Eskom’s problems highlight flaws in South Africa’s energy plans

Eskom’s problems highlight flaws in South Africa’s energy plans

On Sunday 8 February 2015, South African taxpayer-owned electricity utility Eskom achieved an unwelcome milestone after it imposed the sixth consecutive day of load shedding. With more days likely to be added to this string of generation capacity failures, South Africans have upped the policy debate on the country’s energy future.

The Energy White Paper released in December 1998 stated: “As provided for in our Constitution, the state must establish a national energy policy which will ensure that the national energy resources shall be adequately tapped and developed to cater for the needs of the nation. Energy should therefore be available to all citizens at an affordable cost. Energy production and distribution should not only be sustainable, but should also lead to improvement of the standard of living for all of the country’s citizens. For this to become a reality, the state should ensure that energy production and utilisation are done with maximum efficiency at all times.”

Since January 2008, however, electricity production has at times not been able to meet peak demand. The 1998 Energy White Paper stated in section 7.1 that: “although growth in electricity demand is only projected to exceed generation capacity by approximately the year 2007, long capacity-expansion lead times require strategies to be in place in the mid-term, in order to meet the needs of the growing economy.”

It said that the next large power station tendering process should start in 1999, but this was not done as the government was trying to encourage private sector participation and also trying to launch five Regional Electricity Distributors; however these were stillborn. The lack of pricing certainty prevented the private sector from tendering for new base-load power generation in the period prior to 2008, while the uncertainty as to which entity the wholesale distributor of electricity would be also hindered efforts to involve the private sector. Large companies such as Sasol and Sappi could use waste energy to power cogeneration plants, but as Eskom had excess generation capacity at the start of the century, it was reluctant to buy from private sector power suppliers.

The January 2008 load shedding episode, which cost the mining industry billions of rand in lost production, focused attention on the dire need to add to generation capacity. Eskom had already launched three new projects, the coal-fired 4 764 Megawatt (MW) Medupi station, the coal-fired 4 800 MW Kusile station and the 1 332 MW Ingula pumped storage scheme. The first unit of Medupi was originally scheduled to be online in 2011, but delays have pushed this now to mid-2015, while the first unit of Kusile and Ingula will only be online in mid-2016 instead of the original schedule of 2014.

The third coal-fired base load has been put out to tender as an independent power supply contract with first unit likely to be online only in 2025. The independent power supply renewable energy programme has been a resounding success, but as the technologies used are solar and wind, this does not address the need for base-load generation capacity.

In the June 2014 State of the Nation Address (SONA), President Jacob Zuma did address the energy crisis. He said then, “We need to respond decisively to the country’s energy constraints in order to create a conducive environment for growth. The successful electrification programme which has changed the lives of many households was achieved by tapping into artificial electricity reserves, which had not been designed to cater for mass energy distribution. This situation calls for a radical transformation of the energy sector, to develop a sustainable energy mix that comprises coal, solar, wind, hydro, gas and nuclear energy.”

Zuma went on to say that: “The transformation will require structural changes in the manner in which government departments, affected state-owned companies and the industry as a whole address the energy challenges. The energy plan also calls for the injection of capital and human resources into the energy sector. We will also need to identify innovative approaches to fast-track procurement and delivery by government in the energy sector. To prepare the institutional capacity, we are in the process of converting the National Nuclear and Energy Executive Coordinating Committee of Cabinet, into the Energy Security Cabinet Sub-committee. The sub-committee will be responsible for the oversight, coordination and direction of activities for the energy sector.”

“The sub-committee will also ensure that Eskom receives the support it requires to fulfil its mandate and that it remains focused on achieving its goals and targets. To achieve our energy security goals, state owned companies involved in the Energy Sector, such as Eskom, South African Nuclear Energy Corporation and the Central Energy Fund will have to adapt to the redefined roles to achieve these objectives. Work needs to be done at a technical level on all forms of energy especially nuclear energy and shale gas with regards to funding, safety, exploitation and the local manufacture of components. Nuclear has the possibility of generating well over 9000 MW, while shale gas is recognised as a game changer for our economy. We will pursue the shale gas option within the framework of our good environmental laws,” he said.

President Zuma will update South Africans on the energy crisis on 12 February when he delivers the 2015 SONA. Industry experts will gather in Johannesburg the following week for the Africa Energy Indaba and they will debate how to overcome the short-term lack of capacity. One of the suggestions is to divide South Africa into four time zones so that the amplitude of peak demand between 5pm and 7pm can be reduced.

Only time will tell whether the Eskom will continue to be burdened by a series of unfortunate events such as coal storage silos collapsing or whether a mild winter such as in 2005 will lower peak demand so that load shedding does not remain a daily occurrence.

About Author

Helmo Preuss

Helmo was the chief economist at Oasis Asset Management and former Economics Editor at a real-time financial news service. He holds degrees in Economics, Economic History and Computer Science.