Speech by Minister of Public Enterprises, Lynne Brown During State Of The Nation Debate

18 February 2015

Speaker, I rise to speak to reinforce and expand upon what President Zuma said in his State of The Nation Address in relation to energy in general and the Electricity Supply Challenge specifically and to speak, generally, in favour of his address.

Let me begin from what will seem an unlikely starting point.

Recently I received an unsolicited email from Mr Cammy Fernandes, a retailer from Gordon`s Bay.

He wrote: "It is sad that we are in a predicament with regards to Eskom. It is difficult to resolve immediately, therefore, I offer an idea to reduce consumption without cost or inconvenience".

His idea is based on the soft drink and beer-drinking habits of South Africans.

He proposes that we get rid of walk-in `fridges in bottle stores, which, for those who are unfamiliar with the inside of liquor outlets, are used to store mainly beer and soft drinks. On average these are about 50 cubic metres in size and guzzle electricity.

He continued: "It hurts my heart that we have to keep walk-in coolers to keep both cold drinks and beers cold ... which are almost never consumed immediately".

If we get rid of these `fridges, he says, we could reduce load shedding.

I must tell you, Speaker, my initial reaction was to laugh. However, when I thought about it, I began to appreciate his letter for a number of reasons.

First, for the Spirit of Volunteerism: he wrote to me without thought of personal gain.
Second, the Spirit of 2010: his mind-set was about overcoming huge challenges and not about bemoaning his fate.

Third, he identified a significant part of the solution: changing our behaviour and habits in relation to the use of electricity.

He says that many South Africans expect soft drinks and beer to be chilled when they buy it, even when they are not likely to consume it soon.

His solution: change the behaviour and expectations of consumers and reduce demand for electricity.

I will return to Mr Fernandes later.

Speaker, this Government has made bold commitments to the country to reduce poverty, unemployment and inequality and so, in the face of this Challenge, the Cabinet and our top officials have worked tirelessly recently to defend the gains we have made on these fronts.

For example, in the current year alone, Eskom has added about 100,000 new households to the grid in addition to the connections effected by municipalities, with many more to come before year`s end.

The Electricity Supply Challenge we face, when reduced to its simplest formulation, is that, the Demand for electricity is higher than the available Supply sometimes on some days. As a result, Eskom reduces every consumer`s supply as equitably as possible for a part of the day through load shedding.

What we need to do to get things back to the way they were until mid-October last year is to increase Supply and reduce Demand to the point at which we always have more available electricity than the highest level of demand during any year.

I would like to look at Supply first.

The main problem is NOT that we do not have enough generating capacity. As I have said in this House before, when ALL our power stations are up and running at the same time, we have much more electricity than the very highest level of demand in any year.

To put that into numbers, we have about 15 percent more than we need now. Technically that is referred to as the `reserve margin` and, globally, 15 percent is considered to be an acceptable level.

The reason that one needs this additional generating capacity is to ensure that you have enough supply for two types of eventualities:

First, when you switch off some of the units in power plants so that you can maintain them and replace certain parts.

Second, when a component of a power plant breaks down - like when a coal silo collapsed at the Majuba Power Station.

While one can plan the maintenance work, in all utilities all over the world units in power stations break down unexpectedly for a range of reasons.

The main problem which we are experiencing in the short term is that too much of the reserve margin is being used up to make good the losses of supply resulting from breakdowns, while we still have to use part of it to take out generating units within power stations for necessary planned maintenance. 

Over the past six years, the generating fleet has been run hard to meet demand while waiting for new capacity to come online. What that means is that the scheduled preventative maintenance has been delayed.

There have been two main consequences.

First, the good part: the lights have remained on.

Second, the bad part: wear and tear on the equipment at power stations has increased to the point where we are experiencing an unacceptably high number of breakdowns.

This practice has now been stopped.

Eskom is now following its preventative maintenance schedules to the letter and to the highest standards. This means that it is taking generating units out of commission for periods of time, even if it results in load shedding. In this way, over time, all our power stations will be restored and will, once again, be reliable and predictable.

In pursuing this course, they have my full support and the support of important voices in the Business Sector.

This is the hard, short-term choice that we have had to make in order to put load shedding behind us in the medium-to-long term.

Speaker, it is imperative, now, that Government, Eskom and our Social Partners pursue all other viable means of increasing Supply.

To this end, Cabinet has established a War Room of Ministers and top officials to accelerate solutions and to keep the nation informed.

In this regard, there is some good news.

First, Eskom has carried out emergency repairs at the Majuba Power Station. Majuba is now able to provide full power at the morning and evening peaks and an average of 85 percent power during the day. Permanent repairs are under way to enable Majuba to provide full power during the day as well.

Second, a procurement process is under way to replace the boiler at Eskom`s Duvha Power Station which failed last year.

Third, Eskom is expediting its programme of building the Medupi, Kusile and Ingula power stations which are scheduled to add an additional 10,000 MW to the grid between June 2015 and May 2020. So, Speaker, I am very pleased to announce that the Medupi Unit 6 turbine commissioning has reached a critical milestone. It is running at the optimum speed of 3,000 revolutions per minute. Well done, Eskom.

Fourth, Government and Eskom are committed to working with private sector and municipal power producers to add further supply to the grid. In support of this, Government is fast-tracking regulatory processes to enable the current cogeneration contracts between Eskom and private sector power producers to be renewed. It is also acting to enable Eskom to put in place additional cogeneration contracts with municipalities which have power stations, which can augment the grid soon. This will add more than 1,000 MW from April 2015.

Fifth, the Government is currently running a process of procuring additional longer-term cogeneration from private sector Independent Power Producers. There has been a good response to the Request for Expressions of Interest, and it is envisaged that this will add 800 MW more to the grid over the next 18 months.

Sixth, the Government is expediting the process of bringing more renewable energy IPPs onto the grid through its third and fourth renewable energy procurement windows and by accelerating the completion of the construction of approved renewable energy projects. An additional 1,100 MW will be brought onto the grid from the fourth renewable energy procurement window. The Department of Energy has issued a request for proposals to IPPs for a new 2,400 MW coal-fired power station, and is in the pre-procurement stage of a process of procuring 9,600 MW of nuclear power.

Finally, the Government is also working with Eskom, Transnet and PetroSA on a number of initiatives to increase electricity supply from gas-fired power stations and from hydro-electricity. Plans are also being developed to convert Eskom`s peaking plant fuel source from diesel to gas.

All of these Supply-related initiatives should see us emerge from our current Electricity Supply Challenge over the medium term.

Speaker, let me now turn to the matter of the Demand for electricity and, in particular, to ways of reducing it.

An Expression of Interest process is underway to identify a range of Demand Management initiatives, including solar water heating and the replacement of light bulbs and geysers.

Government is also in discussion with Business and Labour regarding the feasibility of other innovative proposals for reducing Demand at peak periods, such as making changes to shift times.

And, it will be remiss of me if I do not applaud our biggest Business consumers and their workers for the magnificent way in which they have responded to Eskom`s and Government`s appeals to reduce Demand, sometimes at short notice at critical times.

Eskom and municipalities are working closely to improve the management of load shedding. This includes better isolation of critical facilities such as hospitals, better traffic management, improving communication and creating greater predictability.

However, Speaker, a significant part of the solution is in the hands of citizens who consume electricity in their homes and their businesses.

Mr Fernandes has seen that many of us use electricity wastefully and unnecessarily without really thinking about it.

His idea on its own, if implemented, is unlikely to halt the need for load shedding but, if we ALL follow Mr Fernandes`s example, collectively we will reduce demand to a level which may well reduce the need for load shedding.

Demand reduction has been one of the most effective tools employed by consumers in countries that are experiencing similar challenges.

This means that we must all consciously do all the things that we have been asked to do like:

installing energy efficient light bulbs in our offices and houses,

switching off our geysers when we go away,

turning off the lights in our offices at night,

not using air conditioners unnecessarily,

using gas rather than electricity for cooking and heating and

ensuring that street lights are off during daylight hours.

Mr Fernandes concluded his email by capturing the essence of my message. He wrote: "It is a small price to pay for everybody to benefit."

Speaker, I have focussed mainly on generation. However, I do want to turn briefly to a very worrying trend on the distribution front. As you are aware, distribution is effected through Eskom and municipalities, many of which are not paying Eskom fully or at all.

At present, the total outstanding municipal debt due to Eskom stands at about R4.75-billion. Clearly, this is unsustainable and unacceptable and must be reversed rapidly.

Several engagements have been held by Eskom and several National and Provincial Government Departments with the municipalities to deal with the issue of payment. To date, the velvet glove approach has not yielded the kind of results which we are seeking and Eskom will be exploring further measures, including disconnections, in cases in which municipalities actually have the money and are deliberately withholding it.

Speaker, Eskom is the bedrock upon which our daily lives rest and the Economy is built and, as the President has indicated, this Administration will be strengthening Eskom further through a massive equity injection from June.

International investors have responded warmly to this news. The response to Eskom`s recent international bond roadshow was overwhelmingly positive and the bond was four times oversubscribed.

In conclusion, Speaker, clearly, since I last addressed the House on the Electricity Supply Challenge, a great deal of progress has been made.

At that time, I said that there was reason to be hopeful. Two months later, with all of the initiatives which I have described having been set in motion, there is a great deal more reason to be hopeful.

Once again, allow me to appeal to all Members of the House. I appreciate fully that, by definition, the nature of SONA debates is adversarial. However, I believe that this is one issue on which we should all be pulling together in the best interest of all of those whom we represent.

I urge all citizens to follow the lead taken by Cammy Fernandes.

Thank you.

Issued by Ministry of Public Enterprises, February 18 2015

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