In April 2009, Eskom CEO Jacob Maroga indicated that he did not foresee blackouts for the next 24 months. However, a day later, an incident at the utility’s Koeberg nuclear power station saw Unit 2 trip at a time when Unit 1 was already shut for refuelling and maintenance, once again raising the spectre of power disruptions in the Western Cape.
While the problem with Unit 2 has been resolved, the incident highlighted South Africa’s ongoing vulnerability with regard to power supply.
Further, the country’s Department of Minerals and Energy Minister, Buyelwa Sonjica, has warned that the country continues to suffer from a perilously low electricity reserve margin.
For years, South Africa’s electricity production capacity was in excess of the country’s requirements, owing to a period of over- investment by electricity utility Eskom, which eliminated the need to build new power plants, and also saw Eskom achieving the position of being the world’s lowest cost electricity producer.
However, the situation of excess generating capacity has now ended, and South Africa is in need of additional power generating capacity. In early 2006, it became evident that Eskom was experiencing increasing diffi- culty in meeting customer demand, and the situation deteriorated significantly in late 2007 and early 2008, to the point of supply disruptions that were so severe that Cabinet deemed the situation an “electricity supply emergency”.
The immediate cause of the emergency was that a large percentage of Eskom’s exist- ing capacity was unavailable for supply, owing to planned maintenance, unforeseen breakdowns and reduced output linked to coal-supply problems. Together, these factors contributed to a situation in which some 20% of the country’s generation capacity was out of service at one time.
As South Africa’s surplus electricity capacity had been depleted, and Eskom’s reserve margin – the spare power plant available when the highest demand of the year is recorded – had fallen to between 5% and 10%, the elec- tricity utility was unable to meet demand.
Since supply-side interventions have long lead times, government and Eskom primarily sought to bring the crisis under control through demand-side measures, including power rationing. This, unfortunately, had serious implications for the economy. Efforts were also made to resolve the coal-supply problems.
While demand-side management (DSM) efforts will continue into the future, and Eskom has resolved the coal-supply situation, in the longer term, a range of supply-side projects are seeking to restore South Africa to a situation of electricity supply security.
Additional capacity is set to come on stream from Eskom, which is pursuing a R385-billion capital expenditure programme over a period of five years, with the bulk of the expenditure to be directed at generation-related projects. The company’s project pipeline includes new coal-fired baseload facilities, gas-fired and pumped-storage peaking facilities, and renewable facilities, as well as projects to refurbish existing plants.
Further, additional generation capacity is set to come on stream from the private sector, with the role of independent power producers (IPPs) in South Africa’s electricity generation environ- ment to be significantly increased. IPPs are intended to generate 30% of the additional power capacity required by the country going forward.
While the power outages that disrupted the South African economy so severely in early 2008 have subsided and, for the moment, electricity supply is stable, the ultimate cause of the emergency – policy uncertainty and planning confusion, which delayed investment in new generating plants, and regulatory impediments to attracting private investment – continues to mean that significant new generating capacity remains years from being commissioned.
The question, then, is whether South Africa will face further electricity supply disruptions in the coming years.
Prior to the financial crisis, which has since morphed into a global economic slowdown that has led to recession in key markets and is affecting the South African economy, Eskom based its supply and demand projections on robust power-demand growth of 4% a year, and on economic growth of 6%. This would have required Eskom to double the size of its generation system to nearly 80 000 MW by 2025 in order to keep pace with demand, while building an acceptable reserve margin of at least 15%.
However, given the drastically altered economic situation, which has seen a number of Eskom’s key industrial customers in South Africa adjusting their outputs, the utility is reassessing demand scenarios, and attempting to determine what the build response should be. Changes in the demand scenario include that a number of energy-intensive smelters and furnaces, particularly in the ferrochrome industry, have scaled back on production or shut down, owing to lower global demand for their product.
Eskom is currently assuming marginal to zero growth for 2009, and there is also an emerging internal consensus that growth in 2010 could well be flat. Overall, the utility now expects that, by 2025, the size of the system will have to be somewhere between 60 000 MW and 70 000 MW.
This could have significant implications for the timing of certain projects, which could be delayed further if South Africa is successful in rolling out its energy efficiency plans, and if the intended additional capacity materialises from the IPPs.