Close Menu
TechCentralTechCentral

    Subscribe to the newsletter

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    Facebook X (Twitter) YouTube LinkedIn
    WhatsApp Facebook X (Twitter) LinkedIn YouTube
    TechCentralTechCentral
    • News

      Icasa publishes new draft regulations for digital TV

      8 July 2025

      Fast-growing Beira port to get private mobile network

      8 July 2025

      MultiChoice hit with multimillion-rand fine for privacy ‘breaches’

      8 July 2025

      Still in play: Ramaphosa banks on talks to ease US tariff blow

      8 July 2025

      Apple’s AI ambitions rattled by defection to Meta

      8 July 2025
    • World

      Cupertino vs Brussels: Apple challenges Big Tech crackdown

      7 July 2025

      Grammarly acquires e-mail start-up Superhuman

      1 July 2025

      Apple considers ditching its own AI in Siri overhaul

      1 July 2025

      Jony Ive’s first AI gadget could be … a pen

      30 June 2025

      Bumper orders for Xiaomi’s YU7 SUV heighten threat to Tesla

      27 June 2025
    • In-depth

      Siemens is battling Big Tech for AI supremacy in factories

      24 June 2025

      The algorithm will sing now: why musicians should be worried about AI

      20 June 2025

      Meta bets $72-billion on AI – and investors love it

      17 June 2025

      MultiChoice may unbundle SuperSport from DStv

      12 June 2025

      Grok promised bias-free chat. Then came the edits

      2 June 2025
    • TCS

      TCS | Connecting Saffas – Renier Lombard on The Lekker Network

      7 July 2025

      TechCentral Nexus S0E4: Takealot’s big Post Office jobs plan

      4 July 2025

      TCS | Tech, townships and tenacity: Spar’s plan to win with Spar2U

      3 July 2025

      TCS+ | First Distribution on the latest and greatest cloud technologies

      27 June 2025

      TCS+ | First Distribution on data governance in hybrid cloud environments

      27 June 2025
    • Opinion

      In defence of equity alternatives for BEE

      30 June 2025

      E-commerce in ICT distribution: enabler or disruptor?

      30 June 2025

      South Africa pioneered drone laws a decade ago – now it must catch up

      17 June 2025

      AI and the future of ICT distribution

      16 June 2025

      Singapore soared – why can’t we? Lessons South Africa refuses to learn

      13 June 2025
    • Company Hubs
      • Africa Data Centres
      • AfriGIS
      • Altron Digital Business
      • Altron Document Solutions
      • Altron Group
      • Arctic Wolf
      • AvertITD
      • Braintree
      • CallMiner
      • CambriLearn
      • CYBER1 Solutions
      • Digicloud Africa
      • Digimune
      • Domains.co.za
      • ESET
      • Euphoria Telecom
      • Incredible Business
      • iONLINE
      • Iris Network Systems
      • LSD Open
      • NEC XON
      • Network Platforms
      • Next DLP
      • Ovations
      • Paracon
      • Paratus
      • Q-KON
      • SevenC
      • SkyWire
      • Solid8 Technologies
      • Telit Cinterion
      • Tenable
      • Vertiv
      • Videri Digital
      • Wipro
      • Workday
    • Sections
      • AI and machine learning
      • Banking
      • Broadcasting and Media
      • Cloud services
      • Contact centres and CX
      • Cryptocurrencies
      • Education and skills
      • Electronics and hardware
      • Energy and sustainability
      • Enterprise software
      • Fintech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Lifestyle
      • Motoring
      • Public sector
      • Retail and e-commerce
      • Science
      • SMEs and start-ups
      • Social media
      • Talent and leadership
      • Telecoms
    • Events
    • Advertise
    TechCentralTechCentral
    Home » In-depth » Just how much trouble is Eskom in?

    Just how much trouble is Eskom in?

    By Chris Yelland16 November 2015
    Twitter LinkedIn Facebook WhatsApp Email Telegram Copy Link
    News Alerts
    WhatsApp

    eskom-640

    An energy sector leader recently observed that the electricity crisis in South Africa is maturing (perhaps like cheese) from generation capacity problems to issues of electricity prices, tariffs, the price elasticity of demand, and the capacity of Eskom to finance its generation, transmission and distribution activities.

    Amid the onset of regular load shedding in late 2014, a so-called “war room” was established, comprising representatives from various government departments and Eskom, and headed nominally by Deputy President Cyril Ramaphosa.

    This was not a creature of statute, but a temporary structure intended to focus on five core short-term issues that had been identified, and to complete its work in a timeframe of six months or so.

    While it may appear that the war room interventions and new leadership at Eskom have stabilised the generation capacity crisis, South Africans should take little comfort that load shedding has stopped when electricity demand in 2015 is some 5% less than in 2014, and about 10% lower than it was in 2007.

    The further 5% drop in demand in 2015 has indeed provided welcome space for Eskom to keep planned maintenance levels at about 5GW without the need for load shedding in recent months. However, recovery from the generation maintenance backlog is a long haul.

    The reality is that Eskom’s generation plant availability has not yet improved to where it should be (that is, 80% or more), but has reduced further since 2013 and 2014, and has remained flat in 2015 at about 72%, despite statements to the contrary by public enterprises minister Lynne Brown based on information fed to her by Eskom.

    While plant availability in 2015 has further declined, the decline in electricity demand has been greater still, thus staving off load shedding, at least for the time being.

    However, the recent application by Eskom to the National Energy Regulator (Nersa) to claw back variances in revenue and costs for the first year (2013/2014) of the multi-year price determination period from 1 April 2013 to 31 March 2018 (MYPD3), clearly illustrates the problem.

    The decline in energy sales volumes and the increase in operating costs from those projected for the 2013/2014 financial year in MYPD3, has resulted in a claim by Eskom for an additional R22,8bn to be recovered via the tariffs in 2016/2017 from the paying customers of electricity. This is made up of an R11,7bn claim from reduced sales volumes, and an R11,1bn claim from increased operating costs dominated by higher than projected diesel costs of some R8bn in 2013/2014.

    In August 2013, Eskom claimed a claw-back of R18,4bn (and was granted R7,8bn by Nersa) for the full three-year MYPD2 period (2010/2011, 2011/2012 and 2012/2013). This has now risen to a claim of R22,8bn for the single 2013/2014 financial year, and is expected to rise still further for 2014/2015 and 2015/2016 based on known further reductions in electricity demand and rising costs in these years.

    Claw-backs via the tariffs will add significantly to the electricity price trajectory, over and above the 8% per annum granted by Nersa over the five-year MYPD3 period. A compounding problem arises from the elasticity of electricity demand in the face of steeply rising electricity prices significantly above the inflation rate, which further reduces electricity sales volumes and increases claw-back claims, in a vicious circle.

    Feeding this cycle of reducing electricity demand and rising prices is a complex global and local environment: slowing growth in China; global overcapacity in the production of steel, aluminium and other raw materials; weak international demand for South African commodities such as coal, iron ore, platinum, copper, ferrochrome, ferrosilicon and ferromanganese; and low commodity prices.

    The state of the South African economy is indicated by low GDP growth, rising levels of unemployment and labour unrest. This is exacerbated by the negative global commodity cycle, with deep-level mining in South Africa reaching end-of-life, poor productivity and competitiveness, and cheap steel imports from China putting paid to the local steel industry.

    Clearly South Africa’s energy intensive minerals smelting and beneficiation operations which rely on cheap and abundant electricity, such as the steel, aluminium, zinc, platinum, copper, ferrochrome, ferrosilicon and ferromanganese industries, are under significant threat.

    The local and global environment, combined with rapidly rising electricity prices, thus provide the perfect storm for reduced industrial electricity demand and rising electricity prices in South Africa. This is further evidenced by a reducing energy intensity in South Africa as the economy struggles to adjust structurally to steeply rising electricity prices sustained over several years.

    In this toxic environment, the alternatives to traditional grid electricity begin to show themselves. Though relatively small individually, collectively the growing range of alternatives begin to add up to make a significant further impact on reducing demand for Eskom’s conventional grid electricity.

    These alternatives progressively change the way in which energy and electricity is generated, transmitted, distributed and used — from a monopoly national generation utility, to a broad mix of Eskom, municipal and independent power producers, using a variety of primary energy sources, including coal, diesel, gas, nuclear, hydro, solar, wind and biomass.

    Industries and businesses that relied exclusively on grid energy would start supplementing or displacing grid electricity with alternative energy sources such as cogeneration, waste coal, gas, heat and biomass recovery, and solar PV.

    It would see industrial, commercial and domestic energy efficiency initiatives as well as active industrial and commercial energy and demand management.

    There would also be a shift from the incessant marketing by Eskom for consumers to use less of its product, to switching to alternative domestic energy sources such as solar water heating, solar PV and cooking with gas.

    Massive further expenditure is needed in the years ahead to bring the Medupi, Kusile and Ingula projects to completion, to upgrade the transmission grid, to address the electricity distribution maintenance backlog, to upgrade an aging fleet of coal-fired power stations for environmental compliance, and to replace those stations reaching end of life.

    With constrained supply and declining sales volumes, rising electricity prices reaching the limits of affordability, and the tipping point to grid defection in sight, Eskom’s future ability to finance its own generation, transmission and distribution activities comes into question.

    Speaking at the recent South African International Renewable Energy Conference in Cape Town, Tobias Bischoff-Niemz, chief engineer for energy research and development at the Council for Scientific and Industrial Research, said South Africa was uniquely at risk of grid defection. At the same conference, Barry MacColl, GM of Eskom’s research, testing and consulting business, acknowledged that significant grid defection could seriously undermine Eskom’s business model, and “would be the end of the power company as we know it”.

    After a year, the war room has surely identified the various issues, options and costs involved, and what now remains is decisive leadership and hard political, economic and business decisions that will cost real money, but will reap significant benefits if the right decisions and choices are made in the national interest.  — Fin24

    • Chris Yelland is the MD of EE Publishers


    Chris Yelland Cyril Ramaphosa Eskom Lynne Brown Nersa
    Subscribe to TechCentral Subscribe to TechCentral
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email Copy Link
    Previous ArticleMobile lifts Telkom, but fixed voice slumps
    Next Article We will meet power demand 100%: Eskom

    Related Posts

    Still in play: Ramaphosa banks on talks to ease US tariff blow

    8 July 2025

    Ramaphosa blasts Trump over threatened Brics tariffs

    8 July 2025

    Medupi unit 4 rejoins grid, easing winter load shedding fears

    7 July 2025
    Company News

    Rain launches a new way to connect. It’s a loop

    8 July 2025

    Cloud costs too high? You’re looking at the wrong problem

    8 July 2025

    Stay warm this winter with Samsung’s energy-efficient air conditioners

    8 July 2025
    Opinion

    In defence of equity alternatives for BEE

    30 June 2025

    E-commerce in ICT distribution: enabler or disruptor?

    30 June 2025

    South Africa pioneered drone laws a decade ago – now it must catch up

    17 June 2025

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    © 2009 - 2025 NewsCentral Media

    Type above and press Enter to search. Press Esc to cancel.