The Medupi Power Station in Lephalale
There is good and bad news on the electricity front. This week’s frosty weather prompted the highest demand so far this winter on the ever-strained Eskom system, but a growing energy consciousness has saved the country from power outages.
The power crunch will remain a concern for Eskom for the next two years, but savings have exceeded expectations because of consumers being spurred on by Eskom incentives and rising costs.
The target for energy savings far exceeded last year’s with actual savings of 1422 gigawatt hours for the past financial year against an aim of 1051GWh.
Industry and mining in South Africa, the most energy-intensive country on the continent, made up more than 40% of Eskom’s electricity sales for the year to end March, according to the parastatal.
Eskom’s key customer division – those using more than 100GWhs each year – had about 146 customers accounting for 34% of Eskom electricity revenues.
Key sectors
In Eskom's results for the year ended June 2011, almost 60% of savings for evening peak demand was owed to reduced use in residential lighting alone.
There are 4.7-million residential customers of which 40% live in rural areas.
Residents pay almost double per unit of electricity than major power consuming companies do. According to a Greenpeace South Africa research report titled “The Eskom Factor: Power Politics and the Electricity Sector in South Africa”, mining and industry customers paid 36.2c a kilowatt-hour in 2011 and direct residential customers paid on average 66.4c/KWh.
Natasha Michael, the Democratic Alliance’s spokesperson for public enterprise, said the importance of attracting investment to South Africa needed to be considered, as well as all the jobs these key sectors create.
Since Eskom’s inception of an integrated demand management programme in 2004, the industrial and mining sector has realised total demand savings of 585 megawatt – equivalent to almost a whole power station unit, Eskom chief executive Brain Dames recently said. The mining sector alone has realised the bulk of these savings with 406MW. But it comes at a cost because Eskom has paid some of its biggest energy users to not use electricity.
R1.8-billion was expended on a power buy-back programme between March and May when a handful of large customers volunteered or agreed to shut down plants completely for two months or more.
Incentives
“Approximately 1000MW were signed up under this programme,” Eskom spokesperson Hilary Joffe said. “Our conditions were that no jobs should be lost and customers should still be able to meet their commitments, so it only suited those customers who were in a position to do maintenance shutdowns anyway, or had low order books because of the commodity cycle.”
An ongoing demand-side management programme that compensates companies able to shut down their operations during peak times also helps to manage the power system when it is tight. Eskom has also implemented an energy conservation scheme, which sets energy allocations for the country’s 500 largest electricity users. This voluntary scheme may become mandatory. To date, 96 of Eskom’s 135 key industrial customers have been contracted.
But Leon Louw, executive director at the Free Market Foundation, warned that this was not good news and Eskom’s incentives would cause economic growth to stagnate. “They are rewarding companies for not producing,” he said, adding that the companies that got the incentives would not necessarily contribute to job creation.
These incentives certainly come at a cost, but Eskom’s profits have nevertheless soared by 60% to R13.2-billion in the past financial year. “It’s almost entirely due to the massive tariff increases that South Africans have had to endure in the recent past,” Michael said.
Tariffs have increased in the past three years by 24.8%, 25.2% and 16.09%, respectively. Eskom will soon apply to the regulator for more tariff increases. It said it would heed the need for economic growth and job creation, but would seek to balance this with South Africa’s need for a financially viable and sustainable electricity industry.
Cost-reflective levels
“Electricity tariffs are not yet at cost-reflective levels. They must continue to migrate towards those levels so that they can cover the full cost of producing electricity, as well as support the investment in infrastructure needed to ensure a secure supply of electricity for South Africa,” said Joffe.
Despite the strained system, Eskom said there were no planned power outages at a national level.
“If there was a sudden big event which could not be managed even using all the available levers, we would have to resort to load-shedding,” Joffe said.
Eskom expects some relief by the end of 2013 when the first unit of the new Medupi Power Station starts delivering power to the grid.
CORRECTION: In the newspaper version of this story, it was not stated the results of Eskom's savings were taken for the year ended in June 2011. This has since been recitified.