The energy situation in South Africa feels like a crisis, with about R200-billion lost this year alone from unserved energy, but the future is not all bleak.
Chris Yelland, founder and MD of EE Publishers, points out that South Africa’s current social and economic landscape is quite discouraging, though. “GDP has been downgraded to 1,5% and next year it’s just 1,3%,” says Yelland. “We have a weakening currency – dramatically weakening. You would think that would help competitiveness, but we are not seeing it to date. It’s just making imports more expensive.
“There are high levels of poverty, labour unrest, a rise in population that offsets the growth in GDP, an increase in urbanisation, poor education, a skills deficit, high unemployment and poor service delivery.”
The industrial landscape is no more positive. “There is weak economic growth. Deep level mining is coming to an end coupled with weakened Chinese growth driving a weakening demand for commodities and prices.”
He points to crises in the steel, coal and platinum sector all as a result of weakening commodity prices. “There’s nothing we can do about it, but it’s a reality,” Yelland says.
“These things are coming together to change the structure of the economy, which was driven by cheap, abundant electricity. The electricity intensity of South Africa is changing – the amount of energy we use to produce a rand of GDP is coming down.”
Poor competitiveness and productivity coupled with manufacturing weakness also adds up to a negative picture in South Africa.
The power generation landscape mirrors the overall economy, Yelland says.
“We have a heavy over-dependence on coal – 85% of electricity is generated from coal. You’d think with a low international coal price, this would help the situation. But the primary energy cost is going up at 15% to 20% per annum. Of course they are using a lot of imported diesel as well, which is pushing up the costs, but the coal bill is also going up.
“It gets to the problems that Eskom is locked into longer term cost-plus contracts.”
This over-dependence on coal adds risk to energy production – and Yelland believes we also have an over-dependence on Eskom.
“We are seeing a move away from the Eskom dominance.”
The ageing fleet of power stations is also a worry. Many of them don’t comply with environmental laws and are operating on temporary licence.
“Do we retrofit environmental controls at enormous cost?” Yelland asks. “Or do we retire them early and build new power stations? And what should we build?”
In the face of this, there is a rapidly rising electricity price even while electricity usage is going down. “When the price keeps going up, it’s not surprising companies are using alternative sources of power.”
This is all coming together, and what is really driving the crisis is the time and cost overruns on the mega-projects, the Medupi and Kusile power stations and Ngula pumped water scheme.
The two power stations should have been producing power by now, delivering about 25% of the current generation capacity. “The reality is that we have one unit out of 12 delivering commercial power right now – and that unit is currently off.”
Meanwhile the country is paying back enormous loans without getting the revenue from the power stations, while we are running expensive diesel turbines as well.
“So there are problems with financial sustainability, problems with environmental sustainability; and problems with operational sustainability simply because Medupi and Kusile are not running as they should. This results in maintenance backlogs and unplanned backlogs.
“The performance of the existing power stations has declined considerably because of random breakdowns caused by maintenance backlogs.”
An era of high uncertainty is being driven by a volatile exchange rate, interest rate and oil prices. In fact, the adoption of environmental energy sources can be dramatically changed depending on the oil and gas prices, exchange rates and interest rates, Yelland points out. “Unfortunately it is all about the money.”
We don’t know how quickly things are going to change, but any change shifts the landscape in terms of supply and demand. “Which is why supply and demand forecasts are very difficult indeed – and we are seeing this in South Africa.”
The picture of energy demand in South Africa shows that both demand and power supplied is steadily declining every year. “This is a troubling picture because economic growth goes hand in hand with energy demand,” Yelland says. “Demand for electricity is currently at an all-time low.
“But costs are going up all the time. Which means the price goes up. Because the regulator is obliged to grant increases to cover costs. But when the price goes up, demand goes down even more. It’s not a pretty picture – and people start switching to other energy sources.”
Another alarming trend shows that the availability of Eskom plant has also declined steadily over the years, hitting lows of 65% in 2015 – and even dropping to about 70% in peak-demand periods. “The availability of plant is declining alarmingly,” Yelland says. “Taking 20% of generating capacity off the grid is alarming.” On average, 2015 saw energy unavailability of 29,21% of total capacity, compared to 21,39% in 2013.
The distribution landscape continuous the bad news. An aging infrastructure, maintenance backlog, poor maintenance and asset register combine with electricity theft and non-payment to add to the problems of municipalities and Eskom itself. Add cable theft to the picture and there are regular outages with long lead times for fix faults.
Meanwhile, the cost of load shedding and other unplanned outages continues to mount. Yelland explains that the cost of unserved energy (CoUE) is the rand cost per kilowatt hour of non-delivery that kilowatt hour when it’s needed.
The CoUE used by Eskom planners in 2008 was R75.00 – the same cost used by NERSA in 2008, and planning documents. This would make the CoUE in 2015 about R100.00, Yelland estimates.
This would make the approximate total cost of load shedding in 2015 about R100-billion to date. Even more alarmingly, distribution losses could double that figure.
“For R200-billion you could build another Medupi,” Yelland says.
So do we have an energy crisis in South Africa? Yelland points out that the country is rich in natural energy and in human energy; we have a youthful population with lots of unfulfilled potential.
“We do not have an energy crisis – we have a management crisis. We have a problem in harnessing these resource effectively.
“There are so many things we could be doing that we are not doing yet, so I don’t think there is any need to be despondent.”
Going forward, Yelland believes that Eskom should concentrate on finishing Medupi and Kusile while working on financial, operational end environmental sustainability. Some of the options for future energy production include nuclear power, solar energy and biomass energy.
Meanwhile, businesses are looking to using waste heat, gas and biomass for industrial cogeneration. Companies are also managing their energy much more efficiently, and supplementing their energy needs with solar installations.