You will be paying an extra R20-billion to Eskom this year — over and above the R40-billion collected last year — for it to buy billions of litres of diesel to fuel its peaking power plants.
The cost of producing power from these plants is R2 a kilowatt hour, 1 000% more than Eskom’s current cost of power of 20 cents a kilowatt hour.
Eskom was already using just less than 50-million litres of diesel a month between November and February at two peaking plants in the Western Cape, according to figures supplied by Minister of Public Enterprises Alec Erwin to Parliament. Eskom’s application for a 60% price increase has sparked widespread outrage, including from the African National Congress’s (ANC) national executive committee.
One expert, Philip Lloyd of the Energy Research Centre at the University of Cape Town, says that by next year, when two more of these plants come on stream, the country will have to import four billion litres of diesel to supply them.
South Africa currently consumes about 25-billion litres of fuel a year, of which about 10-billion is diesel.
The peaking plants were originally intended to be used for short periods during peak hours of usage, but such is the country’s power crisis that they have been running for up to 12 hours a day, according to Lloyd.
The plants, Gourikwa near Mossel Bay and Ankerlig in Atlantis, cost about R3-million an hour to operate, he said, as they are hugely inefficient open cycle gas turbine (OCGT) plants.
This is about R1,5-billion a month, at 500 hours of operation a month, and raises questions about the utility’s ability to fund this expenditure.
Eskom told the Mail & Guardian that “the OCGT plant has operated for an average of 100 hours per month”, without specifying which plant it was referring to. “The price of production from the OCGT plant changes each month with the fuel price change,” Eskom said.
Further steep tariff increases are likely as new peaking power becomes available and is relied upon more heavily.
But peaking plants can be built quickly, so most of the new power capacity that will come on stream in the next couple of years will be from this technology.
Additional units are being built at Gourikwa and Ankerlig for completion next year, to bring an additional 1028MW on stream.
The new coal-fired power station, Medupi, will only begin producing energy in 2012. Eskom plans to install a total 4 000MW of peak capacity by next year.
According to Lloyd, Eskom is now being asked to run its peaking plants for 500 hours a month instead of 500 hours a year as budgeted. He told the M&G that about four billion litres of fuel would have to be imported to produce 2 000MW from these plants, if they are run at 500 hours a day.
At this rate, the cost of electricity would be R2-billion a month or R24-billion a year for the fuel alone. Even the Gautrain is only costing R20-billion.
It now becomes clear why Eskom needed to ask the National Energy Regulator of South Africa for an urgent 60% tariff increase, just to meet its running costs. Once inflation is stripped out, the increase is 53%.
Erwin admitted in Parliament that if the increase was not granted, Eskom’s situation would deteriorate so badly that it would be unable to raise capital for its capacity expansion programme. Eskom would probably make a loss this year, he said.
The request has been made to deal with “pass through” costs which the regulator allows to compensate for rapid and unforeseen increases in raw materials such as coal and diesel, I-Net Bridge reported Erwin as saying. Gourikwa and Ankerlig have already used 286-million litres since July last year, and Erwin says that their energy needs have risen sharply.
While 105-million litres were used in the first four months — about 26-million litres a month — this rose sharply to 186-million litres between November 2007 and February this year, he said in Parliament.
One of Eskom’s diesel suppliers is PetroSA, which supplies Gourikwa plant.
Although PetroSA CEO Sipho Mkhize declined to discuss pricing, the M&G has been informed that the company sells fuel to Eskom at R6,50 a litre, which includes a marketing margin for PetroSA.
Lloyd said that diesel could be imported at 50c below the present basic diesel price set by the government. Eskom said it received diesel at a discount from PetroSA.
The present situation appears to have been completely unforeseen by Eskom’s strategic planning. The utility asked for an 18% increase just a few months ago, but says it is now paying between 25% and 30% over the budgeted costs for essentials such as coal and diesel.
If the regulator grants the request for a 53% real increase, part of the money will also go to finance an accelerated demand side management programme, aimed at reducing demand for electricity.
Now Erwin and his director general, Portia Molefe, have admitted that further steep increases are likely.
Talking to the Sunday Times, Molefe said a high increase this year would be followed by another “relatively” high increase next year and “shortly after that we go back to something close to inflation”.
Meanwhile, Erwin told Parliament this week that the cost of electricity would double in the next two or three years, I-Net Bridge said.