State-owned utility Eskom reported a 3.7% decline in electricity sales to 216 561 GWh for the year ended March 31, 2013, lowering its sales to levels similar to those reported in 2006 and 2007, prior to the 2008 power crisis. It had been budgeting sales for the year of 222 083 GWh, which would have represented a 1.2% contraction.

In 2006, Eskom sold around 208 000 GWh and in 2007, 218 000 GWh.

CEO Brian Dames reports that, while the group is forecasting sales of around 227 000 GWh, it is currently reworking its budgets in light of the lower 2013 sales and also because it had experienced a 2% fall off in demand for the first two months of its 2014 financial year, which started on April 1.

The new figures could also result in a new, improved forecast of the shortfall arising as a result of the delay in the introduction of the first unit from the Medupi power station, which is now expected to feed first power into the grid in the second half of 2014, instead of by the end of 2013. The utility initially indicated that the gap could be 700 MW, which will have to be closed by both supply- and demand-side solutions that have not yet been finalised.

The lower 2013 sales have been attributed to weaker-than-expected economic conditions, power buy-backs from the ferrochrome smelters, industrial action in the mining industry that interrupted operations, and major-customer breakdowns. Integrated demand management (IDM) also contributed, with Eskom’s various schemes having resulted in verified accumulated savings of 3 587 MW from 2005 and 2013.

During 2014, Eskom will not be able to pursue further buy backs, which have been barred by the National Energy Regulator of South Africa (Nersa).

However, economic growth is expected to remain weak, with the International Monetary Fund having again lowered the growth outlook for South Africa – to 2% for 2013 and to 2.9% for 2014.

Eskom will also continue with IDM schemes, notwithstanding the fact that the future of the schemes will become uncertain from 2015 – this, owing to a far lower-than-requested determination from Nersa for the third multiyear price determination (MYPD3) period, covering the five-year period from April 1, 2013, to March 31, 2018.

The fall in sales will also have a material effect on the revised Integrated Energy Plan (IRP), given that the current iterations, IRP2010, is modelled on far higher levels of electricity demand growth for the 20-year period from 2010 to 2030.

The Department of Energy (DoE) confirmed recently that the draft Integrated Energy Planning Report has been approved by Cabinet and will be published for at least 30 days before the first public consultations. It has also reported that the IRP2010 will be updated in parallel with the larger Integrated Energy Plan (IEP), owing to the fact that the IRP will have direct implications for the IEP and the other way round.

Dames says the lower demand is the key variable and is likely to have direct consequences on the timing of the introduction of new baseload facilities, be these nuclear, coal or gas.

The IRP2010 forecast the introduction of 9 600 MW of nuclear between 2023 and 2030, but that deadline is already unlikely to be met, owing to delays in decision-making around the issue.

The lower sales will also have a financial impact on Eskom, particularly given the high proportion of fixed costs associated with operating the utility.

In its 2013 financial year, Eskom reported a 12.2% rise in revenue to R128.9-billion, which was attributed to the 16% tariff increase for the year. However, operating costs rose sharply, mainly as a result of 36.1% increase in primary energy costs, which resulted in Eskom’s profit falling from R13.2-billion in 2012, to R5.2-billion.

There was also a narrowing of margins, with revenue rising from 50.3c/kWh to 58.5c/kWh and cost climbing from 41.3c/kWh to 54.2c/kWh.

Dames has reiterated that extensive work is under way to re-engineer the business to enable it to remain sustainable within the MYPD3 envelope. Nersa has approved yearly tariff increases of 8% over the five-year period against an Eskom request of 16%.

“Our medium- to long-term financial challenges are significant. The 8% average annual tariff increase allowed over the next five years will require substantial adjustments to our operating model,” Dames says, reiterating that the MYPD3 took no account of the need to plan beyond the current build programme that will be wrapped up in 2019.