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S dawn A new

Following a tough (putting mildly) period, Eskom is on the road to recovery and preparing to deal with future challenges.

ince 1923, Eskom has been an integral part of South Africa. It has had recent, well documented, troubles but there is no denying certain facts: in 1994, 30 percent of all South Africans had access to electricity. That now stands at more than 70 percent; Eskom has extended electricity to millions of people. At the same time, the demand for electricity has doubled, on the back of robust economic growth. This growth all but exhausted Eskom’s surplus electricity generation capacity and things came to a head with the load shedding of 2007 and 2008. It was necessary to ensure that South Africa avoided a potential “overall nationwide blackout”. Criticism has been fierce, though. “Eskom’s guardians of strategy have failed in their responsibility to balance the competing strategies of commercialisation, electrification plus transformation with ever dwindling levels of funding,” one media commentator wrote. The main criticism seems to be that Eskom severely over invested during the Apartheid era and has struggled to cope with the demands placed on it in the new South Africa - not helped by Government attempts to commercialise the utility, ever-changing energy policy, low tariffs and the 2009 financial crisis. “2009 was one of the most difficult years in Eskom’s history,” explains Eskom spokesman and senior manager for nuclear stakeholder management Tony Stott. “The chairman of the board and the chief executive resigned; Eskom posted a loss for the year and lost consumer trust and confidence following a number of public crises - load shedding in 2008, leadership crisis and the financial crisis in 2009, to name a few.” The trouble is far from over. “We have an enormous challenge to match the demand and supply in the near future - as early as 2011 onwards,” says Stott. “We have some capacity expansion programmes, including the Medupi, Kusile and Ingula projects, and South Africa’s



ever increasing demand for electricity has necessitated the return to service of mothballed power stations, like Camden power station, amongst other things.” South Africa is taking urgent action now to ensure the security of its power supply, he says. “It is the priority. Eskom is investing heavily to build new plants to ease a strained supply. “Eskom already owns and operates various coalfired, gas-fired, hydro, and pumped storage power stations, as well as one nuclear power station Koeberg. We sell power directly to approximately 6,000 industrial, 18,000 commercial, 70,000 agricultural, and millions of residential customers.”

TIMES ARE CHANGING This is a time of change. The recently published draft Integrated Resource Plan (IRP 2010), a 20-year electricity capacity programme released in October, suggested South Africa will reduce its reliance on coal, and push for nuclear and renewable energy. “South Africa currently relies on coal for almost all of its electricity supply, but the government has proposed that coal’s contribution should drop significantly,” Stott explains. “Nuclear and renewable energy are likely to be much bigger contributors to the country’s energy supply mix.” Nuclear currently supplies 1,800 MW from Koeberg power station, Africa’s only nuclear

We have an enormous challenge to match the demand and supply in the near future




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power plant near Cape Town. According to the IRP 2010 draft, the Government forecasts six 1,600 MW nuclear plants coming on stream between 2023 and 2029. The plan estimates that some 52,248 MW would need to be built on top of South Africa’s current supply of around 40,000 MW to meet fastrising demand and avoid the repeat of the 2008 power crisis. “The IRP 2010 provides the roadmap for the construction of new power stations,” Stott says. “The nuclear option is very appealing. A couple of years ago we had made a serious attempt to complete the commercial negotiations for a second nuclear power station. Both Westinghouse and Areva did a lot of work to submit bids but unfortunately, the global, and Eskom’s, financial position required Eskom to terminate those commercial negotiations. “That started in 2006 and the energy planning at the time showed that we needed to double generating capacity in South Africa,

by 2025. We have 40,000 MW of generating capacity, but studies showed we needed 80,000 MW by 2025. We started environmental impact assessment studies and knew we needed another 40,000 MW and investigated whether half of that – 20,000 MW – could be from nuclear power. Even in those days there were concerns we were too dependent on coal. About 90 percent of all our electricity comes from coal powered power stations and climate change was a big issue, like today, as was water – South Africa is a water stressed country. There were a lot of reasons to look at nuclear; the board was trying to move away from coal. They realised they might have to build one more coal station, but had a closer eye on renewables, particularly solar – SA has a lot of sun – and also the possibility of importing more hydroelectric power from our neighbouring countries. So there was a big drive to look at a different mix of electricitysupply technologies.

“But the financial crunch came and our board correctly said hold-off until we sorted out funding. “That is being resolved through strong management and looking at the IRP2010 draft, new coal is out, while renewables, mainly wind and solar, and nuclear, are in. There is also a new focus on energy efficiency and making what we have stretch further. “These steps are significant as South Africa faces an energy shortfall.” Steps are also being taken to bring nonEskom power on to the grid. “Independent power producers (IPPs) are needed in South Africa’s energy future,” says Stott. “Government is playing a bigger role to introduce IPPs and take some of the pressure off Eskom.” There has been criticism that Eskom was trying to keep IPPs out of the market, but this, it seems, isn’t true. “Demand-side management, a power conservation programme and IPPs will


help to solve the energy problems,” adds Stott. “South Africa faces a tight electricity supply situation between 2011 and 2014 and then again from 2018 to 2024.” The state-owned power utility currently supplies some 95 percent of the South Africa’s power, but the government is keen to get private investors on board to help foot the bill for new power plants and reduce the strain on Eskom’s balance sheet. “From 2011 to 2016, to help avoid load shedding, we need more non-Eskom generation and increased energy efficiency,” says Stott.

TARIFF HIKES Following an extensive process of consultation and deliberation, the National Energy Regulator of South Africa (Nersa) approved controversial electricity price increases. There was a price increase of 24,8 percent in April, and there will be subsequent increases of 25,8 percent and 25,9 percent for 2011/12 and 2012/13 respectively. “A lot of this comes back to Eskom itself, it’s funding,” says Stott. “South Africa allowed the price of electricity to reduce – too much, as it happens. This was recognised by our regulator and they agreed that to get to a cost effective tariff the energy prices are going to have to increase dramatically. So for this current year and the next two years they have already said that the increase will be 25 percent - we had a 25 percent increase in April and then 25 next April and a third the following April. Indications are that the two years after that could also be 25 percent each year and then it will drop right down to something in single digits, maybe five or six percent, or even lower, along the lines of normal inflation. That enables Eskom to continue operations and it has also enables Eskom to maintain its credit ratings with the

financial agencies and institutions. “We are, it means, in a position to borrow money at favourable rates. Cost reflective electricity prices, as well as the renewable energy feed-in tariffs (REFIT) will also encourage the Independent Power Producers to enter the electricity-supply sector.” The IRP 2010 has set out expectations for Eskom and it also addresses the role of independent power producers, says Stott. “It is a welcome document,” he explains. “I have to add that Eskom and South Africa still have to face emission reduction targets, water shortages, massive funding requirements and many more challenges – all of this while recovering from the recession and investing in new infrastructure at a rate unprecedented in our country’s history. It is a bright future.” Construction of Koeberg began in 1976 and Unit 1 was synchronised to the grid on 4 April 1984, with Unit 2 following suit on 25 July 1985. Stott was involved in the commissioning and start up of both. He says Koeberg has a pressurised water reactor design and boasts the largest turbine generators in the Southern Hemisphere. Koeberg ranks amongst the safest of the world’s top ranking PWR’s of its vintage and is the most reliable Eskom power station. The station is also vital for grid stability in the Cape. “One of our key strategic objectives is the continuity and security of supply,” Stott concludes. “That will involve the return to service of three old power stations shut down and placed in cold reserve storage in the 1990s, consideration of the extension of the operating life of existing power stations, including Koeberg, and the construction of new power stations.” END

One of our key strategic objectives is the continuity and security of supply

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SA Mag - Issue 8 - ESKOM FEATURE

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