Load shedding and generation
In 2001 Eskom was named global power company of the year, an award conferred by the Financial Times which cited the state-owned company’s “technical excellence in plant production, maintenance and operation”.
Two decades later and the national power utility’s performance looks very different, 2020 being Eskom’s worst year for load shedding on record, according to a recent (March 2021) CSIR report. Our load-shedding woes have multiple causes and need to be understood.
Corruption, mismanagement and profligacy, not to mention delays, associated with these once “flagship” projects represent a very large chunk of Eskom’s debt headache. (No doubt the loss of large-scale project-management skills at Eskom, the result of government signalling that there would be no more major builds, contributed to the new-build debacle.)
Even in 2020, when demand declined under various stages of COVID lockdown, South Africa did not generate enough electricity to always meet demand. The cardinal root cause of load shedding, it is accepted, is a shortage of capacity arising from a lack of planning. In recent years Eskom has attempted to address the fact that it has insufficient capacity by creating what it calls “virtual capacity” – which really means running its power stations harder than they were designed for.
According to PwC, last year load shedding cost the country some 450 000 jobs and R75 billion in lost GDP. This year, PwC reported, a further 275 000 positions could be lost to electricity shortages – a chilling statistic exacerbated by the unprecedented rioting and looting experienced in July.
The CSIR, meanwhile, estimated that load shedding in the first six months of 2021 represented almost three-quarters of the number of hours for the whole of the previous year – the worst year on record.
In 2021 the load shedding woes South Africa has been experiencing derive from two main causes. The first is the extreme strain the ageing coal fleet is under. The second is the ongoing underperformance of new mega power stations, Medupi and Kusile.
Unbelievably, but tragically, in August 2021, just days after announcing that it had finally finished commissioning Medupi, the power station’s Unit 4 blew up. Nobody knows what the cost of fixing that explosion will be – or how long it will take. What we do know is that our already struggling system has been immediately deprived of almost 800MW of much needed capacity.
It is almost universally accepted that the government’s failure to plan for growing electricity demand (dating back at least 20 years) is in very large part to blame for load shedding. SA’s integrated resource plans (of which IRP 2019 is only the second, latest, iteration) are largely about planning, scoping and implementing measures which should have been taken many years ago. IRP 2019 might not be perfect but it does, at least, engage with the harsh realities of our electricity-supply situation and can be used to chart a way forward.
The coal fleet
Anywhere in the world, coal-fired power stations have life expectancies of only 50 years. The older they get, the more the performance of these facilities declines. Most of Eskom’s coal fleet are now middle-aged – or older.
In understanding Eskom’s coal-generation performance, the most meaningful (and accessible) performance indicator is EAF (Energy Availability Factor).
There are many things that can go wrong with a big coal-fired power station – especially when they are either new or old. In the 12 months to March 2021, Eskom’s EAF was 64.2%, continuing a steady year-on-year decline. The shortfall in EAF was explained by three phenomena which Eskom engineers monitor closely – Planned Capability Loss Factor (PCLF), Unplanned Capability Loss Factor (UCLF) and Other Capability Loss Factor (OCLF). In FY2021 PCLF – where Eskom deliberately lost generation capability to do maintenance – accounted for 12.3% of the shortfall and UCLF 20%. OCLF – mostly “acts of God” including extreme weather but also poor quality coal – represented 3.5%.
There are multiple technical, commercial and operational reasons for the alarming decline in energy availability in only a decade but this can be largely explained by the correlation between Eskom’s EAF and EUF. (EUF is another commonly used industry acronym meaning Energy Utilisation Factor which essentially shows how hard power stations are being run.) The harder Eskom revs its ageing coal-fired engines, the more they run into trouble. (Eskom suggests that from 2014, because of their age and deferred maintenance, 80% of power stations needed “major equipment replacement”.)
VGB is an independent worldwide trade association representing energy plant operators. Its statistics show that for at least two decades Eskom’s coal plants have been run at rates that are way higher than the comparable, best, worst and median quarters of VGB reporting entities in each year. (EUF only very partially reflects factors such as coal quality; it is about the wear and tear on coal plants resulting from keeping the foot on the accelerator.)
Eskom EUF in 2020/21 had a lot to do with maintenance. Given COVID-19 and the reasonable expectation that demand would decline, the power producer took the (not unreasonable) decision to ramp up planned maintenance – to 12% of capacity against 9% the previous year. (As things turned out, Eskom was caught short by the unexpectedly positive rebound in economic activity in Q3 2020.) This partially informed the high load-shedding figures for last year.
Eskom’s drive to keep doing important short- and long-term maintenance into 2021 has contributed to more load shedding but we are inclined to accept the CEO’s assurances that this intervention will begin paying dividends by September 2021. (In 2021 unexpected trips did go down.) Eskom’s EAF performance in 2021 will certainly suffer from August’s Medupi Unit 4 explosion. Encouragingly, the use of open-cycle gas turbine peak-load generation was set to decline by more than 15% in FY2021. (Prodigiously diesel-thirsty, in FY2020 OCGT generation cost Eskom eight times more per MWh than its coal fleet and 30 times the nuclear cost.)
Generation people performance
Given that the power utility is battling to keep an increasingly decrepit coal fleet up and running, the question has to be asked: how effectively is its generation workforce really working?
In 2020 a quarter of all Eskom employees worked in generation. (Only 4% were in transmission and, from a productivity perspective, there seems little reason to believe that transmission is a problem.)
Eskom has, encouragingly, acknowledged, that many key individuals in its generation division had simply not been accountable for their performance or for that of the units under their control. Some power station managers were recently relieved of their responsibilities and, in the 12 months to February 2021, six new appointments were made. The division has been extensively re-organised with a new group executive (generation) appointed in April 2021.
In the 1980s Eskom had over 65 000 employees. Since then, it has cut that by a third but it’s not enough, most observers believe. Between 2019 and 2020 total headcount reduced by just 4%. Given what it wrote in its last integrated report, it seems management is going about staff reduction by stealth.
In March 2021 government confirmed that Eskom envisaged shedding 4 000 positions while a month earlier CEO Andre de Ruyter said an appropriate headcount would be 38 000 – while some 44 000 were on the payroll.
A 2016 World Bank report drew sharp criticism from some within the utility for what the bank said about Eskom’s head count. By the World Bank’s calculations then, transmission and distribution employee numbers should have been fewer than 10 000; in 2020 they were over 22 000. Eskom insists the bank’s methodology was wrong. The World Bank has refused to recant but it will be interesting to see what its 2021 update says.
Coal quality, contracts and rain
We accept that Eskom is doing its best to come to grips with issues of poor contractual performance. Although this is a multifaceted issue and subject to many, often legal, issues, some prosecutions and clawbacks are now being implemented.
The recent travesty of wet coal is at last, it appears, being effectively addressed, despite most power stations receiving up to double their normal rainfall in January and February 2021.
In FY2021 coal-related load losses declined slightly to 0.71% OCLF (2020: 0.73%), Two power stations – Matla and Kriel – accounted for almost 90% of those losses. It is to be hoped that Eskom is taking a small number of responsible coal suppliers to task.
New-build coal-fired generation
Medupi and Kusile have been project-delivery disasters almost since inception. Cost over-runs mean that these two mega stations will end up costing three times the amounts budgeted to build and commission them. (Corruption, mismanagement and profligacy, not to mention delays associated with these once “flagship” projects represent a very large chunk of Eskom’s debt headache.
Despite their manifold failings, the new Limpopo and Mpumalanga power stations have been critical to keeping the lights on – even if not consistently. As a country we remain saddled with the exorbitant cost of Medupi and Kusile but, according to the latest Eskom board-approved targets, can look forward to them adding an extra 4 000MW by 2025. (In 2021, according to these targets, we can expect the new plants to add almost as much capacity as the risk-mitigating RMIPPPP capacity which is supposed to come on stream in 2022 and 2023.) In August Eskom announced that Medupi was – finally – completed, many years and many billions beyond schedule and over budget.
- The Koeberg nuclear power station outside Cape Town is undergoing a long-term operation (life extension) programme to achieve extension of plant life by 20 years to 2044/5. We accept that, with appropriate oversight by the national nuclear regulator, this major project is on track to be completed on time and within budget. (In FY 2021 nuclear accounted for 7% of Eskom’s total actual electricity supply.)
- (Nuclear remains very much on the new-generation agenda; in August 2021 a Nersa sub-committee issued a “concurrence” with the department’s plan to procure 2 500MW of nuclear power – more than Koeberg’s capacity. This came after the regulator began public hearings on the possibility of the country’s second nuclear plant being built at Thyspunt on the Eastern Cape coast. In July Eskom applied for a nuclear site installation licence for Thyspunt. The full Nersa board has yet to consider the nuclear option.)
Embedded/ distributed generation
In June 2021 President Cyril Ramaphosa surprised the many individuals and organisations lobbying for self-generated licensing requirements to be eased by granting them more than they had been asking for.
Historically self, or “embedded”, generation projects in excess of 1MW required Nersa licences before they could be connected to the national grid. Also, until October 2020, Energy Minister Gwede Mantashe had to approve such connections because they were deviations from the IRP.
Until the president’s unexpected but welcome announcement, Mantashe and his officials had fought to put a brake on freeing up embedded generation, the minister in March agreeing that the 1MW limit would be raised to 10MW – far short of the 50MW which industry participants, including Eskom, had proposed.
Ramaphosa’s announcement – coming in at a time of renewed load shedding, mounting Covid-19 infections and general economic gloom – was a game changer for electricity generation. And, potentially, for the economy.
In August 2021 government gazetted Schedule 2 of the Electricity Regulation Act, providing for the 100MW licence exemption. Encouragingly, the schedule provided for electricity “wheeling” and for new private generators to supply to more than one customer.
The generation shortfall to 2030
This graphic (above) illustrates how South Africa could experience a generation shortfall of as much as 14 000MW by the end of the current decade. (And worse, if demand increases as we all hope it will.)
Negative legs of this bridge, “UCLF” and “PCLF” and “Other” represent assessments of how much of the current installed capacity (of 46 000MW) have to be realistically subtracted on any given day. Take out these, plus the creaking coal power stations that have to be put out to pasture and by 2030 we will be a frightening 18 000MW shy of what Eskom was able to deliver in 2021.
The medium-term outlook to 2025
Eskom is required, in October each year, to update and publish a Medium-Term System Adequacy Outlook (MTSAO) on the “adequacy of the integrated power system (Eskom and non-Eskom generation) to meet the medium-term (five-year future) requirements of electricity consumers”.
The latest MTSAO (October 2020) suggests that by 2024 all of the units we paid so dearly for at both Medupi and Kusile will be in commercial operation (a total of 8 600MW against the 6 500MW available in 2021).
The recently awarded (March 2021) Risk Mitigation contracts will add some 1 800 MW by August 2022. On top of that, Bid Window 5 is expected to deliver the bulk of its promised 6 200MW by 2024. (Battery storage of 513 MW is projected to be available from 2023.)
But between 2021 and 2025, 3 000MW of coal-fired capacity will be lost as ageing units are decommissioned. In 2025 the country’s total generating capacity (Eskom and non-Eskom including coal, nuclear, wind, solar, diesel and pumped storage) will be little changed from what it is today (46 000 MW). From 2022 to 2025, non-Eskom generation will remain little changed, at 4 200MW.
In its October 2020 MTSAO, Eskom sketched how adequate the system would be to 2025, measuring, essentially, two key variables: demand (low or moderate) and the Energy Availability Factor (high or low). Expressed as a percentage, the Energy Availability Factor (EAF) essentially means how much of its theoretical generating capacity Eskom will be able to put onto the grid at any given time. In the MTSAO, Eskom’s analysts worked with a moderate demand projection (0.85% annual increase) and a low increase (0.06%). EAF values were either high (74%) or low (65%).
For each of the next four years (to 2025), capacity shortfalls under a moderate-demand/low-EAF scenario will be between 3 200MW and 4 000 MW, which Eskom describes as “marginal” and which can be managed by the system operator (Eskom at present).
In a medium-term nutshell, the latest MTSAO projects that we should avoid load shedding up to 2025 if demand is low and EAF high. Conversely, with moderate and even low demand plus low EAF, the system will continue to be subject to disruption (load shedding). The biggest challenge facing the generation system in meeting demand would be if the economy sustains its post-pandemic growth and registers GDP growth similar to that of a decade ago. If that translates into high electricity demand, as opposed to the “moderate” or “low” outlooks adopted by the MTSAO, we will have lots of load shedding and Eskom will again be a massive brake on business’s ability to generate wealth and create jobs.
Between 2025 and 2030 the plug will be pulled on a further 7 000MW. Bid Window 5 (as far as IRP 2019 goes) will add 6 200MW of capacity.
But the picture (hopefully) changes for the better in 2024 when Eskom expects that electricity from Bid Window 5 will start coming online.
Interestingly, in July 2021, consultants EY-Parthenon released a study which found that there were 184 privately funded projects in the pipeline which, if they all came on stream, would have the potential to generate as much as 10.3 GW. Considerably more than the short-term supply gap. Ninety-four of the projects – which the survey found were expected to be ready for construction within 24 months – were for generation (dominated by solar and wind) and the balance for transmission, distribution and storage. (These numbers will give some comfort but they come with the important caveat that it won’t be possible to connect most of this projected new electricity without a lot of investment in transmission.)
The longer-term outlook to 2030
The amounts of annual new build beyond 2025 projected by the IRP 2019 are not the bare minimum – they are much less than that.
If, by 2030, we have only 33 000MW of capacity available we will be in deep trouble. The IRP tacitly acknowledges this but its vagueness on projecting into the longer term is deliberate; technology in this sector is developing at such a pace that it simply does not make sense to prescribe too far in advance what technologies should be deployed when. Also, energy consumption patterns are undergoing similarly rapid change.
In August 2021 the Department of Public Works and Infrastructure released for comment its National Infrastructure Plan 2050. The plan is very light on any new insights into government thinking on the energy sector but it does acknowledge that “IRP 2019 will need revision and updating to adequately account for the pace of global innovation and cost reductions realised in the renewable energy sector in determining the least cost energy plan for SA”.
Ramping up our generation of renewable electricity promises to be (to say the very least) challenging and exciting. In 2020 Eskom dispatched over 200 TWh but renewables accounted for just 13TWh of that. In a decade’s worth of renewable bid windows, clean new electricity has accounted for less than 6% of the country’s requirement.
But there is potentially a silver lining to this cloud: leaving open the pressing issue of how our country will be electrified in 2030 and beyond, reflects, we believe, the amount of opportunity there is for business to help meet this need.
Even Eskom acknowledges that it does not have a good sense of how much small-scale embedded generation (SSEG) capacity is actually installed but it does predict that this will see an exponential increase in the coming four years (SSEG is also nowadays called distributed generation.)