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Is there a plan?

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Is there a plan?

16th March 2018

By: Terence Creamer
Creamer Media Editor

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The change to South Africa’s electricity balance over the past few years has been well documented. Nevertheless, it is still quite remarkable. The National Energy Regulator of South Africa (Nersa) now estimates that excess capacity will be about 3 912 MW in 2018/19. In fact, in its reasons for decision (RfD) document, outlining why it limited Eskom’s tariff increase to 5.23% for 2018/19, against a request for 19.9%, it points to an even bigger possible surplus.

Quoting the Medium-Term System Adequacy Outlook (MTSAO) published by Eskom on October 30, the RfD document notes that excess capacity over the period 2018 to 2022 could be as high as 8 000 MW under a low-growth (0.4%) scenario. Even under a scenario of 2% growth, the excess capacity could average 4 000 MW over the period.

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Eskom’s application for 2018/19 is based on demand growth of 1.066% and projected peak demand of 35 677 MW. “When taking into account the projected Eskom installed capacity of 46 368 MW in the MTSAO study, excluding contracted renewable capacity contribution and a planning reserve margin of 19%, the excess capacity for 2018/19 could be conservatively estimated at about 3 912 MW,” the RfD document reads.

As a consequence, Eskom will be operating with a reserve margin bigger than 35%, which is more than double what is required. This, in turn, Nersa argues, results in Eskom’s fixed and variable costs remaining high. Therefore, the RfD directs the State-owned utility to reduce excess capacity and its reserve margin. To achieve this, Nersa has removed Eskom’s most expensive conventional power station, Arnot, with an installed capacity of 2 232 MW, from the 2018/19 production plan. This, the RfD states, results in a 1.3-billion coal-burn saving for the year, along with maintenance savings of R711-million. It also notes that, based on Eskom’s application, Hendrina is not expected to produce any electricity, as it will be placed into “cold reserve”. Hendrina is well known to the South Africa public, owing to the fact that it is the power station supplied by the Optimum mine, bought by the Gupta-family-linked Tegeta with the aid of a hastily approved Eskom prepayment of about R600-million.

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The directive, together with cuts to ‘allowed revenue’ associated with various primary-energy categories and independent power producers, resulted in the regulator cutting the utility’s allowed primary- energy revenue to R47.6-billion, against a request for R58.3-billion. This contributed to a reduction in the overall allowed revenue for the year to R190.3-billion, against an original request for R219.5-billion.

At the time of writing, Eskom had not yet indicated whether it planned to seek a review of the RfD.

Nevertheless, the production plan directive is indicative that Eskom finds itself in a distinctly different space, following years of deficit. How the new board adjusts the organisation to this new reality – as well as indications that there are definite limits to the financial relief that Eskom can expect from tariffs and shareholder support – will be more than interesting to observe.

For this reason, there will be more than the usual level of interest in Eskom’s 2018/19 corporate plan. The plan will offer South Africans a first glimpse of the new leadership’s strategy for navigating Eskom through its current predicament.

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