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ENERGY EMERGENCY OP-ED

Hand-to-Mouth: South Africa’s power lifeline frays as Eskom scrambles for diesel

Hand-to-Mouth: South Africa’s power lifeline frays as Eskom scrambles for diesel
Ankerlig power station in Atlantis outside Cape Town, South Africa. EPA/NIC BOTHMA

Eskom is struggling in its efforts to obtain the diesel needed to continue running its open-cycle gas turbines which, in the face of prolonged power generation outages, is the only way the utility can stave off severe and ongoing curtailment of South Africa’s electricity supply.

In the past two years, Eskom has been forced to rely increasingly on the open-cycle gas turbines (OCGTs) — which were intended only for dire emergencies or use during peak demand periods — because of a steadily increasing number of breakdowns within its ageing coal-fired power fleet.

In the past few months, the OCGTs have become essential in the face of the loss of 4,500MW of generation capacity due to problems at Medupi and Kusile, Eskom’s two newest coal-fired power plants, and a life-extension refurbishment at Koeberg, its nuclear power station. 

Gourikwa Power Station is a 740MW oil fired power project. It is located in Western Cape, South Africa. Photo: Eskom

Eskom chief operating officer Jan Oberholzer says this combined outage equates to about five stages of load shedding. 

Kusile Units 1, 2, 3 and 5 — which account for nearly 3,000MW of the amount — will be unavailable until the end of this year, he told EE Business Intelligence. The complex life extension of Units 1 and 2 at Koeberg will only be complete by March 2024, if all goes well. Medupi Unit 4 is only scheduled for return-to-service by September 2024 following a hydrogen explosion in August 2021.

When you add this large, combined outage to the country’s existing power generation gap of 4,000 to 6,000MW declared by Eskom more than three years ago — which has still not been addressed — it is clear that South Africa is teetering on the edge of an electricity emergency.

The diesel emergency

Eskom’s management team drew the ire of government in November 2022 when it declared that the utility had run out of diesel and could not afford to buy more, having spent roughly double the R6-billion diesel budget for the financial year ending 31 March 2023.

When no further funds from Treasury materialised, Eskom chief financial officer Calib Cassim managed to scrape together R1.5-billion intended for other purposes from his budget for the remainder of the year, to immediately buy 50 million litres of diesel from PetroSA.

That provided enough diesel to keep the OCGTs running as needed through December 2022. As the fuel ran out, Cassim came up with yet another R1.5-billion from Eskom’s coffers for a further 50.4-million litres of diesel.

According to Oberholzer, this should last until the end of January 2023. “From an operational point of view, I can tell you we need diesel,” he told EE Business Intelligence. “We need at least — and this is based on certain assumptions — an additional 200 million litres of diesel to take us towards the end of March 2023. It may be less and it may be even more, it all depends on what’s going to happen in respect of unplanned breakdowns. This is the best assumption we have, based on the outlook ahead”, he said.

Cassim says that this would cost Eskom another R6-billion. When added to the eleventh hour R3-billion which he has just coughed up, and the previous diesel spend of about R12-billion, the utility’s diesel spend for the full financial year 2022/23 will amount to about R21-billion. This is much more than double that of the 2021/2022 financial year, when Eskom spent R8-billion on diesel.

It is easy to see that government is very upset by the financial and political consequences, as finance minister Enoch Godongwana declared in Davos on 16 January 2023 that, “I don’t think Eskom has a diesel problem, I think it has a management problem.”

The cost impact of load shedding

But despite the prohibitive cost of diesel, there is widespread consensus that the burden of severe load shedding on the economy is much higher.

Estimates vary widely. However, based on 11,797GWh (gigawatt hours) of unserved electricity in the 2022 calendar year calculated from load shedding data from EskomSePush, and a very low assumption of R10/kWh for unserved energy suggested by Eskom, the total cost to the economy during the year would have been R115-billion.

This very conservative estimate does not account for the longer-term impacts of lost opportunities caused by extended load shedding on business, industry, agriculture and investment generally — and the money spent by households, business and industry on backup power systems.

Taking this into account, the cost of unserved electricity is likely to be much higher. At R50/kWh or even R85/kWh (if a study by the CSIR is anything to go by), the cost to the economy in 2022 would be more like R590-billion or R1-trillion respectively.

Rising OCGT usage

The worst-case scenarios began to rear their head when Eskom was forced to implement Stage 6 load shedding on 11 January 2023 after 11 generation units unexpectedly broke down, taking the total amount of generation capacity offline to more than half of its installed capacity of about 46,000MW.

The load factor for Eskom’s OCGTs shot up to 48% at that time — meaning they were running flat out for about 12 hours of the day — and this is what enabled South Africa to avert crippling Stage 8 load shedding for the first time.

There are growing suggestions within the African National Congress that Eskom is deliberately implementing load shedding to scupper the ruling party’s chances in the 2024 national election. This is reinforced by utterances from minerals and energy minister Gwede Mantashe, who has claimed that Eskom is allowing more than 20,000MW of installed generation capacity to “stand idle”.

In reality, Eskom’s system operator implements load shedding to balance supply and demand on the grid, to avert a national blackout. The risk of this catastrophe is still seen as slim — provided that Eskom has enough diesel for the OCGTs, as well as other emergency levers at the disposal of the system operator.

Eskom’s own OCGT power plants — Ankerlig and Gourikwa — can generate up to 2,067MW of power, which mitigates two stages of load shedding. There are also two further OCGT power plants — Dedisa and Avon — owned and operated by independent power producers (IPPs), which can generate 1,005MW to avert a further one stage of load shedding. The IPP OCGTs are not part of Eskom’s diesel headache as they buy their own fuel.

A look at the load factor trend for Eskom’s OCGT usage over the past year tells the whole story. In financial year 2021/2022 it averaged 7%, and in the year to date it stands at 14%, according to Cassim. This compares with an OCGT usage load factor of just 6% factored into Eskom’s latest electricity tariff approved by Nersa for the 2023/24 financial year starting 1 April 2023.

The diesel outlook

Now, once again, Eskom is peering into an abyss. Its second batch of diesel is expected to run out at the end of January 2023, and the Eskom board is looking at ways of coming up with the cash to keep the OCGTs running until the start of the new financial year on 1 April 2023. 

“We now need to find cash somewhere, and as soon as possible. We have been given some actions that we are actively and urgently pursuing to see how we can obtain money to deal with this challenge of not being able to run the OCGTs”, Oberholzer said. 

But none of the options on the table look like quick fixes. One option would be to receive some of the arrear debt of more than R50-billion which Eskom is currently owed by municipalities. Another would be the receipt of a hefty diesel tax rebate claimed from the South African Revenue Service (SARS), which Eskom’s financials show as just over R3-billion for the year ending 31 March 2022.

In terms of an amendment to Section 75 of the Customs and Excise Act, from 3 August 2022 Eskom is allowed Fuel and Road Accident Fund levy rebates totalling R4.04/litre of diesel used for power generation. From estimates of diesel fuel burned in Eskom’s OCGTs, this R3-billion could therefore easily have risen very substantially.

However, the diesel fuel rebates anticipated by Eskom have been disputed by SARS for more than a year, and the clock is ticking. 

Oberholzer maintains that Eskom has no problems in sourcing diesel, although it is largely all imported, and South Africa has no official strategic reserves.
The country as a whole uses between 12- to 14-billion litres of diesel a year, and at a load factor of 15%, the diesel used by the OCGTs operated by both Eskom and the IPPs would amount to about 1.13-billion litres — less than 10% of the total. DM

Mariam Isa, independent journalist, and Chris Yelland, EE Business Intelligence.

© Copyright 2023 — EE Business Intelligence (Pty) Ltd. All rights reserved. This article may not be published without the written permission of EE Business Intelligence.

Gallery

Comments - Please in order to comment.

  • Johan Buys says:

    “ A look at the load factor trend for Eskom’s OCGT usage over the past year tells the whole story. In financial year 2021/2022 it averaged 7%, and in the year to date it stands at 14%”.

    That puts into very sharp focus the criminal absurdity of Mrs Mantashe’s Karpower gas ships that would require Eskom to pay availability fees of 72% on that fleet.

  • Eric Reurts says:

    Why is EKSDOM paying R29.76 per litre of diesel?
    Why are they not paying cost of product only?
    This would give somewhere like 2.5times the amount of diesel. Plus every Rand paid by EKSDOM in raxes and levies causes multiple Rands damage to the economy.
    Just charging g them cost of diesel, no levies no taxes, no middlemen would lower loadshedding by a few notches. How hard can it be

    • Trevor Pope says:

      No middlemen would cut off some of the patronage cash flows – can’t have that!

    • Mark K says:

      I was thinking similarly before I saw your comment. I googled the price of diesel and found:

      “Diesel prices: We show prices for Johannesburg from 26-Sep-2022 to 02-Jan-2023. The average value for Johannesburg during that period was 26.65 South African Rand with a minimum of 23.63 South African Rand on 02-Jan-2023 and a maximum of 27.81 South African Rand on 31-Oct-2022.”

      This is the retail price. It includes the road levies, taxes, and so on. How is it possible that these idiots are paying above retail rates when they are clearly a massive bulk consumer? They should be paying wholesale prices at most, delivery included.

  • Alley Cat says:

    Just boggles the mind. If we can see the no-brainer of providing more diesel at a lower cost than the damage to the economy, why can’t they? Or is there a hidden agenda in the Gwede crew? Me thinks there are ulterior motives. Even the ANC cannot be so stupid and useless.

  • Diane McCann says:

    The finance minister should admit that there is a municipal arrears problem which if municipalities were functioning as they should would not owe Eskom over R50 billion. This would solve the Eskom cash problem. The finger points squarely back at government.

    • Trevor Pope says:

      The central government grants to the municipalities could be paid directly to Eskom, but that would reduce cash flows and patronage opportunities.

  • Thinker and Doer says:

    The National Treasury and SARS need to urgently sort out a plan to support Eskom with diesel availability, as the cost to the economy of continuing at these levels of loadshedding is much greater than the cost of necessary diesel. The National Treasury also needs to implement mechanisms to support Eskom to recover debt owed to it, especially by defaulting municipalities, departments, and other entities, which has been a festering problem for years. The supply needs to be urgently stabilised, we can’t continue with businesses suffering and going under, jobs being lost, and the entire economy buckling because of lack of any effective action on the crisis. Then measures must be put in place to improve the efficiency and reduce the reliance on diesel.

  • Barrie Lewis says:

    Is there any reason why diesel and oil turbines cannot be repurposed to use ethanol? It would supply work for tens of thousands of people in the sugar industry. In fact generate the power at the sugar mills.

  • friendleigh2 says:

    Gwede Mantashe in typical ANC style wipes his hand of the whole mess- time for the tired old man to take a lesson from the PM of New Zealand and step down- he is as useful as t**ts on a bull.

  • Cunningham Ngcukana says:

    There is fundamentally something very seriously wrong when a coal fired entity wants or keeps the lights on by burning diesel not coal. The failure to maintain the turbines and other equipment of Eskom but instead to you have these people demanding diesel. For the country it would be better if de Ruyter and Oberholzer can immediately pack their rags and leave Eskom. Their absence of presence is not helping the country at all. Treasury is correct to refuse them the money as they need to explain how do we have 22 000 MW offline. We are told of a very convoluted planned and unplanned maintainance by people charged to run the entity. We expect them to be cancelling contracts and firing those who are sleeping on the job.
    Clowns seeking to blame Mantashe not the actual Minister Pravin Gordhan and the useless board and CEO are out of order. Everyone in Europe is back to coal and the renewable garbage is not working when the Russian is not available. It will not work here. Mantashe has to be defended as the court case will show.

  • Hermann Funk says:

    The whole ESKOM debacle is just an example of the uselessness and incompetence of the ruling party. Ministers contradicting each other, municipalities and other state institutions not paying for electricity, criminals within the highest ranks of the SAPS, etc. are confirmations of that incompetence.

  • James Francis says:

    No, no, you have it all wrong. The opposition politicians are hiding all the diesel under a tarp somewhere to make the ANC look bad. Right now, John Steenhuizen, Herman Mashaba and Julius Malema are running around in Gwede Mantashe masks, sawing through power cables.

  • Michael Clark says:

    Where is Cyril? He’s not at Davos so where is he?

  • Nicol Mentz says:

    Until the racist policy of BBBEE be revised or removed the patronage networks will remain in place. Eskom should have a license to purchase direct, but hey what can I say, the Karpower ships are waiting in the wings with massive kickbacks for the those in the supply line.

  • dvdkilshaw says:

    This is becoming ridiculous. Over the last 5 years Eskom could have built 2 1000 Mw power stations powered with natgas from Mozambique.
    Eskom is hiding something. Could it be something to do with an upcoming election?

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