South Africa’s slow decisions on customs duties are hurting the economy, with the unclear role of finance and trade ministers causing most ... of the damage, XA Global Trade Advisors CEO Donald MacKay told an online briefing.
Installed capacity in South Africa is above maximum demand, but the loss of just a few plants can lead to load-shedding. The country has an installed capacity of 54,000 MW and winter peak demand can be 30,000 MW or more. Unplanned breakdowns of up to 16,000 MW mean there is little margin of error when combined with scheduled maintenance.
“Eskom’s challenges are immense as they try to manage planned maintenance of at-risk generation units, which removes capacity from the grid,” says Mohamed Ismail, head of fixed Income at Mergence Investment Managers in Johannesburg. The aged power system will prove to be “unreliable and unpredictable,” and load shedding so far in 2022 is much higher than in the same period in 2021, he says.
The company’s energy availability factor has dropped every year over the last decade from around 80% to a current level of about 55%. It needs to be 80% or preferably more, says energy consultant Mike Rossouw in Johannesburg. Usually, the ratio starts off in January at a low level due to scheduled maintenance during the summer and then increases as the weather gets colder, Rossouw says.
- This year is the first year Rossouw has seen where the factor is going down rather than up as winter approaches. “We are heading for serious interruptions.”
Vandalism and Management
The company said on May 11 that the power outlook remains highly uncertain. Part of the problem arises from vandalism of transmission and distribution infrastructure, Sidwell Mtetwa, a transformer specialist at Eskom, told an online briefing in April. Vandalism is usually due to theft, with metals being stripped from pylons which in the end collapse, Mtetwa said.
Eskom has said that remote sites are often vandalised by armed gangs. The company estimates that cable theft costs it about 2b rand ($125m ) a year, and has called for a ban on the export of scrap metal from South Africa. The power supply itself is also stolen via illegal connections in townships. Such connections are not carried out professionally and can be dangerous. The financial cost of repairing them means that network improvement projects have to be delayed, Mtetwa said. “Communities are their own enemies. They cast a blind eye when these connections happen.”
Rossouw is sceptical that vandalism is a major part of the problem and points to “poor management” as the core problem. Breakdown levels of 15,000 MW are five times more than planned maintenance, a ratio which should be the other way around, he says. “Their strategy to maintain the fleet is dead wrong” and money and manpower for maintenance are lacking.
There is a high turnover of line managers, which Rossouw links to what he says is a failure to tackle maintenance at larger generation plants while concentrating too many resources on the smaller ones. “They are continuously depleting resources,” Rossouw says. “The blind are leading the blind.”
Maintenance focuses on isolating units within power stations, as each power station needs to keep running, says Professor Sampson Mamphweli of Stellenbosch University. Though Eskom is profitable at the operating level, its heavy debt-service burden eats away available funds, he says.
- Eskom’s main problem, he argues, is a historic lack of maintenance from 2010 to 2016, a period in which parts were sometimes bought but never made it to the power stations because they were sold elsewhere.
- Though maintenance performance is now much better, the company is struggling to deal with the backlog of problems which got worse because they were neglected, he says.
- Vandalism is “a very big part of the problem” and Eskom’s 30,000 kilometres of transmission lines are very hard to police, Mamphweli says.
- It’s not easy at all to distinguish legitimate from stolen scrap metal. Even the police are sometimes involved in the illicit trade, he adds.
Vandalism is a real problem in some areas and the light penalties which are imposed are akin to those for shoplifting, says Hartmut Winkler University of Johannesburg professor. It is also “a bit too easy to trade in scrap metal” and there is a lack of checks to stop scrap from being exported. Given the difficulty of distinguishing between legitimate and stolen scrap metal, the onus should be put on metal traders to show where they got it, he says.
Many of the municipalities which buy power from Eskom are effectively bankrupt. Many of them treat their bills from Eskom as the last ones to be paid, Winkler says. A core problem dates back to apartheid when non-payment was seen as a legitimate form of protest, and many municipalities still find it hard to collect bills from residents. This has been compounded by “injudicious spending” by municipalities, Winkler says. “It would make a real difference if municipalities paid on time.”
Some broken-down power stations are so old that it may never be economically viable to fix them, Winkler says. He expects that the winter will look much the same as the early part of May in outage terms. “This winter will be worse than last year.”
- The building of new coal-fired plants at Medupi and Kusile now looks like an expensive mistake, Winkler says. They took too long, cost too much and were not built properly. “It would make quite a difference if they were fully running.”
- Ismail at Mergence argues that South Africa will have to keep using coal from the plants for some time. Multi-billion rand investments have been made at Medupi and Kusile, so “any plans to retire capacity will have to counterbalance unemployment and economic fallout.”
Communications at Eskom have improved and the company now at least says which power stations are having problems, Winkler says. Education on energy saving has its part to play. In Johannesburg, it is still common to see office blocks where the lights are left on all night, he adds.
Hope for the future comes in the unbundling of Eskom into three units, generation, transmission and distribution, scheduled to be completed in December. CEO André de Ruyte said in May that the process is on track. The proposed split will bring the system in South Africa more into line with that in other countries and may allow the transmission business to attract more investment, Winkler says.
The split can help to resolve the problem by introducing competition from independent power producers, with which the transmission unit will negotiate, Mamphweli says. “That will bring the cost of electricity down.”
In the short term, renewable energy is the best way forward as other solutions like nuclear or new oil finds will take maybe a decade to become available, Winkler says. Renewables still account for less than 10% of South Africa’s energy mix, and Winkler says this should be about 50% given the country’s resources for renewable power.
The paradox of renewable energy in South Africa is that it may further undermine the finances of both Eskom and the municipalities. The best-paying customers, miners and affluent consumers, will be able to make their own renewable energy arrangements, leaving Eskom with those who find it hard to pay.
- Ismail argues that any prospect of a transition to renewables means that Eskom would have to solve the demand problem, and “confidently retire and replace capacity. In the near term, the reality is that nearly 80% of our energy generation is dependent on coal. South Africa simply can’t afford to do so.”
The Bottom Line
Load shedding in South Africa is likely to get worse before it gets better.
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