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Strong sense of irony as Eskom solicits energy-intensive connections

11th November 2016

By: Terence Creamer

Creamer Media Editor

  

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Amid weak economic growth, falling industrial and mining demand and a rise in plant availability, Eskom has appealed to industrial customers to approach it for new connections, saying it is “open for business”.

The State-owned utility has announced a recovery in the energy availability factor (EAF) from its coal-fired power stations to 78.49% in the six months to the end of September, up from 71.2% in the corresponding period during 2015.

Period-on-period sales were 1.2% higher, largely on a 31.6% rise in cross-border sales. However, after years of decline in demand, the combination of the higher EAF and weak industrial demand, the group now has a surplus of more that 3 000 MW.

Sales to the rail sector during the period slumped 7.9%, while industrial demand was 6.2% lower. Sales to the mining and agriculture sectors fell by 0.3% and 0.7% respectively.

Engagements were planned with energy- intensive users in light of Eskom’s view that South Africa’s electricity surplus would continue to grow until 2022. The surplus would remain, but narrow, until 2026, when, Eskom said, new capacity would be required.

The utility has added 1 893 MW of generation capacity since 2015 and will commission a further 9 104 MW over the coming six years. In addition, procurement initiatives are under way to add more than 6 000 MW of renewable-energy capacity, as well as new privately generated coal and gas capacity.

The move is somewhat ironic in light of South Africa’s recent past when Eskom leaned heavily, since 2008, on energy-intensive users to reduce demand so as to lower the risk of load-shedding. During the same period there have been tariff increases in the triple digits, which has suppressed demand and even resulted in the closure of various smelters and foundries. In addition, a number of energy- intensive businesses have invested in own- generation solutions to secure supply and lower their dependence on Eskom.

However, group executive for transmission and sustainability Thava Govender has indicated that a strategy has been developed to address the decline in local sales volumes.

The plan involves both the retention of sales to existing customers and the stimulation of sales growth domestically and in the rest of the region. The utility indicates that its current new-connection pipeline stands at over 2 000 MW.

“In 2007, we sent out 37 000 MW during peak, so the economy can grow back to that point,” Govender said last week, indicating that the surplus could be used to stimulate economic growth.

While there were cross-border opportunities, he said, the “biggest issue” was to stimulate domestic growth, particularly among industrial customers. In addition, cross-border sales would be constrained by limitations on the transmission network.

Renewables Impasse
As to the utility’s future approach to renewable-energy independent power producers (IPPs), little clarity has been provided, with the utility continuing to bemoan the high costs associated with the plants, while suggesting that the pace of the renewables programme should be curtailed in light of the surplus.

However, CEO Brian Molefe did reveal last week that the matter would be the subject of upcoming discussions between Eskom, Public Enterprises Minister Lynne Brown, Energy Minister Tina Joemat-Pettersson and Environmental Affairs Minister Edna Molewa.

“It is a problem that still needs to be discussed, to which a solution still needs to be found.”

The impasse arose earlier this year when Eskom, which is the single buyer of IPP power, indicated reluctance in a letter, which was later leaked, to the signing of further power purchase agreements (PPAs) with renewables plants until it received guidance from government.

The utility claims that the costs associated with projects procured under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) are exorbitant.

The matter is the subject of a complaint laid by the South African Wind Energy Association (Sawea) with the National Energy Regulator of South Africa. Sawea is also now considering legal options, arguing that 26 projects, with an associated investment value of R50-billion, are at risk as a result of delays in concluding PPAs.

Speaking at the group’s interim results presentation, Molefe reiterated his concerns, noting a 37% rise in costs associated with renewable energy IPPs, despite an overall primary energy cost decrease of 1.5% to R40.4-billion.

He also highlighted the fact that Eskom was paying an average of 218c/kWh for renewables, which was significantly higher than Eskom’s blended tariff of 83c/kWh.

Molefe, who has been heavily criticised for attempting to overrule stated government policy on IPPs, said he was merely raising a concern over the financial sustainability of the renewables programme.

By contrast, Molefe remained bullish on nuclear, describing Koeberg as the lowest-cost generator in the country. He also argued that a decision should be taken soon regardless of an expectation of a growing supply surplus until 2022, owing to the long gestation period associated with nuclear projects.

Earlier, Cabinet amended its decision of June 10, 2015, to designate the South African Nuclear Energy Corporation (Necsa) as the implementing agent for the nuclear new build programme and, instead, designated Eskom as the owner operator and procurer for nuclear power plants in accordance with the Nuclear Energy Policy of 2008.

Cabinet also approved the designation of Necsa as the owner, operator and procurer for the nuclear fuel cycle and multipurpose reactor.

“The Department of Energy will continue to act on its mandate as the policy-setting and coordinating department of the Nuclear Build Programme,” Cabinet said in a statement.

Cabinet announced that the Integrated Energy Plan would be published for public discussion and also approved that public consultation be undertaken on the “base case and assumptions” for the update of the Integrated Resource Plan (IRP).

Planning is currently based on the 2010 version of the IRP, which is out of date and which outlines the introduction of 9 600 MW of new nuclear by 2030.

However, Eskom group executive for generation Matshela Koko said construction would proceed on an incremental basis, starting with two reactors with a combined capacity of between 2 400 MW and 3 200 MW.

Molefe indicated, in addition, that the planning phase (to the point of a “design freeze”) would take five years to complete.

Edited by Creamer Media Reporter

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