President Jacob Zuma on Sunday welcomed the commercialisation of Unit 6 at Eskom’s Medupi power station as a milestone that helps to relieve pressure on the power system.
This comes after 22 days without load shedding.
Commercialisation is when the unit is handed over from the project team to Eskom’s generation division for operation as part of the national grid.
Zuma said challenges in the energy sector contributed to the 1.3% contraction in the country’s GDP in the second quarter and in this regard the opening of Unit 6 is a significant achievement for the country.
He said: “We are pleased that Eskom now fully appreciates the need to move with speed to ensure that there are no further delays at Medupi.”
The unit, with a generation capacity of 794MW, is the first of six units that will have a total capacity of 4 764MW.
Eskom spokesperson Khulu Phasiwe told journalists a lot of progress has been made with Units 5, 4 and 3. Looking at the construction work, it was however clear that Unit 1 consists of little more than a frame at this stage.
Eskom technology and commercial executive Matshela Koko told journalists at a media briefing that the boiler hydro test of Unit 5 has successfully been completed, meaning that work on the inside of the boiler is largely done. “Unit 5 is mechanically complete”, he said. He said this is a major milestone that may enable the delivery of the unit earlier than the current target date for synchronisation of the first quarter of 2017.
Acting group executive for group capital Abram Masango said the last unit of Medupi should be synchronised in 2019 and commercialised in 2020.
He said most of the work on the boiler of Kusile Unit 1, the first that will be completed, is done. The boiler test was successfully completed in June and currently target date for the synchronisation of the unit is the first half of 2017.
He said construction work at Kusile should be completed in 2021 and the last unit is expected to be commercialised the following year.
Masango insisted that the current budget for Medupi of R105 billion is still appropriate, despite several delays since the amount was first announced. He said the cost is regularly reviewed and Eskom believes it is still appropriate.
Eskom told Moneyweb Medupi Unit 6 is expected to deliver 2 508GWh of electricity in the current financial year, which may generate an estimated R1.5 billion of revenue.
Taking into account that Eskom foregone electricity sales of 548GWh due to load shedding in the previous financial year, this addition to the generation fleet should benefit Eskom’s greatly from a financial point of view.
Income from Unit 6 will further partly offset the huge coal cost Eskom has incurred at Medupi.
In terms of an agreement with Exxaro, owners of the nearby Grootegeluk coal mine, Eskom had to take receipt of coal from Grootegeluk from the date agreed upon, or pay for it anyway.
In terms of an initial agreement signed in September 2008, Grootegeluk had to deliver 14.6 million tons per annum to Medupi for a period of 40 years, starting in the fourth quarter of 2011 and ramping up to full production by 2014.
These dates were adjusted in March 2010 for delivery to start in the second quarter of 2012 and full production by 2015.
Exxaro spent more than R9 billion to expand the mine to satisfy Medupi’s coal needs for a period of 40 years.
Following the further delays in the construction at Medupi, Eskom was forced to pay R6.7 billion for coal in the year ended March 30, even though the first unit to be completed, Unit 6, was only commercialised this month. This was a large contributor to the 19% increase in Eskom’s primary energy bill in 2014/15.
As a result, Eskom has huge coal stocks with 1.6 tons or 45 days’ stock on site at Medupi and a further 3.6 million tons stored elsewhere.
Eskom told Moneyweb coal for Unit 6 is being delivered according to the contract.
Unit 6 is the only unit to consume coal until the expected completion of Unit 5 in 2017.
The last unit is only expected to come online in the second half of 2019.
Eskom says it’s discussing with Exxaro “various remedies to deal with potential delays (of other units). In the meantime Eskom tries to take “as much coal as possible, to fulfill the contractual requirements.”