State-owned electricity utility Eskom reported sales of only 110 766 GWh in the six months to September 30, 2012, a decline of 2.9% when compared with the 114 043 GWh recorded during the same period in 2011.
The utility also lowered its full-year sales forecast to 219 342 GWh from 222 083 GWh, owing to the prevailing low-growth environment in South Africa. In the year to March 31, 2012, Eskom sold 224 785 GWh, which itself was only 0.2% higher than that recorded in the previous year.
The anticipated decline in sales for 2012/13 would be the first since South Africa descended into the 2008 recession and came at a time when the National Treasury was expecting the economy to expand by 2.5% – itself a downward revision from anticipated growth of 2.7%.
CEO Brian Dames said Eskom was studying the demand figures to assess whether they were a result of a fundamental change in the way electricity was consumed in South Africa. But he said the fall reinforced the need for flexibility and for the regulator to conduct yearly reviews of the tariff, notwithstanding the intention of establishing price-path certainty for the five-year period from 2013 to 2018.
Outgoing FD Paul O'Flaherty described the decline in sales as a concern for the South African economy as a whole, adding that "it is a factor that we will have to watch going forward".
The utility recently submitted its third multiyear price determination application in which it is seeking five yearly tariff increases of 16%, which it argued would be necessary to raise its prices to a cost-reflective level. The application was premised on yearly electricity demand expanding by 1.9%.
Worryingly, from an economic perspective, Eskom showed that sales to industrial customers declined during the interim period, while residential sales increased.
Dames attributed 1 000 GWh of the lower sales during the period to buy-backs from ferrochrome producers, 1 200 GWh to production issues at BHP Billiton's Hillside smelter, in KwaZulu-Natal, and around 550 GWh to lower mining-sector sales.
The full effect of the industrial relations disputes at the country's mines, which led to production stoppages in the platinum and gold sectors between August and November, would only be reflected in the second-half results.
Sales to municipalities, which serve both industrial and residential customers, rose to 43% of total sales. But Eskom indicated that it was concerned about the challenges it was facing in recovering arrears from defaulting municipalities.
Given South Africa's supply deficit, the utility did not believe it was necessary for it to review its plan to add 11 361 MW by 2019, through a multibillion-rand investment programme into new generation, transmission and distribution infrastructure.
Since 2005, Eskom had spent R156.5-billion (excluding capitalised interest) on its build programme, which had, to date, added 5 776 MW of generation capacity, as well as 4 327 km of transmission network and 22 445 substation transformers.
Executive Kannan Lakmeeharan said that, even under a low-growth scenario, South Africa would need the additional capacity to which Eskom was currently committed.
However, South Africa's policy framework, including the Integrated Resource Plan (IRP) would need to encourage greater flexibility, as well as a more modular approach to building new capacity, to ensure that there was sufficient flexibility to respond to changes in market circumstances.
Lakmeeharan also stressed that it was important to plan for economic success, as the worst-case scenario would be to, again, have too little capacity in place to respond to demand growth.
The current version of the IRP, which is likely to be revised during 2013, expects coal’s contribution to fall from more than 90% of the current mix to about 45.9% by 2030. However, 16 300 MW of additional coal-fired generation would still need to be added by 2030.
Also envisaged under the current IRP is the introduction of 9 200 MW of wind generation, 1 200 MW of concentrated solar power, 8 400 MW of solar photovoltaic production, 9 600 MW of new nuclear capacity, 4 930 MW of open-cycle gas-turbine peaking plant capacity, 2 370 MW of combined-cycle gas-turbine capacity, a 1 332 MW pumped-storage scheme, 2 659 MW of imported hydropower and 465 MW of mostly other renewables technology.
The Department of Energy recently received concurrence from the National Energy Regulator of South Africa for Ministerial determinations opening the way for the procurement of 7 761 MW of baseload capacity from independent power producers between now and 2025, an additional 3 200 MW from renewable projects by 2020, as well as 800 MW from cogenerators and 474 MW from near-term natural gas projects.
Despite the lower sales during the period, Eskom's revenues still rose to R73.4-billion from the R63.9-billion recorded in the comparable interim period a year earlier, owing to higher tariffs. Net profit for the period, however, was marginally lower at R12.6-billion, from R12.8-billion in 2011.
Revenue for every kilowatt-hour sold increased to 64.9c, from 55.3c/kWh, while operating costs rose to 47c/kWh, from 38.2c/kWh, reflecting higher primary energy, maintenance and financing costs.
Dames said profitability in the second half of the financial year would be significantly lower, owing to the seasonal nature of the business - the utility typically earned the bulk of its profits in the first half, when winter demand and tariffs are higher.
He said the group was targeting to "break even" in the second half of the financial year.