The state of electricity in South Africa

Part I: The problems in Eskom

 “There’s a belief out there that the electricity challenge is a result of the failure of government, of lack of leadership ... The economy of apartheid was racially skewed and structured to take care of the minority, not the majority of the country ... Apartheid forced the majority of people to live far away from economic opportunities, this exclusion must be defeated”.

- President Jacob Zuma, 2014

This brief is the first of two addressing the question of the state of electricity in South Africa. It considers the problems of electricity production and distribution currently confronting Eskom.

Black outs have become the norm, and there seems to be no certainty as to when this problem will end. Perhaps what we must contend with is the sporadic electricity supply we have and, the many candle lit dinners we have become accustomed to, even though our economy continues to lose lustre as a result of this current shortage.

How did Eskom, the once revered and efficient public parastatal, get into such dire straits as to make load-shedding part of everyday life in South Africa? Does the notion that apartheid is to blame, as purported by some, hold some water at all?

We may debate the legacy of apartheid within the social, political and economic fabric of post-apartheid South Africa; however, the evidence that Eskom’s misfortunes are due to the period prior to the advent of democracy has not surfaced yet. On the contrary, it seems that the current woes in Eskom have come at the hands of current political incumbents.

Eskom’s failing capacity

The table below depicts the amount of electricity generated by Eskom since 2007, the year which saw the national utility starting to show signs of difficulty.

Source: Stats SA, 2007, 2014

Table 2 shows an index of electricity generated from the year 2009 with the base year 2010 set at 100. Although the volume of electricity generated increased by 1.2% between 2009 and 2014, the index shows a fluctuating trend in between those years. Electricity generated peaked in 2011, showing an increase of 5.0% compared to 2009 levels. Similarly, there was a 3.8% reduction between 2011 and 2014 .

Source: Stats SA, 2015

Eskom produces 95% of South Africa’s electricity. The rest is supplied by independent power producers. Some of the electricity produced is used in power stations (7%) while some is exported to neighbouring countries (5.4%). 

Due to a reduction in electricity production, electricity imported went up markedly in 2014 by 18.6% compared with 2013. Likewise, electricity exported also went down slightly by 0.7% in 2014 compared with the previous year. 

Just as production of electricity by Eskom showed a declining trend, so did distribution. The table below shows indications of the amount of electricity distributed between 2010 and 2014 as Eskom struggled to keep up with demand.

Source: Stats SA, 2015

Table 3 shows a 3.8% reduction in the amount of electricity distributed by Eskom between 2010 and 2014. The amount of electricity distributed by Eskom did show indications of a slight improvement in 2011. 0 However, since then electricity distribution has been declining trend.

Early warnings

The weakened capacity of Eskom emerged in the late 1990s when warnings were raised about the energy utility’s inability to keep up with the nation’s energy demands.

According to the White Paper of 1998, the country was poised to run out of electricity by 2007, due to poor maintenance as well increasing energy demand. Although the report was signed off by the then Minister of Energy, Paul Maduna, however, no new investment followed. Eskom’s numerous requests to build new power stations were denied in 1998. Moreover, government served blight to Eskom’s expansion by instructing it to halt the building of new power stations as it was considering privatising the energy utility.

It wasn’t until in 2004 that government started acknowledging that electricity supply was insufficient for the growing economy, prompting the department of minerals and energy to invite proposals on how to increase production by at least 1000 Megawatts (MW) annually from the year 2007. The private sector was hesitant in responding to the request, raising, amongst other concerns, Eskom’s intention to retain at least 70% of generation and therefore dominance of the market.

Eskom’s challenges continued unabated, eventually reaching their height in 2008 when nationwide power outages were rolled out by the utility as reserves in the grid reached their lowest levels ever. This led to high profile government officials admitting tor erroneously refusing to heed the desperate pleas by Eskom. The then Minister of Public Enterprises, Alec Erwin was first to acknowledge this mistake in 2007:

“We took the decision to charge Eskom with providing 70 percent of new capacity. As I have indicated, we accept with hindsight that the decision was too late. It is the underlying reason for the conditions with which we are now faced”.

President Thabo Mbeki said in 2008:

“When Eskom said to the government: ‘we think we must invest more in terms of electricity generation’… We said not now, later. We were wrong. Eskom was right. We were wrong”.

President Mbeki’s admission of the failings of his administration are a far cry to the current trends in government in which incumbents refuse to take responsibility for not being able to deliver on infrastructure projects. However, his admission did not help remedy the situation. A barrage emerged of problems that seem intractable.

The financial status of Eskom

In addition to its poor production capacity, Eskom’s balance sheets have not been in good shape, which compounds the utility’s inability to provide the required electricity. The poor state of its finances is the reason that public utility has been downgraded to junk status by sovereign rating agencies such as Standard & Poor.

It is clear that Eskom needs to get its house in order; however, it is unlikely that its state of finances will receive a clean bill of health any time soon. Recently the National Energy Regulator of South Africa (NERSA) threw out Eskom’s application for 25% tariff hike, suggesting that the utility might need to come up with ways to generate the required financial resources in order to keep operations going. Government’s move to sell Eskom’s 13.91% stake in Vodacom is the latest in a drive to inject equity into the utility.

It is not clear how much Eskom spends and save. Currently, its books are not transparent, which NERSA has cited partly as the reason for not granting the tariff increase. However Eskom made the case for the need to recover R53bn to plug holes on its finances as a result of higher operation costs.

While Eskom recorded a profit of R7 billion in 2014, there is no disputing the fact that it is grossly inadequate to bring the utility out of the red. Its capital projects, which include the construction of new power stations, come at a hefty price. 

Conclusion

Eskom is in a dilapidated state and it has plunged South Africa deeper into an energy crisis. The energy utility has failed to keep the lights on in spite of the fact that consumption levels have been declining. There is no doubt that for things to go back to normal, Eskom will need a massive capital injection in order to breathe a new lease of life into its operations. Small wonder it has frantically been devising ways to turn its fortunes: from tariff hikes to selling of its stake in commercial enterprises, to seeking funding so that it can fast-track its infrastructural projects.

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Part II: The progress in Medupi

The first Brief set out the context of electricity in South Africa. This one elucidates on the progress that has been made into the construction of Medupi in Lephalale, which is located towards the west of the Limpopo Province.

Context

The construction of Medupi power station was first commissioned in 2007 to remedy Eskom’s electricity capacity, which had started exhibiting signs of failure to meet demand. It is the fourth dry-cooled, baseload station built in 20 years by Eskom after the Kendal, Majuba and Matimba power stations.

Eskom ranked the Waterberg Coalfields and the Lephalele area in the vicinity of the existing Matimba Power station the most favourable option for the establishment of a new coal-fired power station. These included, amongst others, land availability in close proximity to the primary coal source and, competitive coal process [1].

The project will comprise 6 coal-fired generating units and each one will generate gross nominal capacity of 800MW (megawatts) of electricity. Collectively all the six units of Medupi should be able to produce 4 800MW of power upon completion in 2019. Once completed, the power station will be the fourth largest coal plant in the southern hemisphere and it will also be the biggest dry-cooled power station in the world. In January 2015, Eskom’s then CEO, Thediso Matona, stated that to be able to supply electricity constantly, the utility must be able to generate infrastructure to add to at least 3600MW of capacity to its 42,000MW [2].

Therefore Medupi has been designed to fill a major energy hole. Upon completion it has the potential to bring big relief to industry.

What adds to the uniqueness of the Medupi project is the fact that it is being built backwards – traditionally Eskom has always started building Unit 1 and ended with Unit 6. This new approach is the result of the rock conglomeration on the southern side, which is excavated and reused as the engineering fill on the northern side.

Medupi Timeline

This section provides a timeline to milestones achieved in Medupi since the project was given the go-ahead in 2007.

- May 2007: Medupi terracing work done

- 14 August 2007: The official sod-turning ceremony is held at the construction site

- 18 July 2008: First structural concrete poured on site

- 21 November 2008: First three air-cooled condenser columns completed

- August 2009: Unit 6 boiler lift shaft completed

- 09 February 2010: First structural steel erection on Unit 6 boiler

- 12 August 2010: First chimney completed at a height of 220m

- 23 June 2010: Unit 6 generator stator in position

- 07 February 2011: Unit 6 turbine table handed over

- 08 September 2011: The 10 000 ton coal silo complete

- 21 November 2011: Auxiliary boiler complete

- 10 February 2012: Direct-current supplies energised

- 27 November 2012: The project commenced the first 24-hour performance testing to run at maximum capacity for the delivery of coal to Medupi from Grootegeluk mine

- September 2013: The Unit 4 generator motor was threaded into the stator

- September 2013: The wet run of the submerged scraper conveyer was successfully completed. This system removes the ash from the bottom of the boiler, another essential step in getting the boiler ready for first fire

- January 2014: The boiler separators which were initially installed for Unit 6 have successfully been cut out. The new replacement separators will now be installed. The purpose of the separators is to separate the steam and steam water droplets

- February 2014: Following close co-operation between Team Medupi and the contractors all boiler issues have been resolved, which allowed for the installation of the Boiler Frame for Unit 1 commence

- 10 February 2014: Back energising of Unit 6 generator and Unit Transformers via the distributed control system

- 17 October 2014: The first oil fire of Unit 6 was ignited and smoke emerged from the chimney. This marked the first step towards synchronisation. Synchronisation means the process whereby the generator in Unit is electrically connected to the national grid.

- 02 March 2015: Eskom produces first power and it is synchronised into the national grid

Snail-paced progress

 “It is the bones underneath and in the vicinity. Some of the graves were destroyed there. The belief systems of some people will tell you that this Medupi dream of yours will never happen. It will be another 10 years”. – CRL Rights Commission, 2015 [3]

The completion of Medupi is taking longer than anticipated. At the time of its commission Eskom estimated the total duration of the project to take no longer than 4 years. Over 7 years later, the project is nowhere near completion and up to so far it has only been able to complete one unit with 794MW capacity [4]. While the news of this milestone was received as a welcome relief to the current electricity crisis, it is worth noting that it only represents one sixth of the total amount of electricity that Medupi intends to generate upon completion. It represents only 1.8% of Eskom’s current capacity of 42 000MW.

The quote mirrors the frustrations around the Medupi project as it is simply refusing to come to completion. It highlights a grim possibility that the project might even take longer than Eskom’s current estimation, since it took 4 years for the first unit to be synchronised. Five more units are still under way. Eskom believes that Unit 5 will be ready for synchronisation into the national grid in the second quarter of 2016.

 Escalating costs

When the project was first given the go ahead, it was estimated by then Eskom CEO Jacob Maroga that the project would cost R69 billion. The latest estimates show that costs have risen massively to R154 billion. 

Apart from construction costs, there is also the cost of coal contracts that have already kicked in which has been increasing. Exxaro, one of the contractors in Medupi disclosed that this amounted to R1.6 billion in 2013 [5]. According to Eskom’s integrated report for the six months ending September 2014, debt securities and borrowings totalled R265 billion, up from R182.5 billion in March 2012.

Conclusions

South Africa might have to get used to power shortages until Eskom can generate enough electricity to meet demand. At the moment this shortage is hurting industry and Medupi power station was intended to turn the fortunes in Eskom. However, completion is nowhere in sight. This is despite a major milestone achieved by Medupi in March this year, which saw the synchronisation of one of its units into the national grid. Sadly the insignificant capacity produced in this one unit has not helped to alleviate the current power challenges confronting Eskom.

This is grave indeed, as Eskom’s failings have come at a very heavy cost to the economy. The situation, since it is refusing to abate, means that South Africa may have to make do with the little reserves currently available at its disposal. It would be sensible to assume that more rationing may be on the cards as a result of this situation.

The disheartening reality about the Medupi debacle is that it comes at a heavy cost to the tax payer. This is where it gets challenging too as resources intended to speed up construction have yet to yield fruit.

 Double the time of construction means double the cost of the project and more. Medupi can certainly attest to this. This means that while 2019 has been set as the revised completion date, industry might simply have to brace for the possibility of yet another disappointment.

Elias Phaahla is a researcher at the Helen Suzman Foundation.

This article first appeared as an HSF Brief.