Eskom is looking into an abyss. His second batch of diesel is expected to run out by the end of January 2023, he writes. Mariam Isa and Chris Yelland of EE Business Intelligence.
Eskom lives up to date in its efforts to obtain the diesel needed to keep running its Open Cycle Gas Turbines (OCGTs), which, in the face of prolonged power generation outages, is the only way the utility can can prevent serious and continued reduction in South Africa’s electricity supply.
In the past two years, Eskom has been forced to rely more and more on OCGTs, which were intended only for extreme emergencies or use during peak demand periods, due to an increasing number of breakdowns within its former coal power fleet. In recent months, OCGTs have become essential in the face of the loss of 4,500 MW of generation capacity due to problems at Medupi and Kusile, Eskom’s two newest coal-fired power plants, and a life-extension redevelopment at Koeberg. , its nuclear power station.
Eskom’s COO Jan Oberholzer says this combined outage equates to about five stages of load shedding. Kusile units 1, 2, 3 and 5, representing almost 3,000MW of the quantity, will not be available until the end of this year, he told EE Business Intelligence. The complex life extension of Units 1 and 2 at Koeberg will only be completed in March 2024, if all goes well. Medupi Unit 4 is only scheduled to return to service in September 2024 following a hydrogen explosion in August 2021.
When you add this large combined disruption to the country’s existing power generation gap of 4,000 MW to 6,000 MW declared by Eskom more than three years ago, which has yet to be addressed, it is clear that South Africa is teetering on the edge. of an electrical emergency.
The diesel emergency
Eskom’s management team drew the ire of the government in November 2022 when it declared that the utility had run out of diesel and could not afford to buy more, having spent roughly double the R6 billion diesel budget for the fiscal year ending March 31, 2023.
When no more Treasury funds materialized, Eskom’s CFO Calib Cassim managed to scrape together an earmarked 1.5bn rand from his budget for the rest of the year, to immediately buy 50m liters of diesel from PetroSA. That provided enough diesel to keep the OCGTs running until December 2022. When the fuel ran out, Cassim secured another 1.5 billion rand from Eskom’s coffers for another 50.4 million liters of diesel. According to Oberholzer, this should last until the end of January 2023.
“From an operational standpoint, I can tell you that we need diesel,” he told EE Business Intelligence. “We need at least, and this is based on certain assumptions, an additional 200 million liters of diesel to get us through the end of March 2023. It may be less and it may be even more, it all depends on what is going to happen. regarding unplanned breakdowns. This is the best guess we have, based on future prospects,” he said.
Cassim says this would cost Eskom another R6 billion. When added to the R3bn it just spent in the eleventh hour, and the previous diesel spend of about R12bn, the utility’s diesel spend for the full financial year 2022/23 will be to about 21 billion rand. This is much more than double that of the fiscal year 2021/22, when Eskom spent R8 billion on diesel. It is easy to see that the government is very upset about the financial and political fallout, as Finance Minister Enoch Godongwana stated in Davos on January 16, 2023 that “I don’t think Eskom has a problem with diesel, I think has a management problem.” .
The cost impact of load shedding
But despite the prohibitive cost of diesel, there is a widespread consensus that the burden of severe load reduction on the economy is much greater.
Estimates vary widely. However, based on 11,797 GWh (gigawatt hours) of electricity without service in calendar year 2022 calculated from EskomSePush load shedding data, and a very low assumption of R10/kWh for energy without service suggested by Eskom, the total cost to the economy for the year would have been R115 billion. This very conservative estimate does not take into account the long-term impacts of lost opportunities caused by extended load shedding on business, industry, agriculture, and overall investment, and money spent by households, businesses, and industry in backup power systems.
With this in mind, the cost of electricity without service is likely to be much higher. At R50/kWh or even R85/kWh (if one CSIR study is taken into account), the cost to the economy in 2022 would be more like R590 billion or R1000 billion respectively.
The worst case scenarios began to emerge when Eskom was forced to implement stage 6 load shedding on January 11, 2023 after 11 generating units unexpectedly failed, disconnecting the total amount of generating capacity by more than half. of its installed capacity of approximately 46,000 MW. The load factor of Eskom’s OCGTs skyrocketed to 48% at that time, meaning they were running at full throttle for around twelve hours a day, and this is what enabled South Africa for the first time to avoid the burdensome disconnection of Stage 8 loading.
There are growing suggestions within the ANC that Eskom is deliberately implementing load reduction to ruin the ruling party’s chances in the 2024 national elections.
This is reinforced by statements by the Minister of Minerals and Energy, Gwede Mantashe, who has claimed that Eskom is allowing more than 20,000 MW of installed generation capacity to “stand idle”.
In reality, Eskom’s system operator implements load shedding to balance supply and demand on the grid, in order to avoid a national blackout. The risk of this catastrophe is still considered minimal, as long as Eskom has enough diesel for the OCGTs, as well as other emergency levers available to the system operator. Eskom’s own OCGT power plants, Ankerlig and Gourikwa, can generate up to 2,067 MW of power, mitigating two stages of load shedding. There are also two other OCGT power plants, Dedisa and Avon, which are owned and operated by Independent Power Producers (IPPs), which can generate 1,005 MW to avoid one more stage of load shedding.
IPP OCGTs are not part of Eskom’s diesel headache, as they buy their own fuel. A look at the load factor trend for Eskom’s OCGT use over the past year tells the whole story. In the 2021/2022 financial year it averaged 7% and so far this year it stands at 14%, according to Cassim. This compares to an OCGT usage load factor of just 6% included in Eskom’s latest electricity tariff approved by Nersa for the fiscal year 2023/24 from 1 April 2023.
The future of diesel
Now, once again, Eskom is looking into an abyss. Its second batch of diesel is expected to run out by the end of January 2023, and Eskom’s board is looking at ways to raise the cash to keep the OCGTs running until the start of the new fiscal year on April 1, 2023.” “Now we need to find cash somewhere, and as soon as possible. We’ve been given some actions that we’re actively and urgently taking to see how we can get money to meet this challenge of not being able to run the OCGTs,” Oberholzer said.
But none of the options on the table seem like a quick fix. One option would be to receive part of the overdue debt of more than 50 billion rand that municipalities currently owe to Eskom. Another would be receipt of a hefty diesel tax refund claimed by the South African Revenue Service (SARS), which Eskom’s financials show as just over R3 billion for the year ending March 31, 2022.
In terms of an amendment to Section 75 of the Customs and Excise Act, effective August 3, 2022, Eskom is allowed tax refunds from the Fuel and Road Accident Fund totaling R4.04 / liter of diesel used for power generation. From estimates of the diesel fuel burned in Eskom’s OCGTs, this R3 billion could easily have increased very substantially.
However, Eskom’s anticipated diesel fuel rebates have been in question by SARS for more than a year, and time is ticking.
Oberholzer says Eskom has no problem sourcing diesel, although much of it is imported, and South Africa has no official strategic reserves. The country as a whole uses between 12 and 14 billion liters of diesel per year, and with a load factor of 15%, the diesel used by OCGTs operated by both Eskom and IPP would amount to around 1.13 billion liters, less than 10% of the total.
Chris Yelland and Mariam Isa are with EE Business Intelligence. News24 encourages freedom of expression and the expression of diverse points of view. Therefore, the opinions of the columnists published in News24 are their own and do not necessarily represent the views of News24.
