Eskom faces its battle of Majuba

The collapse of a coal silo at Eskom’s Majuba power station highlights the precariousness of the country’s electricity supply.

The threat of further load shedding has frustrated business, which, after months of protracted strikes, is trying to catch up on lost production, or gearing up for the festive season. But Eskom is just one of the constraints to economic growth, according to economists and energy specialists. Eskom announced earlier this year that it would no longer forego maintenance on its aging power stations in a bid to keep the lights on. It warned of a constrained power system for years to come.

Full production from the Medupi power station, even if it could be brought on stream tomorrow, will not be sufficient to meet the 7 400 megawatts (MW) needed to meet the maintenance backlogs.

Medupi’s first unit will come on line by December, according to Eskom, but it will not be fully commercially operational until halfway through next year. The rest of the station’s six units will be complete and fully operational between 2019 and 2020, it revealed in its financial results.

The utility said on Wednesday that Majuba would not function at maximum capacity for the next six months. At most, five generating units would be able to load coal, depending on the weather. One unit was not operational because of a long-term outage, it said.

By Wednesday, Eskom had managed to increase power production at Majuba to 1 400MW.

Eskom said it had to balance the demand for electricity, its system requirements and the need for a sustainable maintenance programme, without deterring the investment South Africa needed.

Ironically, the electricity supply shortages have come at a time when demand for power is at a seven-year low, according to Chris Yelland, the managing director of EE Publishers.

He said the continued supply constraints were having a negative effect on gross domestic product (GDP) growth.

Declining demand
A number of factors were responsible for declining demand, he said, including the slowdown in the global economy, rising electricity prices, which had led to consumers using less power, and the changing nature of the South African economy, which had reduced its reliance on energy-intensive sectors, such as mining, and favoured sectors such as services.

In a recent research note on the GDP rebasing exercise South Africa will undergo in November, the HSBC economist David Faulkner flagged this impending shift.

“These data revisions are likely to show the waning importance of manufacturing, mining and utilities, following the impact of the global financial crisis, local recession, repeated labour unrest and a damaging electricity crisis. In contrast, finance, real estate and business services, and government, are likely to command a larger share of GDP,” he said.

The energy supply was a “binding constraint on economic growth in recent years” and was an important feature in our near-term growth challenges, Faulkner said. In addition to power, other challenges included waning domestic demand growth and many structural constraints to growth, such as relatively low education and skills levels, high unemployment, low domestic savings and concentrated product markets.

Pietman Roos, a policy adviser to the South African Chamber of Commerce and Industry, said it was too early to quantify the cost of load shedding on the economy. Many businesses had already factored it into their costs by acquiring back-up generators, or by replacing electricity with alternatives such as gas.

The government’s energy policy documents place the cost of unserved energy at R75 a kilowatt hour. This refers to the cost to electricity consumers (and the economy) from supply interruptions.

But Professor Harald Winkler, the director of the Energy Research Centre at the University of Cape Town, said quantifying the effects of unserved energy was complex. For a developing country, South Africa had a comparatively reliable electricity supply, although there were several countries that had a high number of power outages but higher growth rates.

World Bank data revealed that the median number of power outages in a month for countries such as Bangla­desh totalled 100.7 between 2006 and 2010. But during that period it averaged an economic growth rate of 6.2%. Nigeria experienced 25.2 power interruptions a month and an average growth rate of 7.2%. South Africa had an average of 0.9 interruptions a month but a growth rate of only 3.3%.