Colleague Mark Rule, mining analyst at Nedbank Private Wealth, and I joined forces to construct a picture of current and future availability of electricity in South Africa. The big gorilla in this field is of course Eskom and we start there.
There are two major issues at Eskom: (in) efficiency and capacity.
INEFFICIENCY EATS INTO EXISTING CAPACITY
Eskom’s total installed capacity currently stands at 44 149MW, but for the first three months of the year (when load- shedding commenced) generated electricity was running only at about 29 000MW according to Eskom. That means an astonishing 15 000MW of capacity, or one third of the system, was not available to generate power.
Planned and unplanned maintenance is the cause of this loss of capacity, with unplanned maintenance comprising more than half of the disabled capacity during the three months.
Eskom’s plant performance has deteriorated sharply over the last few years. Average power generation used to be above 90% of capacity, but it has fallen over the last few years, reaching 65% earlier this year as indicated above. This is a severe indictment. If the system could run at 85% efficiency (allowing 15% for downtime) some 37 000MW could be generated, instead of about 29 000MW achieved in the first quarter.
HOW MUCH IS ENOUGH?
In summer, electricity demand runs at about 32 000MW. The difference between that and the 29 000 mentioned above, probably explains why recently appointed Eskom CEO Brian Molefe told Parliament in April “(Eskom) needs an extra 3000MW of generating capacity to terminate load shedding.”
In winter, demand is expected to go up to 37 000MW. Unplanned maintenance will have to be eliminated and regular maintenance limited to less than 15% of the system to meet this demand with current capacity.
From various statements by the Deputy President and the minister responsible for Eskom it is clear that maintenance has become a major priority. 30 senior managers have been dispatched from Eskom head office to various power stations to oversee maintenance programmes. We will know by winter whether this focus has had the desired effects.
The picture on new capacity at Eskom is well known. It is in the process of installing an additional 11 216MW: 4 800MW each at Medupi and Kusile, 1 316MW at Ingula in the Drakensberg, and 300MW at two solar power stations in the Northern Cape and a wind farm near Vredendal’.That is equal to about 25% of current Eskom capacity.
25% may sound like a lot, but some of Eskom’s plant is old and needs to be shut down; as will the diesel-run generators that are currently used and are prohibitively expensive. Erstwhile mothballed plants which were brought back into production and diesel-run power stations come to about 6 075 MW. If we subtract that from the new capacity, 5 141MW of extra capacity will be added to the grid – about 12% of current capacity.
Other new capacity will come from the private sector – we discuss that further below – and some may be from nuclear power.
The next question is when these projects will be completed. This seems to be a moving target. On 19 February this year the Minister for Public Enterprises, Ms Lynne Brown, told Parliament that Medupi, Kusile and Ingula would be online by 2020. It now seems two projects will make the date, but for the third one it will be closer to 2021/22.
Why did it shift?
Originally the first unit from Medupi was scheduled to go online in June 2015. At the time of writing that still seemed to be the case. However, the rate at which additional units will be added, delivering 800MW with each extra unit, is now forecast to be one every 12 months, and not one every 9 months as Eskom said at the Investment Analyst Society on 3 December 2014. That means Medupi will be fully operational by June 2020. Ingula should also be operational by then – two out of three.However, the first unit from Kusile will only come online in the second half of 2017. At the same tempo of one-unit- every-12-months Kusile will be fully operational by 2022.
We said above that we need 3 000MW of extra capacity to eliminate load-shedding. If you follow these timelines, Eskom can reach that in the second half of 2017 – however, private sector supply may bring that date forward.
PRIVATE SECTOR SUPPLY
With the latest rounds of bids which government accepted in April, more than 5 200MW in total has now been procured from private producers. 1 500MW of that has already been installed, so another 3 700MW is yet to be added to the grid. It is uncertain when all of this will be available, but in her April announcement the Minister of Energy indicated that the likely commissioning date would be November 2016. This will mitigate the demand-supply gap to some extent, and may lessen load-shedding.
Another 1 800MW of renewable bids from previously unsuccessful bidders will be re-considered by the Department. Once they have been cleared, a fifth window for new bids will be opened in the second half of 2016.
Add all the numbers together and private sector renewable power could end up being considerably bigger than a Medupi or a Kusile.
The downside is that renewable energy is not available if the sun does not shine or if the wind does not blow – and peak demand occurs in the mornings and evenings. More capacity is needed from resources which are available around the clock.
Therefore, the announcement by government that 2 500MW will be procured from coal-fired power stations is a welcome development. Bidders will be limited to bidding a maximum of 600MW per project.
The first coal IPP bid window for proposals was released to the market on 15 December 2014. Bid responses are expected by mid-2015 and announcement of the preferred bidders before the end of the year. The successful bidders must then put the necessary finance in place and building can start. (It is a stipulation that SA citizens must hold 51% of the shares of these projects.)
More co-generation projects have been agreed with the private sector and 800MW are expected to be added to the grid from this source by the end of 2016.
Further down the road and not as well advanced yet, are plans to call for 3 126MW of gas-to-power bids. Request for Information will be released by the Department and based on that a gas-to-power procurement programme will be designed.
Adding all these numbers together it is clear that production from independent private sector players can come to 13 500MW in the next decade – more than all the new capacity Eskom is currently installing; or 30% of Eskom’s current capacity. This is a significant addition.
- Load-shedding is here to stay until either 3 000MW of new capacity is installed (by the second half of 2017, perhaps earlier with the help of the private sector) or the proportion of capacity shut down for maintenance is reduced to 15%.
- Eskom is adding 11 216MW to its capacity, sufficient to replace erstwhile mothballed plants and diesel generators now in use, and some to spare.
- Investment in new capacity by the private sector can come to 13 500MW or 30% of the current grid. In effect, we are seeing the part-privatisation of power generation although Eskom will remain the dominant player by far.
- The election of 2019 will be an important one and we would wager that government will go out of its way to ensure that by then power supply is no longer an issue.
JP LANDMAN Political Analyst