Eskom finally gets ahead of the new build delivery curve

The synchronisation of Unit 3 at the Ingula pumped storage scheme on 6 March 2016 is the first time this decade that Eskom, the state-owned electricity public utility, has managed to get ahead of the new build delivery curve. 

The South African economy in the 2003 to 2007 period had been growing at a strong rate of near 5 percent y/y for several years. Being energy-intensive in nature, electricity has always been a cornerstone of the national economy. It was, therefore, imperative that sufficient capacity be provided to support the economic growth and development targeted by the government.

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.”

In 2004, cabinet approved a five-year investment plan in South Africa’s electricity infrastructure amounting to R93bn. The Eskom Board approval for a significantly increased build programme budget to 2011-2012 – was primarily driven by a change in the electricity demand growth assumption, from 2.3 percent to 4 percent. Generation projects would take up 70 percent of the budget, with transmission investment accounting for another 14 percent. The remainder of the budget would fund improvements to Eskom’s distribution network and efforts to diversify the Eskom energy mix.

Since January 2008, however, electricity production has at different 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 government was trying to encourage private sector participation and also trying to launch five Regional Electricity Distributors, which however were stillborn.

In 2009, Eskom planned to deliver new capacity as set out below.

ESKOM

 

Shortfall

The effects of the Great Recession on access to finance, poor project execution and industrial action and stoppages for safety inspections meant that on average the three new build projects of Ingula, Kusile and Medupi are running four years behind schedule with consequent cost overruns and revenue loss.

This meant that South Africa once again returned to intermittent load shedding from March 2014 onwards, even though the economy was performing below its long-term growth trend.

The February 2015 peak demand/supply curve shows how bad the situation became due to the lack of new generating capacity as the older capacity required more frequent maintenance and had more unplanned outages.

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What was especially worrying was that this load shedding was taking place in summer, whereas the winter peaks could easily add up to 4 000 Megawatts (MW) more demand.

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To cope with the peak demand, Eskom uses pumped storage schemes such as Ingula and expensive to run Open Cycle Gas Turbines (OCGT). Pumped storage uses off-peak power to pump water to an upper dam and then releases this water to a lower dam to generate power during peak periods. OCGT use diesel to power turbines, but this is more than 20 times more expensive than coal-fired power.

The commitment to “keep the lights on” meant that instead of using OCGT only during peak periods, Eskom was using it during daylight periods. The result was that generating costs escalated sharply, which Eskom tried to recoup by asking for higher tariff increases.

The new management team at Eskom in 2016 set out a new build programme as shown below.

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In less than a month after this was published, CEO Brian Molefe could say that the first unit was synchronized on 6 March 2016 and that all four units should be synchronized by January 2017.

This will mean that Eskom has moved ahead of the new build programme curve for the first time this decade with the promise that in 2018 it may be able to sell “excess” power to neighbouring countries, who are also power deficient.

In January 2016, Eskom supplied Zambia with off-peak 300 MW and this is likely to continue until the winter months of July and August.