Most Eskom ‘solutions’ have a fatal flaw

The deluge of opinions reflects a variety of corporate and political vested interests.
Image: Shutterstock

Since late last year South Africans have, once again, been subjected to power cuts by the power utility, Eskom. The need for what’s called loadshedding – planned power outages – led to the recent resignation of Eskom’s chairperson and a flurry of concern about the current and future reliability of electricity supply. It has also raised questions about the lack of progress in resolving Eskom’s financial and operational crises since Cyril Ramaphosa became the country’s president in early 2018.

Besides the importance of electricity supply for ordinary people and businesses, the deluge of opinions and proposed solutions reflects a variety of corporate and political vested interests. One grouping is pushing for the removal of public enterprises minister Pravin Gordhan. It argues that the recurrence of loadshedding demonstrates his failure to fix the power utility.

Another has blamed the country’s energy minister, Gwede Mantashe. A line of argument against him is that loadshedding would have been avoided if he’d commissioned new renewable energy projects and allowed greater decentralised electricity generation by large businesses.

These claims contain significant weaknesses. And most solutions that stem from them have a fatal flaw: they don’t address the systemic problems facing Eskom, in particular its parlous finances.

The basic objective of charting a way forward for Eskom must be to ensure a reliable and affordable supply of electricity for households and firms. That must be done in a way that does not undermine the stability of public finances. And any costs must be spread as equitably as possible across individuals and businesses, minimising negative effects on other important social and economic objectives.

Finally, decisions about energy must contribute to reducing future carbon emissions, in line with international treaties. This needs to be done because it’s essential for the planet, and because international regulation will make it increasingly expensive not to do so.

Like an unreliable car bought with debt

Ending the power cuts has to begin with understanding Eskom’s precarious financial position.

Imagine the following domestic analogy: you have bought a car with a bank loan and it starts breaking down regularly. But the dealership you bought it from has closed so it cannot be returned. You ask someone for advice and they tell you that the obvious solution is to buy a new smart car that uses less fuel and is more environmentally friendly. But you are still paying off the current car. So unless you have lots of extra money, or can borrow more from the bank, this “solution” is unhelpful.

This is where Eskom finds itself. It borrowed hundreds of billions of rand to build power stations that are turning out to be unreliable. And people who argue that the solution is simply to commission new renewable energy projects are like the person who annoyingly says “just buy a new car”. Since Eskom is almost bankrupt and government’s finances are under huge pressure, “just buying new power” is not realistic.

But it is a vicious cycle: an unreliable car can harm a person’s employment and income prospects, making it harder for them to afford repairs or an alternative. Similarly, unreliable electricity harms economic activity and therefore reduces the electricity revenue to Eskom and the tax revenue to the state.

Eskom has tried to avoid – or reduce – power cuts caused by failures of its main power plants by using expensive options like gas turbines. This is is a bit like taking a taxi when you are paying interest on a bank-financed car that you aren’t using.

What about the idea that electricity users should be allowed to generate their own power? Well, that’s a bit like saying that to reduce the impact of your car breakdowns on your employer you let them hire and pay someone else to do part of your job. That’s great for your employer but not so great for you because it cuts your income – making it harder to service the vehicle debt or pay for repairs and alternatives.

Decentralised power supply will almost certainly be part of future energy systems. But without solving the systemic issues facing Eskom it could, in the short term, contribute to the power utility’s death spiral. Encouraging electricity users to move to alternatives may take pressure off Eskom’s operations, but it will have disastrous financial implications.

Big firms can afford to do this, and independent power companies will profit, but the resultant costs will fall on everyone else because Eskom has effectively borrowed on behalf of the country.

The car analogy should make it clear that “just procuring more power” could make Eskom’s financial crisis much worse. Wind and solar power have a role but also particular limitations that are often given inadequate attention. They cannot be relied on to produce electricity whenever it is needed.

If renewable energy producers cannot guarantee supply when it is needed, then the cost of measures to compensate for that must be recognised as a cost of renewable energy.

The renewables lobby, like the nuclear and coal lobbies in the past, offers apparently easy solutions to South Africa’s crisis. But it distracts attention from these basic principles – and many key questions that remain unanswered.

Unanswered questions

South Africans need to know what maintenance is needed to get existing power stations operating reliably enough to avoid long-term loadshedding. In the short term the country’s best option may be for predictable power cuts while the maintenance backlog is addressed.

Gas turbines can help to avoid loadshedding, reducing the impact on the economy, but they aggravate Eskom’s financial problems. How can this tradeoff be optimised? Would new renewable energy really create space for the maintenance that is needed? And how are these decisions currently being made in the national interest?

Eskom has effectively borrowed on behalf of citizens, so any financial gaps will have to be plugged through electricity tariffs, higher taxes or painful cuts to public spending.

The fact that there is still lack of clarity on such fundamental issues after almost two years under a Ramaphosa presidency suggests that those appointed to advise on Eskom and turn it around have failed. That is why it is not helpful to focus on politicians.

The country is running out of time and money; it cannot afford another round of misguided advice and ineffective efforts.The Conversation

Seán Mfundza Muller is a visiting fellow at the Johannesburg Institute of Advanced Study (JIAS) at UJ and Mike Muller is a visiting adjunct professor at Wits.

This article is republished from The Conversation. Read the original article.

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Having read this article twice, I can confidently say that it says nothing new or valuable whatsoever

Regurgitation ad nausium ne !!!!

I don’t where these two are visiting Wits from (a Fellow and a Professor), but if you know South Africa, it’s people and their (often impaired) way of thinking, of arguing around and away from the real, systemic problems and how they tend to (and prefer to) take take illogical short-cut solutions, then you would know that this article will fall on death ears.

In SA, when your car breaks down – no problem if you are a comrade – you take time off to sort out this disastrous unexpected trouble, and the government will continue to pay you in full and employ a consultant at a higher rate than yours to supposedly do your job in your absence. Don’t worry comrade.

Eskom’s problems cannot be fixed without money and without time. There are several innovative solutions to all of Escom’s problems. The only two questions that need answering is 1) how the solutions will be mixed, and ii) how much it will costs. The funding requirement is going to be hefty, I guarantee. The public will have to prepared for the shock (no pun intended).

Eskom will prob combine the following: long term maintenance on selected coal power stations, get Medupi and Kusile to work, allow private generators onto the grid, subsidise solar geysers and PV installations with a cheap buyback agreement (inc for users with illegal connections), add one or two nuclear power stations to the grid. Shut off non-paying gov/provincial customers.

Whatever the plans, there is no substitute for accountable leadership and management without which we’ll blow another R500 billion.

It is actually very easy to fix. Fire all the affirmatives that’s got no clue how to do their jobs. Get all the non paying townships to settle their debt and pay like all the other law abiding citizens.

Heresy!

And when you hear about Gigupta overruling the appointment of a white and highly experienced acting CEO, you can now understand why this country, and all its SOE’s, are in trouble….

…its time to abandon the sinking ship: there is no hope for this country, until the talking stops and criminal proceedings are the order of the day, starting at the top, viz. Zuma, Gigaba, Lynn Brown, Bathabile Dlamini, etc.

You know that’s not going to happen.

hereshoping
I have told this story before but I will repeat the story again. I know the family that was employed by Eskom. The father retired many years back,he was very high up in Eskom. His daughter was manager of Hendrina as far as I remember and the son was in charge of maintinance,. He arrived in Durban harbour to collect all maintenance parts. He arrived in Durban to find empty crates. When he reported this to those in power he was given a package and asked to leave. He is now in charge of power in Ireland.

…here’s another anecdotal (true) story:

Going 25yrs back in time, a schoolmate of mine’s father was one of the senior financial managers at Eskom. (Not revealing his name, to protect him…call him “oom P”) He retired in the mid-90’s, but worked a few additional post-retirement years to ensure the “new guard” that had been handed over to, are to the same continuing standard as the “pale,old guard”.

While meeting a life-assurance client at Megawatt Park’s foyer one late afternoon, I bumped into him as he left for home, while he had a visibly disturbed expression on his face.
Asked him: “Hallo oom P…r. Wat is fout?”
Then he told me of some events of financial mismanagement taking place in his dept, opening with the words “Michael, jy sal NIE GLO wat hulle aanvang nie….” I only had time to listen for the next 2 minutes.

I’ll never forget the distraught impression on his face. The old guard were strict people. He expression revealed his sadness to see an organisation, he dedicated his working life to, going into an ominous direction.

Folks, this happened in 1997 or 1998….not yesterday, but more than 20 years ago! (Why are we not surprised of Eskom’s woes today?)

These words from a distraught “omie” never really sank in with me at the time…didn’t make much of it. Until the time arrived that Eskom experienced its first loadshedding from Jan 2008….it hit home.

As long as our socialist government is governing Eskom, the death spiral of this utility will continue by the day. There is no better solution than to start the privatization process of Eskom immediately.

“The country is running out of time and money”
Correction: This country has already run out of time and money.
Too much talk and no action par for the course I’m afraid. Will it ever change? Short answer NO.

The authors seems to have glossed over the main financial issue – the 20 000 workers that needed to be (gently) fired.

They are a huge financial burden and a major cause of the financial distress of Eskom.

That is why there is no clarity between the ANC and the Unions.

With reference to the article, nuclear really isn’t an option. Nuclear plants are notorious for cost overruns, delays in delivery, corruption and would take a decade to implement. We have massive solar energy and wind power available right now.
But what about the variable nature of renewable power? Then I suggest we take a hard look at the Hornsdale battery installation in South Australia (Google it). Provided by Tesla, it was installed over a year ago and produces 100 MW. With extremely fast response times, it secures a stable network and security of supply.
It has already saved South Australians $50 million (Aus) and they are now adding another 50 megawatts of battery capacity there.
49% of S.Australia’s power was provided by renewables in 2017 and this is expected to rise to 73% in 2021. So while we debate and mess around here in South Africa, our Southern Hemisphere neighbour is simply getting on with it. Wake up Eskom! The answer is plain: renewables and large-scale battery back-up.

You forgot some inconvenient facts. South Australia has the highest unemployment in Australia and the most expensive electricity in the world. Q: how is this saving money? A: it is not! There are times when the wind blows the power output is 1.4GW. When the wind dies they are lucky to get 50MW. The battery is simply so the grid does not fall over when they have to get buy COAL GENERATED power from neighbouring states. The battery lasts two minutes. Hardly a storage solution as you make out.

Correction, Richard. South Australia has the most expensive electricity in AUSTRALIA – not in the world. For example, ‘Compared with the Organisation for Economic Co-operation and Development (OECD), Australian prices were in the lower end of the range.’ (Source: Fact Check.) Part of this pricing is Australia’s immense distances, so has to cover the cost of poles and wiring etc. These high prices are strongly driving South Australians to more renewable power, including photovoltaics. Nobody is saying we don’t still need coal. But our reliance on it HAS to lessen – for economic as well as environmental reasons. Interestingly, I read a couple of weeks ago that South Africa’s govt has purchased battery power here – did anyone else see that article? With our massive supplies of sunshine and 3000kms of windy coastline, it’s a no-brainer that we should be using more renewable energy here. Or do you disagree?

I would rather change the analogy to a taxi driver (who has bought a bad car with debt) that has a monopoly on a route that takes people to work.
The solution is to also allow someone else to provide the same service at the best rate and reliability they can. The original taxi driver has to either go under and let the car be sold for spare parts and his creditors must try and salvage whatever they can or he decide to make a plan and fix the car and compete. Either way the commuters are not held to ransom and are free to chose the best service available to them. The natural economic forces will be at play on this route. Allowing the driver to keep on going only increases his future debt liabilities and causes damage to his customer’s ability to add value at work. The sooner Eskom faces true competition the sooner we can fix whatever debt crater is left to fill, delaying this only damages the economy and make the debt hole even larger. There is no other way, we must take our medicine and move on.

Sorry no. A typical “market saves the world” ideologist thinking here.

Privatization or competition isnt going to “solve” it.

Name it, BEE incompetence and corruption. That needs to be fixed.

Supply of capital intensive infrastructure and utilities is best and cheapest if done by governments. There is just noway around that. When you let private money in it will be more expensive. Plain maths.

Ok lets try this one as my last post wasn’t posted (i forgot to send a stamp)

Eskom has a fatal flaw because “Head Office” is a flaw

Escom’s problems can not be solved with or without money. The End……

The fatal flaw as relates to Eskom is the ANC shareholder.
Nothing more need be said.

Here is a more correct car analogy:

You overpaid for a clunker using debt because your niece got a kick-back from the salesman.

You could pay 60c per km for a smart car (buying renewable energy is vastly different from buying renewable farms) to take the kids to school while you and the wife share the clunker to work, but elect to pay Uber R3.80km for a diesel bus to school. Your niece gets commission from the bus company.

To top it all, you never take the shortest route and keep on changing where you want to go. That, and you insist that all your staff and family go on all trips.

To make sure you get to where you might go, you also ban all other road users from being on the road four hours per day.

Another point is that if large energy users build their own, they will buy less from Eskom, removing their reliable purchases and payments from the system. Eskom will be left with municipalities and Soweto as non paying users.

Or you have a few employers in your gig, but since you don’t turn up, the employer who always pays you the most and always on time has replaced you, and now you are left with a batch of unreliable employers.

If the Mike Muller (SA version of Iran’s mullahs?) is the engineer who was in DWAF etc I am mightily disappointed at his limp wristed, spineless and almost childish analysis. Maybe just pc?

“Eskom” should cease to exist. Sell the generation unit piecemeal but to different entities and “BEE” for ANC cadres. Call the unions bluff. Never happen I know.

In the short term get all the co generation already installed fired up, let the Sibanye’s do what they want. It doesn’t have to be renewables. If still short, bring in generation ships; no BEE.

Eliminate the freeloaders, municiplaities, Soweto, Zim etc.

None of this will ever happen as SA has no real tough, honest and capable leaders (except Helen Zille ha ha).

So a visiting fellow and a professor walk into Wits……. sounds like an Irish bar joke to me. Being semi-Irish I only understood the bit about not focusing on politicians – nothing else made much sense. Unfortunately we have to focus on the politicians because they are the dodge people who make the decisions which cost us billions if not trillions while all around them, the people who pay (through taxes) and vote for them are suffering.
Maybe I missed it (being semi-Irish and all) but the visiting academics made no mention of electricity theft, nor of Soweto and the other municipalities, other debtors and non-payers, with outstanding debts to Eskom, nor any mention about not following up on such debt. Eskom should lodge civil claims against all the officials in all debtor municipalities for non-compliance with the municipal finance management legislation and attach their property. The recovered amounts will never match the losses but will hopefully reduce the problem.

While the Cancer troop is in control,there cannot be a solution

The answer to the problem lies in allowing private renewable generation to be worth the investment ASAP. This can be done with feed in contracts at a rate which allows reasonable ROI
Not only will the results be aligned with future emission targets but it will create jobs, de-risk dependence on a failing grid, allow repair and restructuring.
Easier said than done with limited budget but if achieved through some clever number crunching it would alleviate the deficit in generation and shift the paradigm to what needs to be much less greener future. Fix Medupi and Kusile so they run at 100% phase. With renewables at scale phase out all other coal plants within 15 years and add in 3000 MW in nuclear base load.

End of comments.

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