6 November 2014

South Africa’s energy security remains fragile as load shedding continues to weigh on GDP – which is forecast to be little over 1% in 2014 – and generation output in late 2014 into 2015 could be further constrained by even more frequent power cuts. Margins remain dangerously fine, as was underlined when a collapsed coal silo at the 4,110MW-capacity Majuba facility – Eskom’s second largest (and youngest, commissioned in 2001) coal-fired plant – plunged much of the country into darkness on 2 November. Majuba’s generation output was halved from 3.6GW to 1.8GW, and then fell to a low of 600MW. Further power cuts were threatened, as the incident exposed structural issues that cannot be mitigated without major reform to the industry. There is increased likelihood of such incidents causing large-scale load shedding as a number of negative structural issues come together.

Eskom’s pivot towards increased maintenance at the expense of the reserve margin means generation plant availability is likely to drop substantially over the short to medium term, raising the prospect that any sizeable incident could cause load shedding. The maintenance strategy also reduces surplus power during off-peak hours, which Eskom expects will cut its ability to refill pumped storage facilities, especially after the 1,332MW Ingula plant starts operation. The result will be even finer margins at peak hours, when the storage reservoirs are drained to produce power.

National Planning Committee member Anton Eberhard told the WINDaba conference in Cape Town on 4 November the South African power system faced its most serious crisis in 40 years, and reiterated the scale of the maintenance problem. “In the past three years, we’ve lost the equivalent of an entire coal power station through deteriorating plant availability,”he said, noting that, of 87 coal-generating units, 32 need major surgery and four are in a critical condition”. Furthermore, the cost of rehabilitating and maintaining Eskom’s plants (average age 32 years) has yet to be fully costed, adding to the difficulties of assessing the relative merits of building new plants.

Eskom planners say the lives of coal-fired plants can be substantially extended, but they have also noted that it might be cheaper to invest in new gas capacity instead – a constant theme in recent government discourse, with the Zuma administration looking to secure a slice of Mozambique’s abundant reserves, and Eskom expected to take 800MW from Namibia’s Kudu gas field, whose future is again in doubt.

All available resources are being funnelled into synchronising the Medupi project’s first unit on 24 December and fast-tracking other new-build schemes. While Medupi coming on line is an undoubted boon from a generation perspective, Eskom is struggling to put in place sufficient finance to cover its financing gap. To help raise funds, the government is demanding the sale of some non-strategic assets.

With the focus on generation, the transmission budget is under threat, with consequences for the much-vaunted Renewable Energy Independent Power Producer Procurement (REIPPP) programme and other projects. Although the budgets for generation and transmission are set out in the multi-year price determination, tariff increases have been substantially below Eskom’s applications (and needs), and the troubled utility has responded by redrawing its budget, which has allowed it to focus funds on Medupi and Kusile – whose completion is now widely seen as the key measure of success for the utility – while pushing back the timetable for IPPs to be connected to the grid. There are fears that the Transmission Development Plan 2015-24 will founder in a state of constant revision.

Acute challenges remain around the funding of new transmission corridors and uncertainty about technological options. In the short term, this is affecting REIPPP3 bidders waiting to reach financial close – the dates of some of whose grid connection have been pushed back towards 2020 – while REIPPP4 bidders report an increase in their cost estimate letters from Eskom. In the longer term, lack of a holistic response to this critical industry’s strategic issues suggests further years of confusion and missed deadlines.

This article was published in Issue 288 of African Energy