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What is to be done?

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What is to be done?

29th March 2019

By: Terence Creamer
Creamer Media Editor

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In the short term, the only way for South Africa’s crisis-prone electricity utility to stave off rotational power cuts, or decrease the severity of the load-shedding stages it implements, is to buy enough diesel to run the hugely expensive open-cycle gas turbines far harder and for far longer than was ever intended.

Naturally, this will further worsen Eskom’s financial problems, given that the National Energy Regulator of South Africa is in no mood to allow it to claw back any diesel-related costs higher than those approved as part of its allowable revenue – even if the utility argues that such costs can be considered prudent when compared with the cost of unserved energy. The utility has already indicated that it is likely to spend about R5-billion this financial year on diesel, well above the R600-million allowed for by the regulator.

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The primary problem is not diesel, though. Instead, it’s the underperformance of Eskom’s ageing and undermaintained coal fleet and the dire performance of the Medupi and Kusile units in commercial operation. These units are not only prone to tripping, but are also delivering only 40% of their nameplate capacity.

To address the coal-fleet catastrophe, Eskom has increased its maintenance budget by some R5.5-billion from an initial level of about R20- billion. It has also approached the auditor-general and the National Treasury to seek approval for a special procurement dispensation that will allow it to accelerate the purchase of critical goods and services required to address ongoing breakdowns.

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In addition, it has moved belatedly to reinstate a contract, which lapsed 18 months ago, for the provision of preventive analysis of potential boiler-tube leaks, which have become a major problem again. It could even be argued that, while coal was the main protagonist in the return of load-shedding in late 2018, boiler-tube leaks have taken centre stage in the 2019 sequel.

The utility is also assessing prospects for the resumption of power purchases from private generators, as was the case under its previous short- and medium-term power purchase programmes. It is also seeking to reignite some of the demand-side management initiatives that were rolled out during previous load-shedding periods.

Fundamentally, though, South Africa has to simultaneously begin tackling its supply problem. To do so, the long-awaited Integrated Resource Plan has to be urgently promulgated, Ministerial determinations must follow in short order and procurement of independent power producer (IPP) projects must resume in earnest.

In parallel, the regulatory uncertainty that still surrounds the deployment of embedded generators above 1 MW should be addressed once and for all. These could offer some much-needed supply-side respite in a relatively short period. At the same time, municipalities should be freed up or assisted in migrating their revenue models from the sale of kilowatt hours to the provision of services so that the introduction of grid-feeding embedded generators does not further erode their financial viability.

These four elements – short-term power purchases from existing generators, demand-side management schemes, embedded generation and a resumption of the utility-scale IPP procurement programmes – would enable South Africa to emerge from this current crisis sooner, and more sustainably, than would be the case if we simply relied on Eskom to return its coal units to service.

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