NOMPU SIZIBA: Power utility Eskom senior management gave the nation a briefing on the state of the power system today. They warned that load shedding remains a real threat as the system continues to have its vulnerabilities. Old coal-fired power plants remain a burden, while plans are in play to fix up build defects at their newest power plants – Medupi and Kusile. To find out more about the operations at the utility and other issues, I’m joined on the line by André de Ruyter, the group CEO at Eskom.
Thanks very much Mr de Ruyter, for joining us. In the last few months, even in months where there was very limited economic activity, why was it that the country was subjected to load shedding?
ANDRÉ DE RUYTER: South Africa experienced the coldest winter in 10 years, and during those cold snaps’ demand exceeded what we had anticipated, even before lockdown began. So, while overall economic activity was lower, the peaks that we experienced because of high demand due to the cold weather certainly exceeded expectations and put additional strain on our system. And that regrettably led to load shedding.
NOMPU SIZIBA: As we speak now, with the economy more or less fully operational, how reliable is the electricity-supply situation, and why are you warning us that indeed load shedding is likely to continue for some time to come?
ANDRÉ DE RUYTER: We are able to guarantee available capacity of about 28 000 megawatts, with a very high probability of being able to deliver that. Between the 28 000 megawatts and the demand peaks that we see of up to 34 000 megawatts, there is increasing risk due to the aging system that we have, first of all, which causes it to be unreliable and unpredictable, but also because we are stepping up our maintenance in order to catch up with the backlog that we have built up over the past decade. As we speak, we have 11 units out on maintenance, which is a very high number, and that of course puts additional strain on the remaining units that are in operation.
NOMPU SIZIBA: Now, in the process of keeping the lights on due to insufficient capacity, I suppose you’ve had to be running those very expensive open-cycle gas turbines?
ANDRÉ DE RUYTER: That is correct. They are very expensive to operate. They consume about 14 litres of diesel per second when they run. So you can imagine that that equates to about R3.67 per kilowatt hour, which is more than double what we charge for electricity to residential customers; that clearly is not where we want to be. But these are peak saving units. So when we have a peak and our coal-fired units are under strain, that is when we have to burn diesel.
NOMPU SIZIBA: We understand that Medupi and Kusile, which have proved to be inefficient power stations in the past, are having their deficient building designs fixed. I saw some crazy numbers around the cost of that from other media outlets, but can you tell us where in the process the fixing of the design faults is, and what the estimated cost is of fixing these at both Medupi and Kusile?
ANDRÉ DE RUYTER: We’ve got five units that are currently in commercial operation at Medupi. We started with fixing unit number three – that was a 75-day outage.
It cost about R300 million to fix that one unit alone, so you can extrapolate from that the 12 units that we’ve got are going to cost us an extraordinary amount of money, both at Medupi and at Kusile.
We are now in the process of rolling out those design modifications to the other units. So we’ve already completed three more units at Medupi and, by the end of our financial year, we will have completed all of the units at Medupi.
We can then start the process at Kusile. This is a very laborious exercise, and of course we have to schedule the outages in order not to add to the lack of capacity on the system. That is the legacy that we’ve got with those design defects, and we now have to take the pain in order to get reliable units onto the grid.
NOMPU SIZIBA: We’ve heard that Eskom has been coming down quite hard on municipalities that haven’t been paying their dues to the utility. Has there been much progress with the approaches that you’ve adopted, and what about the big transgressors, areas like Soweto? Is there any progress there?
ANDRÉ DE RUYTER: We’ve certainly seen a definite uptick in payment rates from the defaulting municipalities since we have taken some stern action in terms of attaching bank accounts, as well as other moveable assets such as vehicles. And consequently I think when the Eskom bill arrives at those municipalities, it’s now being given much more serious consideration – and that of course is exactly the effect that we want our actions to have. We have also seen a significant improvement in the payment rates in Soweto. It’s still is very low, it’s not where it should be. It’s sitting at about 24% right now, but that’s a doubling of the payment rate that we saw at the beginning of the year.
NOMPU SIZIBA: Now part of the reason Eskom has power stability issues, as you mentioned, is its old fleet of coal-fired power stations. What’s the plan with the really old ones? At what point will they be phased out? I suppose much will depend on how fast new power programmes come into play.
ANDRÉ DE RUYTER: The Integrated Resource Plan in its 2019 iteration lays out the schedule according to which these old power stations are going to be put into retirement. So, over the next decade, we are going to retire between eight and 12 000 megawatts of capacity. That is a very large number. We need to replace this capacity, and that is why we are welcoming the 11.8 gigawatts that the minister of mineral resources and energy has recently announced is going to be procured by the Eskom IPP office. We think there’s more required, but we think this is a first step, it’s an important step in the right direction. But we think that we definitely need more capacity because we anticipate that the economy will grow.
NOMPU SIZIBA: We’re in a very interesting situation. Eskom still has its bulging debt issue to deal with – close on R500 billion – and we know that discussions around this do continue. But the reality is that in the coming years Eskom may actually achieve lower revenues despite higher tariffs, as of course some households independently shift themselves off the grid. And of course, there’s the prospect now that large industrial users may be able to generate their own electricity, and we recently heard as well that municipalities in good standing can also do so. Having traditionally been a monopoly, how are you going to deal with these very real threats?
ANDRÉ DE RUYTER:
First of all, the transition from being a monopoly supplier to being a competitor is going to be a major adjustment for us there. You’re absolutely correct in that. What that means is that we have to address our costs, we actually become more efficient, and we have to be more competitive.
But what also is going to happen is that our tariff structure will have to change. We cannot act as the ultimate backup supplier of electricity, having to maintain a fleet of power stations for the event that in a particular area the sun doesn’t shine for a couple of days, and then that householder wants to tap into the Eskom grid to act as a battery. So, for that backup supply, there will have to be some capacity charge, and not only an energy charge. We are therefore going to apply to Nersa to change the composition of our tariff to enable us to still recover some of the costs of having to be that backup supplier to municipalities, to households, and also to industry.
NOMPU SIZIBA: And ultimately the debt issue. We know that conversations are being had, even above your level, at a political level. But how do you whittle down R500 billion worth of debt?
ANDRÉ DE RUYTER: That is the R500 billion question, and it’s a big one. I think there’s no silver bullet. I think it will be a combination of different issues. First of all, we need cost-reflective tariffs. Secondly, we really need and appreciate the continued equity injections from national treasury. Thirdly, we are very excited about the opportunity for accessing green financing, even as we decarbonise our generation fleet. And then fourthly, the political solution that you are talking about – the discussions taking place at Nedlac.
NOMPU SIZIBA: That was André de Ruyter, the group CEO at Eskom.