Ten facts about South Africa’s perennial power crisis

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 2 November 2022 14:20

South Africa's Eskom deepens power cuts on breakdown woes
A shop owner picks an item for a customer by candlelight during power outages by South African utility Eskom due to more breakdowns at its ageing coal-fired plants, in Soweto, South Africa, April 20, 2022. REUTERS/Siphiwe Sibeko

Eskom’s new board was scheduled to convene for the first time this week to dissect the utility’s strategy, chairperson Mpho Makwana told legislators in late October. South Africa is living through the worst load-shedding on record this year. We break down 10 things you should know about the current crisis.

The board has much to ponder, including the looming threat of the Johannesburg Stock Exchange (JSE) suspending the listing of Eskom’s debt securities. This is after the company failed to submit its financial statements within a seven-month window.

On Tuesday, the JSE gave Eskom until the end of November to file its financial disclosures.

Since their appointment, the non-executive directors have had some engagements to set up board committees and “familiarise themselves with the task ahead”, Makwana told parliament.

Mteto Nyati will chair the newly established business operations performance committee. “We are mindful of the need […] to ensure Eskom finds its way out of being a strain on the fiscus and on the economy. Hence, we created this committee because we believe that’s where the rubber is going to hit the road if … [Eskom’s] turnaround is to succeed,” says Makwana.

Without overstepping our role, we intend to be actively engaged in supporting the executive team in resolving the challenges that exist.

The other board committee chairs are: Bheki Ntshalintshali (social, ethics, and sustainability); Fathima Gany (audit and risk); and Tryphosa Ramano (investment and finance).

“Without overstepping our role, we intend to be actively engaged in supporting the executive team in resolving the challenges that exist,” Makwana told lawmakers.

Challenges abound for Eskom – from the worst load-shedding on record in 2022, electricity tariff determination woes with the National Energy Regulator of South Africa (NERSA), overburdened balance sheet, to criminal networks entrenched in the company.

Here are 10 facts about South Africa’s power crisis.

1. Load-shedding streak

In the first three quarters of 2022, Eskom has recorded 4,197 gigawatt hours (GWh) of scheduled power blackouts compared with 217GWh in 2018.

Since 1 January 2022, there have been 91 days of load-shedding. In 2022/23 so far, South Africans have experienced 77 days of load-shedding. “We need time to catch up on maintenance and we need money,” says Eskom CEO Andre de Ruyter.

2. (Under)performance

Until there is new generation capacity added to the grid, load-shedding will remain, De Ruyter told members of the legislature, where a high-powered Eskom delegation appeared before the standing committee on public accounts.

Eskom operates 36 power stations and has installed a capacity estimated at 40,000 megawatts (MW). The generation system is “not reliable and not predictable”, says De Ruyter.

The company has 81 units that perform to different capacities at varying times. At any point, the power utility has 25,000MW available, but on average, 5,000MW of units are at risk daily, heightening the occurrence of load-shedding.

Units are breaking down left, right, and centre. […] There are no spare generators. The generators are old, have been abused, are performing poorly…

In Eskom’s heyday, the mantra was 90% energy availability factor, 7% planned maintenance, and 3% unplanned maintenance. “Today, we are having to do far more planned maintenance in order to catch up,” De Ruyter says.

Energy analyst Chris Yelland says: “Units are breaking down left, right, and centre. There is no reserve margin. There are no spare generators. The generators are old, have been abused, are performing poorly, and haven’t been maintained.”

3. Generation capacity

Eskom says there’s a generation capacity shortfall of 4,000MW-6,000MW.

Up to 2032, South Africa needs 53,000MW, including the identified shortfall of new additional generation capacity from renewable sources, particularly wind and solar, to ensure energy security, Eskom said at its Transmission Development Plan public forum last week.

This will require R72.2bn ($3.9bn) of capital investment in nearly 3,000km of extra high-voltage lines and 60 transformers by 2027.

4. Tariff effect

De Ruyter admits the cost of electricity in South Africa is “a complex and sensitive topic”. He says: “Part of the reason Eskom’s financial woes are where they are is that for a number of years in the past, we had adverse tariff decisions.”

The effect of those tariff determinations has culminated in a revenue shortfall totalling some R380bn (around $21bn), “which coincides closely to the debt burden Eskom faces”, according to De Ruyter.

Eskom has had to borrow to fund its operating expenses, “which is not a sustainable practice”, he says. “A balance needs to be found for South Africa. That is the job of NERSA to come up with a tariff structure which enables that. We are in discussions with NERSA.”

5. Balance sheet support

The government is working on a plan to take over up to two-thirds of Eskom’s R400bn ($22bn) debt.

This is expected to give Eskom room to focus on “plant performance, capital investment, and ensure it no longer relies on government bailouts”,  the National Treasury says in its extended medium-term budget policy statement.

It will not, alone, resolve the maintenance and operational challenges in the energy sector, which will remain a drag on the South African economy

The treasury is conducting a review that will determine what form the balance sheet relief will take, the details of which will be unveiled in the February 2023 budget.

Moody’s Investors Service’s Aurélien Mali notes that although the debt transfer will support Eskom’s financial sustainability, “it will not, alone, resolve the maintenance and operational challenges in the energy sector, which will remain a drag on the South African economy”.

6. Economic risk

The National Treasury says Eskom is “the largest long-term risk to the economy, given its high debt levels and unsustainable business model”.

As of 31 March 2022, the government has had guarantee exposure of R594bn ($32.7bn), “driven by further drawdowns by Eskom, which accounts for 78% of guarantees to state-owned companies”.

S&P Global Ratings says if the government is to assume Eskom’s guaranteed debt directly, South Africa’s debt-to-GDP ratio, which currently stands at around 70%, will increase to about 75%.

7. Losses of new facilities

Eskom forecasts that completion of construction work on Kusile (Mpumalanga) and Medupi (Limpopo) will cost R14bn and R18.95bn, respectively.

The two stations were originally conceptualised to resolve South Africa’s power crunch in the mid-2000s. However, both power plants are years behind schedule, have incurred billions of rand in cost overruns, and are riddled with structural defects.

“Kusile and Medupi were supposed to bring on an extra 25% of Eskom’s capacity,” says Yelland. “[They] were intended to be finished by the end of 2015.

Eskom was mismanaged even before the state capture years

“The design issues date back more than 10 years ago. Eskom has had to fix these problems. It’s unfortunate. Eskom was mismanaged even before the state capture years.”

Eskom says it expects the first phase of work on major plant defect corrections at Medupi and Kusile to be completed in 2023. Overall work on defects at both plants is projected to be completed in 2027, depending on the company’s outage plan.

8. Presidential intervention

De Ruyter says it is going to take 12 to 18 months for the emergency interventions, announced by President Cyril Ramaphosa in July, to start bearing fruit. These include lifting caps on embedded generation.

“We are aware there are 6,000MW projects being registered with NERSA. That will play a role in abetting the risk of load-shedding going forward,” says De Ruyter. “The right moves have been made, but it takes time to implement.”

9. Sector reforms

According to the Treasury, long-term measures to address South Africa’s power crisis “include transforming the electricity market by restructuring Eskom, establishing an independent transmission company, and finalising the Electricity Regulation Amendment Bill”.

10. Rooting out the rot

De Ruyter says he welcomes increased attention on the utility from the Special Investigating Unit and the Hawks “in getting to grips with the criminal networks still operating inside Eskom, and [which] have a negative impact on our ability to operate the entity as we want”.

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