How Eskom crisis is taking South African society to the brink

SOUTH African industries, businesses and households are scrambling to generate their own electricity in the face of a widening power shortfall, which is set to persist and probably worsen until the private sector can play a much bigger role in meeting the country’s energy needs. It also needs to collaborate with government on an effective strategy to address the crisis.

Eskom will not be able to fix the problems at its coal-fired plants until the power gap is closed and there is enough additional spare generation capacity to give the state-owned power utility the space to take units offline for extended periods of time.

The outlook is rapidly worsening as many of its coal-fired plants are near the end of their operational lifespan and due for retirement in 15 years.

At present Eskom can only reliably provide about 27,000MW of power to SA’s faltering economy – not much more than half of its installed generation capacity and well below peak winter demand levels of around 34,000GW. Its electricity production declined 5.3% between 2012 and 2021 due to neglect, mismanagement and corruption.

Over the same period, the energy availability factor at the utility’s coal-fired plants has fallen dramatically, hovering just below 60% this year compared with 72% in 2018 and 85% in 2010.

Eskom has been forced to implement rotating power cuts, or load-shedding, since 2008 in order to protect the national grid, and breakdowns have steadily increased due to its inability to catch up on maintenance. A skills shortage, slow procurement process, theft and sabotage have all exacerbated the challenges of fixing the power plants.

By the end of the first week of July, the intensity of load-shedding had surpassed the levels seen in 2021, which were an annual record. At that point the country had already experienced 73 days of power cuts compared with 29 in 2021, and the vulnerability of supply was highlighted after a strike by unions at the end of June forced Eskom to intensify power cuts to six hours a day.

This article first appeared in The Mining Yearbook 2022 which can be accessed free of charge here >>

Industry executives and analysts warn that, without focused solutions agreed between the private sector, Eskom and government, the shortages will persist and even worsen over the next few years, raising the risk of a national blackout.

Installing renewable energy, mainly solar photovoltaic (PV), to cover the existing 4,000-6,000MW shortfall is seen as the only way to plug the gap in the near term and they say the private sector must drive the process as it has the finances, expertise and ability to do so.

But even in a best-case scenario, load-shedding will persist for another two years. An independent study published by Meridian Economics in June warns that in the absence of urgent intervention, power cuts will increase substantially over the next few years, rising fourfold in 2024 and tenfold in 2026.

“We are desperately worried,” says Martin Preece, executive vice president of Gold Fields, which owns and operates South Africa’s biggest mine, South Deep, in Gauteng.

“From a South Deep perspective, we can navigate this but if you look at the broader context, the fabric of our society is being eroded by this crisis. People are losing jobs because of businesses going bust – there’s anger growing and my bigger concern is for the broader economy and the breakdown of social trust.

“What is clear is that if we don’t deal with this crisis, it’s going to become an emergency.”

Harmony Gold CEO Peter Steenkamp concurs: “If you look at the country, it’s very much an emergency situation we’re in at the moment. It’s something we need to fix – the sooner we get the red tape out of the way and actually start building RE [renewable energy] plants and getting more capacity on the grid the better.”

South Africa’s mining sector, which consumes about 30% of Eskom’s electricity, has been at the forefront of building new generation capacity, which will help meet its needs and take some of the pressure off the state-owned utility.

According to Roger Baxter, the CEO of the Minerals Council South Africa, miners have a pipeline of 73 new projects, which could add 5,100MW to the grid, with an investment value of R77bn. Most of them utilise solar power but also hydrogen, wind, battery storage and gas.

As things stand, the projects being built by miners on their own will generate 101MW by the end of this year, rising to 931MW by the end of 2023 and 2,294MW by the end of 2024.

This would reduce the sector’s exposure to Eskom by between 20% and 30% and go a long way towards achieving its net-zero carbon emissions target set for 2050, according to the Minerals Council head of communications, Allan Seccombe.

A building boom is taking place to install generation capacity across the private sector, with 1,300MW of solar PV already in place within the residential, commercial and manufacturing sectors, according to the South African Photovoltaic Industry Association. Industry sources have a much higher estimate of 2,000MW, and say around 70% is probably unregistered.

What has taken place is helpful but far from enough to address an energy shortage that is choking economic growth, exacerbating unemployment and stoking social unrest. Estimates vary but analysis suggests that load-shedding at the stages being implemented so far in 2022 are costing the economy between R1bn and R1.5bn a day.

PwC chief economist Lulu Kruger estimates that this year, load-shedding will slash three percentage points off growth in gross domestic product. “The bottom line is that the number is scary. This is because load-shedding is not a once-off break in the value chain, it moves from production to logistics and diverts investment as people buy inverters, generators and solar panels to address their power needs.”

The problem is that the private sector cannot address the crisis by building its own generating capacity piecemeal, particularly with regulations that slow down the process of getting approval for projects. At the time of writing this article, there was deep concern that given political constraints, President Cyril Ramaphosa would be unable to galvanise enough consensus in government to take the steps needed to kickstart a rapid rollout of renewables by the private sector.

Cut red tape, reframe IRP

Ramaphosa’s decision to force Minerals and Energy Minister Gwede Mantashe last year to raise the cap on private generation not requiring a licence to 100MW from 1MW has not proved to be the silver bullet – there is still a pipeline of approvals across different government departments which need to be obtained before the National Electricity Regulator of SA (Nersa) will register the project.

Intense lobbying by industry and business has elicited a positive response from Operation Vulindlela, a joint initiative set up by the Presidency and Treasury to speed structural reforms. This has shortened the approval process, which used to take up to two years, and Nersa said in June that since the cap was lifted, it had approved 216 registration applications.

But much more speed is needed and overlapping measures are being proposed by a number of key role players in the economy. Recommendations from the National Planning Commission (NPC), set up by government in 2010, are likely to be taken the most seriously.

This article first appeared in The Mining Yearbook 2022 which can be accessed free of charge here >>

On 6 July, it urged that an “energy emergency” had to be declared to make it possible to override some of the red tape that is hampering new generation capacity being delivered rapidly.

It was possible to bring 10,000MW of new generation capacity in the form of wind and solar power as well as 5,000MW of storage capacity on to the grid within two years if the right steps were taken, it said.

The NPC recommends that the 100MW ceiling for registering projects at Nersa be removed, as an authorisation for grid access from Eskom is all that is needed to regulate the market.

Any Nersa generation process that delayed the implementation of projects should be scrapped and replaced with an online registration procedure while environmental and water use approvals had to be streamlined, it said.

Most controversially of all, the NPC said there should be a temporary exemption from local content requirements for the construction and commissioning of new generation and storage capacity due to come online in the next 36 months.

NPC member Mark Swilling has said the consequences of a business-as-usual approach by government were “too ghastly to contemplate”.

Other measures are seen as essential by companies that are about to become big producers as well as consumers of electricity. These include a framework allowing them to easily ‘wheel’ their excess power across the grid to other customers, and feed-in tariffs to allow Eskom to buy power from existing generators.

Jevon Martin, chairperson of the Energy Intensive Users Group, says although there have been steps in the right direction, there is a “notable absence of a joint vision” for the energy supply industry. “We need to come together as different stakeholders to ask how this is going to play out, what role are we each going to play?”

Martin says although the immediate priority is simply to add capacity to the grid, there is also an urgent need to update government’s Integrated Resource Plan (IRP), which assesses the country’s future electric needs and plans to meet those needs.

“It needs to be a strictly technical and economic study without political influence – it should not be artificially constrained and manipulated,” he says. The Department of Mineral Resources and Energy has put a tentative deadline of the end of 2023 for a new IRP.

Energy analyst Chris Yelland says the IRP should be an indicative, not a prescriptive or binding plan, as it has been in the past: “The reality is that, as it stands and is being implemented, the prescriptive IRP is a massive threat to electricity customers, the economy and the country.”

The expensive local content requirements for the government’s Renewable Energy Independent Power Procurement and so-called Risk Mitigation Independent Power Producer Procurement Programme are likely to further delay those projects or even result in them being cancelled, according to Meridian Economics.

They would have brought a combined 4,435MW on to the grid, but are already running well behind schedule. “While it appears that policymakers are not aware of the impact of their actions, this problem is now directly exacerbating load-shedding, which will of course result in much greater damage to the economy than any benefit that could possibly be achieved by these uninformed policy measures,” Meridian said in its report.

Demand for power always increases in winter, and this year there have been two big additional contributors to energy shortages. An explosion in August 2021 at Medupi, one of Eskom’s two new power plants, took one of its six units, generating 720MW of power, out of action and it will not be back online until August 2024.

In addition, one of the two units at Koeberg nuclear power station, providing 920MW of power, has been taken offline for a 155-day outage to refuel and replace three steam generators that will allow the life of the plant to be extended another 20 years beyond July 2024.

People are losing jobs because of businesses going bust – there’s anger growing and my bigger concern is for the broader economy and the breakdown of social trust.

However, as the generator replacement has been postponed and the repairs are behind schedule, the unit is due to return to service only in mid-August.

The other unit must go through the same process but given the delays and problems encountered at Koeberg so far, there is a real risk that the plant, in the past one of Eskom’s most reliable power sources, will not get its licence renewed in time for the deadline.

Against this grim backdrop, Eskom CEO André de Ruyter has managed to change the mindset of the utility’s management and his allies in government, Ramaphosa and Public Enterprises Minister Pravin Gordhan.

On his watch, Eskom has launched a programme whereby companies can lease Eskom-owned land in Mpumalanga province for the development of renewable energy projects that can easily be connected to the grid – selected projects so far will provide about 2,000MW of power.

De Ruyter and his team have also come up with a plan to improve grid access in the Northern Cape, which is too saturated to take on new renewable energy projects despite the province being SA’s most resource rich.

He has said that the initial tranches of the R130bn pledged by developed countries to help SA transit from a high-carbon to a low-carbon economy will focus on transmission projects in the Northern Cape and on adding transformer capacity in Mpumalanga, where most of the new development is due to take place.

This article first appeared in The Mining Yearbook 2022 which can be accessed free of charge here >>