Africa|Coal|Energy|Financial|Gas|Oil And Gas|Oil-and-gas|Power|Storage|Maintenance
Africa|Coal|Energy|Financial|Gas|Oil And Gas|Oil-and-gas|Power|Storage|Maintenance

Steeply rising diesel prices may increase load-shedding risk as Eskom warns of difficulties in absorbing costs

Eskom CFO Calib Cassim

Eskom CFO Calib Cassim

Photo by Creamer Media's Donna Slater

8th March 2022

By: Terence Creamer

Creamer Media Editor


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State-owned utility Eskom says it is still in the process of quantifying the likely impact of surging diesel prices on the cost of producing electricity at its open cycle gas turbine (OCGT) facilities but has cautioned that continued steep price rises will be difficult to absorb in light of its financial constraints.

Eskom had been relying heavily on its OCGT plants, as well as those operated by independent power producers, ahead of its most recent decision to implement Stage 2 load-shedding on Monday – a decision that has since been extended to 5:00 on Saturday March 12.

COO Jan Oberholzer said that by March 7, Eskom was having to produce electricity across all 20 OCGT units available in South Africa after several coal units tripped in quick succession, resulting in the loss of an additional 4 500 MW of capacity during the course of Monday.

Load-shedding was officially implemented at 17:00 on Monday, partly to preserve diesel and pumped storage reserves.

By Tuesday morning, more than 22 000 MW of capacity was not available, including from the new Medupi and Kusile units, owing to a combination of unplanned breakdowns of nearly 16 000 MW and 5 500 MW of planned maintenance.

Generation executive Phillip Dukashe reported that 17 operating units, representing a combined 8 700 MW, were facing various risk factors as of Tuesday morning, with about 2 000 MW of that considered to be at “high risk”.

CFO Calib Cassim did not make a direct link between surging diesel prices and the risk of load-shedding, saying the threat of rotational cuts would depend mainly on the performance of the coal fleet. Nevertheless, he stressed that there was “no blank cheque” for buying fuel and that Eskom could “get to a point where we just don’t have funds to pay for additional diesel”.

Eskom was granted R1-billion in diesel revenue through the regulated tariff for the current financial year and has spent about R6-billion on the fuel to operate its own plants and has purchased about R3-billion in electricity from the diesel-fuelled private Avon and Dedisa facilities.

For the upcoming financial year, the National Energy Regulator of South Africa has granted about R3-billion for diesel against a request for R6.5-billion.

Retail domestic diesel prices have already breached the R21/l level, with the prospect of more steep increases again in April, owing to the market’s reaction to the Russian invasion of Ukraine, which saw oil prices reach a 14-year high this week of close to $140/bl.

Cassim said Eskom had, for some time, been investigating hedging strategies to mitigate the impact of rising diesel prices and that discussions were under way on possible hedges. He acknowledged, however, that “the timing couldn’t be worse”.

“[So], if the price of oil has to double, I think it's going to impact in terms of the energy that we can produce from diesel going forward,” Cassim said.

Eskom was also analysing the impact of the Ukraine conflict on its other energy inputs, including coal and fuel oil, the price of which had risen sharply in recent weeks.

"Obviously with the war in Ukraine we are all seeing that oil and gas prices are escalating [and] that would still need to be factored in on our side.

"But as a bottom line, we only have a certain amount that we can afford from a liquidity perspective, so this will put pressure [on Eskom]."

Edited by Creamer Media Reporter





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