SA's future shrouded in darkness

BHP Billiton's Hillside aluminium smelter. Not only does it use an enormous amount of electricity, but it gets it at a significantly lower rate than other consumers.

BHP Billiton's Hillside aluminium smelter. Not only does it use an enormous amount of electricity, but it gets it at a significantly lower rate than other consumers.

The state of South Africa’s electricity system was in dire straits this week, with Eskom losing almost half of its available capacity on Tuesday, plunging the country into stage-three load-shedding.

Experts expect the situation to get worse come winter, despite the government’s confidence that the power grid is sufficiently stable.

On Wednesday, Public Enterprises Minister Lynne Brown gave assurances that stage-three load shedding was “in no way an indication that we are close to a blackout”.

Her comments came shortly before the utility once again implemented stage-three power cuts in the late afternoon.

Eskom reportedly lost 14 500MW in both planned and unplanned outages on Tuesday, almost half of its available capacity of 30 211MW.

Despite the government’s assurances that there is no crisis, energy analyst Ted Blom believes the situation is likely get worse this winter.

The loss of capacity caused by planned and unplanned outages suggested that Eskom’s energy availability could drop to 60% of its total on a “prolonged basis”, he said.

Eskom’s total capacity is 41 990MW but its available capacity – the actual amount of electricity that can be provided to the grid – can vary from day to day.

The completion of the Medupi and Kusile power stations could each add a nominal 4 800MW to the grid. But construction has been substantially delayed and Medupi is only expected to be fully operational by 2019.

Deferred maintenance
Blom said there could be load-shedding for up to 12 hours in some parts of the country. 

The utility has blamed its past policy of deferred maintenance as one of the reasons for the current constraints. In a bid to keep the lights on, it previously postponed much-needed maintenance of its aging fleet, leading to a higher incidence of unplanned outages.

Eskom’s own forecasts for winter are bleak. It could be running on roughly half of its capacity during some weeks if there are not improvements in demand and supply.

According to its medium-term adequacy report, which forecasts peak capacity and demand, and incorporates “planned risk” and “likely risk”, Eskom predicts that, in the coming weeks, the planned risk will be roughly 9 000MW that is not available – 7 000MW for assumed planned outages and a 2 000MW reserve from generation.

But Eskom’s likely risk prediction is 11 000MW in losses.

Taking planned maintenance into Eskom’s forecasts, should the likely risk scenario play out, in some weeks the utility will be able to provide only about half the electricity it has available.

In the week of April 27, Eskom forecasts 37 190MW of available capacity. Assuming losses of 11 000MW under the likely risk scenario, as well as the loss of 6 583MW because of planned maintenance, only 19 337MW may be available.

Forecasts for the week of June 15 suggest these figures will be about 57% of available capacity and 51% of installed capacity.

But the report did indicate that, as of May, the assumed unplanned outages would be 5 500MW less, and that this figure and the associated risk would be reviewed.

Blom said one way to alleviate the constraints on the grid was to halt the supply of electricity to two of the aluminium smelters owned by mining giant BHP Billiton. The two, Hillside in KwaZulu-Natal and Mozal in Mozambique, consume about 5.68% of Eskom’s capacity. A third smelter, Bayside, is being decommissioned.

Thanks to special, commodity-linked pricing agreements with Eskom, the smelters also receive electricity at a deeply discounted rate.

This is particularly galling at a time when the price of electricity is expected to increase sharply.

The utility recently applied to the National Energy Regulator of South Africa (Nersa) to have its tariffs increased by 25%.

The details of the pricing agreements with Billiton were revealed in 2013 after a protracted court case between the company and the news group Media24.

At the time, Chris Yelland, an energy analyst and managing director of EE Publishers, calculated that the smelters paid a significant average of 27c a kilowatt less than other customers.

Review stalled
The contracts have resulted in major losses for Eskom in past financial years.

The utility applied to Nersa in 2012 to have these contracts renewed, but the process has stalled.

The regulator promised to release the review, given the public interest in the issue, but it told the Mail & Guardian this week that it is considering legal opinion over whether it has the mandate to deal with the matter.

It could not say when the review would be completed, but added that this would be only “when all aspects have been covered”.

The contracts include interruptability clauses, which allow Eskom to interrupt supply to the smelters for short times.

In response to questions, Eskom said it was making use of these provisions “whenever there is a system constraint and before Eskom declares [an] emergency”.

But the contracts remained valid and binding, said Eskom.

The current power shortages do not qualify as a force majeure according to the utility and, as such, it would be in breach of its contracts if it ceased supplying the smelters with electricity.

The matter is further complicated by a dispute over the termination of dates of the contracts, notably for the Hillside smelter.

Eskom is contracted to provide power to two of Hillside’s pot (production) lines until 2020. A supplementary contract was signed for a third pot line, which came on line in 2001, requiring Eskom to supply it until 2028.

Rooftop solar
According to Yelland, there is still a major disagreement between Eskom and Billiton over whether the supplementary contract covers all of Hillside’s pot lines. If it does, it would lock Eskom into supplying all three pot lines for a further eight years.

Blom said another way to reduce the strain on the grid was to allow greater take-up of rooftop solar power by households.

He calculated that, if all the country’s brick-and-mortar households installed solar panels, it could free up between 8 000MW and 10 000MW.

Blom was critical of the government’s so-called war room under Deputy President Cyril Ramaphosa, which was set up to address the electricity problem and the chronic instability at Eskom. Since its establishment late last year, it had “gone quiet”, he said.

The chairperson of the utility, Zola Tsotsi, recently resigned, following the suspension of some of its key executives, including its chief executive, Tsediso Matona.

But Brown said the state was “working tirelessly to ensure that we have adequate electricity supply”.

She apologised on behalf of the government “for the inconvenience anyone has suffered due to load-shedding” and thanked citizens for their patience.

Eskom would continue with its “preventative maintenance schedules” to its aging plants “so that the recovery to sustainable and reliable power generation is expedited”, she said.

“Eskom’s maintenance strategy and its execution are receiving focused attention from the war room to ensure that it delivers the improvements required in plant availability and plant performance,” said Brown.

“Eskom has deployed 30 experienced senior managers from head office to power stations to ensure that maintenance is done correctly.”

Other steps were being taken, including restoring the supply from the Majuba power station, where a coal silo collapsed last year. About 1 200MW had been recovered and Majuba was running at 85% capacity during peak hours.

BHP Billiton responds

Mining giant BHP Billiton previously stated its intentions to hold Eskom to the smelter contracts. It gave no indication this week that it has changed its position.

The mining house was participating in the National Energy Regulator of South Africa’s review process. It had provided relevant facts, including the cost of supplying Hillside and the contribution it makes to the economy, to assist the regulator in its decision-making processes, Billiton South Africa’s vice-president for corporate affairs Lulu Letlape told the M&G.

The creation of a new company, South32, to house its local operations “does not affect the current contracts”, she said.

The agreements allow Eskom to interrupt the supply of electricity at times when Eskom’s system is under stress, enabling the power utility to continue to supply electricity to other customers.

“Within the technical limitations of our plant, we have agreed with Eskom to provide more support during emergencies without risking our operations,” she added.

In the face of current power constraints, the smelters could not be treated differently from other industrial customers, said Letlape.

“The smelter contracts have conditions of supply which align with Eskom’s standard large power user contracts and the smelters will not be treated differently.”

Despite the past negative effect the contracts have had on Eskom’s bottom line through embedded derivatives, Eskom said that in 2015 it had realised a gain, though it did not indicate what this was in rand terms.



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