.4 tCO₂/t with 10% markup) is set at a level that reflects the global average for aluminium production. South African production on the Eskom grid has actual emissions above this default, meaning that:

1. Using actual verified emissions would result in higher CBAM liability than using the default
2. The default value approach is therefore more favourable for most SA aluminium producers
3. But even the default represents a significant cost: €806/t at €65/tCO₂

Eskom's Decarbonisation Trajectory

Eskom has committed to a Just Energy Transition that will see coal-fired power stations progressively retired and replaced with renewable energy. Key milestones:

• Medupi and Kusile (new coal stations) are now fully operational but will be the last new coal capacity
• Koeberg Nuclear (Cape Town) is being life-extended to 2044
• Renewable energy (wind and solar) is being procured through the REIPPPP programme
• Grid emission factor is projected to decline to ~0.5 tCO₂/MWh by 2030 and ~0.2 tCO₂/MWh by 2040

If Eskom's decarbonisation trajectory is achieved, South African aluminium smelters could see their CBAM liability reduce significantly over the next decade — without any changes to their own production processes.

The PPA Solution

Rather than waiting for Eskom's grid to decarbonise, aluminium smelters can accelerate their own decarbonisation through Power Purchase Agreements (PPAs) for renewable energy.

A PPA allows an aluminium smelter to:

1. Contract directly with a renewable energy developer for electricity supply
2. Receive Renewable Energy Certificates (RECs) or Guarantees of Origin (GOs)
3. Use the renewable electricity's emission factor (near zero) instead of the Eskom grid factor
4. Significantly reduce Scope 2 embedded emissions for CBAM purposes

The economics of renewable PPAs in South Africa have improved dramatically. Wind and solar PPA prices are now competitive with Eskom tariffs, making the business case compelling — especially when CBAM cost savings are factored in.