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Huge risk, no urgency

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Huge risk, no urgency

6th December 2019

By: Terence Creamer
Creamer Media Editor

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The risk posed by Eskom to the fiscus is surpassed only by the risk posed by ongoing electricity shortages to the economy and South Africa’s growth prospects.

The South African Reserve Bank has already downgraded the country’s growth potential to a miserable 1% – a rate wholly insufficient to make any inroads into the social scourges of unemployment, poverty and inequality – partly because of the constraint to growth being imposed by energy shortages.

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In its statement following its November 6 to 21 Article IV Mission to South Africa, the International Monetary Fund reiterated that persistently weak growth was being exacerbated by “unreliable electricity supply” and that turning around the energy sector would have to include an acceleration of the licensing of new private power plants and expediting the bids for independent power producers (IPPs).

The Cabinet-approved Integrated Resource Plan 2019 (IRP 2019), meanwhile, outlines a need to inject between 2 000 MW and 3 000 MW of new capacity immediately. Such capacity is required to close a supply gap that has arisen as a result of the poor performance of Eskom’s coal fleet as measured by the energy availability factor (EAF), which has slumped to well below 70%, and a derating in the assumed output of the Medupi and Kusile units, which are struggling to ramp up to their 800 MW nameplates.

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The Medium-Term System Adequacy Outlook 2019 indicates that the system is adequate at an EAF above 72% (which is not being achieved), but that any “excessive unplanned plant failures and/or an increase in electricity growth would affect the adequacy outlook of the system between 2019 and 2024”.

Eskom’s own assessment of the impact of the IRP 2019 on its transmission plans, moreover, indicates that 4 118 MW of new capacity has been included in the ten-year window period covered by its grid plan – capacity that was not included in the draft IRP 2018. In addition, the gazetted plan includes a rephasing of capacity into the period 2022 to 2025, during which 9 793 MW of mostly solar and wind capacity would need to be introduced.

All these reports point to the need for urgent procurement of new capacity.

Given the dire state of Eskom’s finances, the State-owned utility is simply not in a position to add such capacity and is also unlikely to have sufficient resources to turn the tide on the coal fleet’s falling EAF – the figure may recover, but only because the measurement will be done against a shrinking base as units are decommissioned.

For this reason, the supply-demand imbalance can only be remedied through utility-scale IPPs, small-scale embedded generation and demand response. Yet, despite an initial indication that an emergency procurement programme would be initiated immediately and new utility-scale bidding rounds would resume after a five-year stall, neither have materialised since the IRP 2019 was gazetted.

Even more infuriating is the fact that, while the IRP 2019 has at last catered for embedded generators through an open-ended allocation between now and 2022, tapering to a yearly allocation of 500 MW from 2023, the early indications are that the country’s regulations continue to stand in the way of any movement.

There is simply no excuse anymore for the delays, which are reckless in the extreme.

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