Politicians, when they are in power, tend to be more optimistic about future prospects than the “objective realities” realistically permit. So, when Minister Brown calls for patience until 2018 and Eskom issues its load shedding schedule projections which see February having just three working days that are not at high risk of load shedding or that Eskom itself is over-indebted and possibly insolvent, we need to understand that our electricity system is in deep crisis. On 26 January Eskom said that in addition to planned maintenance taking 3,429 MW of generating capacity out of service, unplanned outages represent another 10,515 MW. A third of Eskom’s generating capacity is now out of commission. We also need to understand that it will take billions and several years to fix what has gone wrong – whatever route is taken to do so.

The problem is that South Africans are not particularly patient and, by all accounts, social cohesion and the post-democracy reconciliation project is well off track. One can be sure that just about every hot button issue, be it racial redress/reconciliation/inequality, land reform, labour laws, investment, unemployment, BEE/transformation, economic/industrial policy and even education, will increasingly play second fiddle to the electricity crisis. Policy on just about anything will be subject to the question: will there be enough electricity at a reasonable price to implement it? Sensible debate on what to do is also unlikely. The government knew all this a long time ago, as reflected in this 2006 memo.

Already, we have seen amazingly silly statements from our president on what/who is to blame for the present predicament, despite earlier acknowledgements that the post-democratic government has been the author of the current electricity crisis, a fact confirmed by previous management of Eskom. On the other hand, often via social media, the comments sections of publications and (candlelit?) dinner parties, deeply racist prejudices will be vented, probably with a view that the electricity system ran just fine before “they” got their hands on it. It could get ugly. It will get ugly.

The first problem is that for over a generation, Eskom has provided cheap electricity in abundance. None of us have had to think too much about how it works and fits together. After a brief period of openness with us, information about our electricity system might now become harder to get.

The purpose of this series, then, is to help make the debate more “civilised” and to provide key facts because, as Thomas Jefferson once observed, “If a nation expects to be ignorant and free in a state of civilisation, it expects what never was and never will be.”

Some disclaimers first: Electricity systems are huge and can be quite complex. A proper effort would require several researchers, a significant amount of time and dedicated contributions from a wide range of disciplines at a high level, financial, technical, regulatory, economic, environmental, political and so on. This is a scratch pad effort – at best. A proper effort would also require a budget well beyond that which any local “mass media” publication could even begin contemplate. The result of it might also be hard to digest unless a serious effort was made. The “facts” set out hereunder themselves are all open source, freely available on the web, but some of them are secondary sources – there may well be better or more accurate information out there. Also, where assumptions are made, these are disclosed and you, the reader, can make different ones and maybe get a different result.

Assumptions are often needed when trying to cost the financing of a project over many years (and therefore what it needs in revenues to be sustainable). Financing any largish power plant is an immensely complex process with a mix of equity funding, debt of several types together with considerations as to depreciation, tax charges, currency movements, interest rates and future inflation expectations all throw in. Modelling these is even more so. But for the present purposes, one can take a “stab” at working things out by combining all these factors into something called the Weighted Average Cost of Capital (WACC) and ignore inflation by assuming that the WACC will always bear a fixed relationship to inflation. The facts presented here can only present a simplified picture and they, together with any commentary, might well disclose an ideological bias – but we have to start somewhere.

What follows, starting below, is a six-part series of articles on the following topics:

1. Eskom as an electricity utility
2. The nature of Eskom as a monopoly, representing, almost entirely, the South African electricity system
3. South Africa’s electricity consumption patterns
4. South Africa’s electrification programme, residential pricing, cross-subsidisation, free electricity and the position of local municipalities
5. The cost of load-shedding to our economy and how this is calculated
6. The final instalment in the series, where we learn how South Africa should approach building new capacity.

1: Everything you wanted to know about Eskom but were too afraid to ask

• Total Generating Capacity: 41,194MW
• Revenues (2014): 139.5 billion
• By revenues, Eskom would be South Africa’s fourth or fifth biggest company behind Standard Bank, Sasol, MTN and Bidvest; it would move higher up if South African revenues were the criteria
• Overview of Eskom’s generators (Eskom ‘s presentation to Parliament 29 July 2014)

Capacity of Coal-fired Power Stations

The South African Grid

• Investment required to get South African grid to Grid Code Standard: R163 billion
• Why needed: To prevent grid collapse and allow for new capacity to be added
• Whether this is being done (current): No, not immediately anyway (no budget)
• Staff Complement (2013): 46,000 – 47,000
• Average Salary per Employee: R633,000/annum.
• Average Tariff or Eskom selling Price 2013/2014: 71c/kwh
• Average cost of running the Ankerlig Open Cycle Gas Turbines: R3/kwh
• Eskom’s estimation of revenue shortfall in MYDP3 period 2013-2018: R225 billion (Eskom presentation to Parliament 29 July 2014)
• How South Africa compares with the rest of the world: Even for residential use and recent tariff increased, South Africa still has some of the cheaper electricity prices in the world. For industrial users, it is amongst the cheapest anywhere.

Discussion Points:

• Iberdrola, a Spanish utility with a capacity of 45GW, a little bigger than Eskom’s 41GW, employs 30,678 people or one employee per 1.4KW, whilst Duke Energy, the US’s largest electricity utility with 57GW of capacity, employs just 27,948 people or one employee per 2kW (Eskom: 1 employee/0.65KW using current plant availability).
• Huge size seems to dominate Eskom’s thinking: Both Medupi and Kusile, when finally completed, will rank amongst the top 10 coal fired power stations in the world.
• Further, because of its reliance on coal, Eskom places South Africa amongst the highest carbon dioxide emitters per kwh of electricity supplied to the grid.
• Huge size can be a risk. Medupi and Kusile had a build budget of R70 billion and the latest estimates are around R105 billion, but this excludes capitalised borrowing costs, which must have exploded due to the delays.
• An interest charges alone using an interest rate of 6% on R100 billion is R6 billion/annum and over four years, representing the delays so far; this adds up to R24 billion. Add that to the adjusted price tag.
• Although the increase in the price tag and the delays point to an inability and even incompetence, sharp escalations are not uncommon for projects of this size, wherever they are commissioned for a number of interesting reasons. DM

Photo: Eskom power lines are seen running in the southern suburbs of the countries biggest city, Johannesburg, South Africa, 29 January 2015. The country has been experiencing power outages as the national power supper, Eskom, struggles to supply enough power. EPA/KIM LUDBROOK