Eskom: It’s always darkest before the dawn

05 April 2023

How things have changed! Eskom’s prices have more than trebled in the last decade and its erratic power supply is now costing the country billions a day.

Still, there is light at the end of the tunnel. Changes in legislation have effectively shifted South Africa’s power generation landscape.

But let’s backtrack a little and take a good hard look at where we are now and what we are dealing with.

THE CRUMBLING MONOLITH

Eskom, established in 1923, is a vertically integrated utility operating 30 power stations, 14 of which are coal-fired, and 16 of which use gas, nuclear, hydroelectric or pumped storage.

Coal-powered stations last only about 40 years, on average, and with Eskom’s inability to maintain its facilities, we have seen a steady deterioration in performance.

Last year unplanned outages exceeded the number of planned ones with the average unplanned outage being three times the length of planned ones, adding further to grid instability. Labour action by Eskom workers and allegations of sabotage have not helped the situation.

SHOULD WE EXPECT MORE POWER CUTS?

In 2022, South Africans suffered through 157 equivalent days of load-shedding, compared to a cumulative 152 equivalent days over the previous 15 years.

We are well on track to break this ignominious record in 2023. Also, in the past 15 years, stage one or two load-shedding was the norm, but in 2022, for the first time, most of the country’s load- shedding comprised stage four to stage six events.

At stage two, the country needed to save 2000MW, but at stage four it needs to save 4000MW, equivalent to the entire capacity of Medupi. The increased intensity of moving from stage two to four has translated into far more power interruptions. While the country used to have an average of six two-hour power cuts over four days, we now have an average of 12 such cuts in the same period. Industries such as mining are shielded from load-shedding up to stage four but have no protection beyond that level.

Figure 2: Increases in load-shedding from 2007 to 2022 

Source: Council for Scientific and Industrial Research

To make matters worse, Eskom expects to close six of its coal-fired power stations in Mpumalanga by the end of the current decade. These represent 11 000MW – about a quarter of its current generating capacity. It is therefore essential that Kusile and Medupi, which cost a combined R380 billion to R300 billion over the original budgeted costs, become fully operational.

STEPS TO CURB THE ROT

Government has taken several steps in an attempt to bring some relief to embattled South Africans. In this year’s budget, Finance Minister Enoch Godongwana announced a R254 billion debt relief package for Eskom for the next three years. Eskom had already been issued R350 million in government-guaranteed debt relief, but since the parastatal has not had the financial wherewithal to invest in maintenance or transmission capacity, it has seen its debt balloon to unsustainable levels since 2005.

Figure 3: Eskom's debt from 2005 to 2022

Source: Bloomberg

Another positive move has been the appointment of an international consortium to recommend measures for improving the operational efficiency of Eskom’s coal-powered stations by the middle of this year. This assessment will include a decision on which plants could be resuscitated to their original capacity and then privatised. In March, President Cyril Ramaphosa created a new Minister for Electricity post and appointed Kgosientsho Ramokgopa, who will be responsible for tackling load-shedding, developing an electricity crisis response plan and coordinating responses across ministries.

Also on a positive note, in 2021 government raised the licensing threshold for embedded generation projects from 1MW to 100MW. By removing the need to apply for a license and requiring registration only with the National Energy Regulator, government is hoping to drive the green energy build programme.

Last year, green energy increased to 7% of the mix, increasing its energy output by 50% over the past five years. It is, in fact, the first time that coal has fallen below 80% in our energy mix. This year alone, some 70 private sector projects with a combined output of 5000MW are planned. Government is also providing incentives for households to install solar photovoltaic (PV) panels, with individuals now being able to claim a tax rebate of 25% of new panels, up to the value of R15 000. The future of power is decentralised with smart grids. Corporates will be allowed to claim tax deductions of 125% of renewable energy investments brought into use for the first time over the next two years. This, of course, presents a risk for many municipalities whose principal source of revenue is from electricity sales.

It is always the darkest before dawn – and most South Africans have been yearning to see the light at the end of the Eskom tunnel. There are, of course, challenges ahead. The supply shortage of some 6000MW will have to be addressed through several interventions, and unplanned outages will have to be reduced. Renewable energy procurement will need to be stepped up to fill the energy gaps, but with the proliferation of independent power producers, this could well be manageable.

The landscape for energy production is effectively changing; Eskom will become more of a distributor, while the private sector will be responsible for new power generation. In 2018, some 2200 MW was procured via Bid Window four and a further 6800MW is planned via Bid Windows five to seven from late 2023. In addition, gas and battery storage capacities are planned.

South African ingenuity always comes to the fore when we have our backs against the proverbial wall. Once again, this will be required to find a lasting solution to our electricity supply problem over the years to come.