Eskom’s power drive is sputtering
BY JANA MARAIS, 07 OCTOBER 2012, 09:02
More than four years after rolling blackouts shut mines and factories and led investors to can multibillion-rand projects, government and Eskom’s efforts to address the supply crisis have been hampered by delays, cost overruns and regulatory uncertainty.
Not one of Eskom’s three major new build projects — coal-fired stations Kusile and Medupi and the pumped-water storage scheme Ingula — will be completed within initial deadlines or budgets.
In addition, legislation that would encourage independent power producers (IPPs), hailed as a solution to the crisis when the lights went off in 2008, is only expected to be approved by parliament in the first quarter of 2013. Only then will the Department of Energy be able to start the implementation process. Currently, Eskom buys about 1,000MW from IPPs.
No long-term contract has been signed by the Department of Energy with the preferred bidders of renewable energy projects. A third bidding round, scheduled for this week, has been postponed to May.
The department will also miss the deadline to have the first unit of a nuclear power station up and running by 2023. In order to meet the nuclear target, the contract should have been awarded by the end of last year and there is still no clarity on when, or if, government will proceed with its nuclear plans. According to the department, new nuclear capacity should add 9,600MW to the grid by 2030 to avoid a repeat of 2008.
“Electricity supply has been in crisis since 2008. The economic crisis has given us some degree of reprieve, but the situation from the supply side hasn’t changed. Our members are still seeing significant interruptions in supply and the majority are still subject to a 10% saving,” said Shaun Nel, executive at the Electricity Intensive Users Group (EIUG), whose members include Anglo American, Xstrata and BHP Billiton.
In its latest system status bulletin, Eskom, which supplies 95% of the country’s electricity, said unplanned outages are at present 5,837MW, more than the capacity of a large coal-fired power station.
The unplanned outages are mainly because of a maintenance backlog and the old age of power stations. An additional 3,000MW was offline because of planned maintenance. Average demand of 31,360MW was met by average supply of 34,515MW, leaving a reserve margin of about 10%, less than the international benchmark of 15%.
The EIUG expects a supply shortfall until 2014, when the first unit of Medupi is finally expected to come online.
Eskom has also asked for decisions on new capacity beyond Kusile to be made “soon” in order to ensure supply.
It is difficult to calculate the costs of the supply crisis. Uncertainty over availability and security of supply means companies cannot afford to invest in expansion or new operations. Delays in getting power stations online result in escalating costs and lost revenue for Eskom, which has to fund its debts through ever-increasing electricity tariffs, which have risen an average of 27% a year over the past four years.
The cost of Eskom’s build programme stands at R340bn, excluding finance costs.
After various changes to size and budget, Eskom said in January 2007 that it plans a 4,500MW station at a cost of more than R52bn, with the first unit to be commissioned in mid-2011, according to research by the Free Market Foundation.
The station, Medupi, the first new coal-fired station to be built in South Africa in more than 20 years, is expected to generate 4800 MW at a cost of R91.2bn excluding interest during construction, with a first unit to be operational by the end of 2013. Kusile was originally expected to be fully operational in 2016, but this has now been pushed out to the financial year ending March 2019.
Ingula, near Ladysmith in KwaZulu-Natal, was supposed to add more than 1,300MW to the grid this year, but is expected to be operational only in the 2015 financial year. Costs have increased from R18bn to R23bn because of a change in the scope of the work and geological challenges, Eskom said.
Eskom said its cost estimates for Kusile and Medupi have not changed since September 2009, after the projects went out to tender.
“Once we started the projects, the costs increased for three main reasons: scope changes, changes in market prices and project delays, particularly at Kusile where uncertainty about funding caused a delay of almost a year,” said spokeswoman Hilary Joffe.
Jasson Urbach, economist at the Free Market Foundation, calculated the cost of lost revenue to Eskom because of the Medupi delays at around R43bn, with a cost of R6.4-trillion to the economy.
In the meantime, the costs are piling up. Eskom is expected to file a new tariff application for the next five years at the National Energy Regulator of South Africa this month, after government asked it to change its previous application, which originally asked for annual increases of 14.6%.
Rating agency Moody’s downgraded Eskom’s debt this week, which will “influence the cost and availability” of debt, the utility said. Its current debt of R180bn is expected to almost double over the next six years as the new build programme is completed, Eskom said.
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