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Review of South Africa’s electricity fall from prominence to the current 2015 shortage of power

Interesting history from African investigative reporters

Transnet Rail depends upon a lot of electricity to power its South African trains. Maybe a good tactic in the old days. But faced with massive power shortages, maybe not a good Plan A anymore.  Plan B would use more diesel-electric high efficiency low pollution locomotives.  Will it come to that?

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Founded in 1923, the South African monopoly utility was known as the Electricity Supply Commission before changing its name to Eskom in 1987. It built its first hydropower station in 1925 and commissioned its first two coal-fired plants two years later.

Dozens more facilities followed over the next six decades, turning Eskom into the world’s fourth-largest power utility.

Expansion peaked in the 1970s and early 1980s when about 20,000 megawatts of power, or almost half of Eskom’s current 2015 capacity, was installed.

Here is a summary of the history of its rise and then fall found in:

http://www.biznews.com/undictated/2015/06/08/eskom-how-it-turned-from-worlds-best-to-basket-case-in-15-years/      Primary writer is

Eskom’s expansion was curtailed in 1985, as sanctions were instituted against the apartheid regime, foreign loans dried up and the economy stagnated, along with electricity demand.

By the time the new National Congress took the government reigns in 1994, the utility’s reserve margin, or the amount by which generating capacity exceeds peak demand, was more than double the international norm of 15 percent. That looked good. Very good.

MAYBE WORLD CLASS back then

The emerging politics of state energy focused then on connecting the more than 40 percent of households and tens of thousands of schools and clinics in black areas to the electricity grid. The broadening of access to power coupled with resurgent growth as the economy opened up and began to consume Eskom’s excess capacity.

Alarm Bells Ignored?

“In the 1980s and early 1990s, Eskom had a huge degree of autonomy,” says Anton Eberhard, a professor at the University of Cape Town’s Graduate School of Business,. “That gradually got eroded. There was a time when the government stopped Eskom from building new power stations.”

The first alarm bells were sounded publicly in 1998, when the Department of Minerals and Energy released a policy paper warning that the country could run short of energy by 2007 and a decision on expansion would be needed by the end of t1999.. It advocated allowing private investment in the industry.

“With no imminent crisis in sight, the government took no immediate action” writes the BizNews author..

In 2001, the utility was named company of the year at the Financial Times Global Energy Awards in New York. All of its 78 production units were considered to be in good working condition.

Low Prices – low investment and maintenance

Potential investors in the power industry were deterred by some of the world’s lowest electricity prices and the bankruptcy of Enron Corp. in the U.S. In 2003 South Africa placed its privatization plans on hold.

“Eskom looked like a stable company” providing cheap electricity as the timeline headed towards 2004.

In late 2004, the government awakened to the looming energy crunch as economic growth and power demand surged, and Eskom announced it would spend 50 billion rand ($4.1 billion) on expansion over five years. In 2005, the five-year investment budget was more than doubled to 102.8 billion rand.

Nationwide Blackouts

The first power cuts struck the Western Cape province in late 2005, when a generator at the nation’s sole nuclear plant near Cape Town was damaged by a loose bolt. The coastal city and Johannesburg experienced further blackouts in 2006.

In May 2007, Eskom approved its biggest five-year investment program yet — the construction of the Medupi and Kusile coal-fired plants and 11 other generation projects, worth 203.6 billion rand. The targeted completion date was December 2015. S

South Africa’s then president apologized to the nation for poor planning say news reports. And by October 2007, countrywide rolling blackouts began.

The crisis intensified and a national electricity emergency was declared in January 2008 as the grid neared collapse, shutting most mines and factories for five days.

“We underestimated the scale of demand,” Alec Erwin, who served as South Africa’s public enterprises minister from 2004 to 2008, said in a May 22 interview at his Cape Town home. “Our planning was two or three years behind.”

Maintenance Deficit as the government prepared for the 2010 soccer World Cup

Blackouts were suspended in February 2008 as Eskom brought more of its idled plants’ units back into service and delayed maintenance to comply with a government instruction to ensure power supply wasn’t disrupted in the run-up to the staging of the 2010 soccer World Cup.

Eskom’s CEO resigned in 2009.

2014 and the OUTAGE RETURNS

The outage reprieve lasted until last year, when a lack of upkeep took its toll on Eskom’s plants.

In 2015, just 49 of its 121 generating units were in good working order, 32 were in poor condition and the balance were somewhere in between. Kendal, Eskom’s biggest facility at 4,166 megawatts, has six units.

Regular breakdowns ensued. Load-shedding, as scheduled blackouts are known in South Africa, has taken place on average every third day this year.

Rating Cuts

Moody’s Investors Service cut its rating for Eskom to non- investment grade, or junk, on Nov. 7 last year.

Standard & Poor’s followed suit in March 2015.

With the Medupi and Kusile plants running four years behind schedule, Eskom has limited scope to boost output and the new CEO Molefe is focusing on optimizing output from existing plants.

The government, admits that it expects power shortages to persist for two to three years.

The state monopoly currently supplies about 95 percent of South Africa’s power.

On a few days this fall, power available for its customers was well below the 60% market demand.  Industries that depend upon power to employ workers and generate GDP growth are suffering.  Once a leading BRIC high GDP annual growth nation, South Africa’s GDP this year may grow by less than a 2% to 2.5% range according to some sources.

Will the trains still receive power on a priority basis as a fellow state monopoly?  Should they?

Many leading private business companies have already turned to independent power sources because their business can no longer depend on the Eskom network. How will Transnet rail respond to the national energy crisis?