Eskom burning through diesel again

Eskom’s use of open cycle gas turbines has spiked in recent months, with fuel spend on these peaking power stations soaring almost 30 fold since January.

Eskom’s spend on diesel for open cycle gas turbines (OCGTs) has risen from R4.67-million in January, to R43.62-million in February to R140.67-million in March, it said in response to questions from the Mail & Guardian.

The increased use of these plants – which are meant to help meet peak demand in times of constrained electricity supply and cost the company much more to run – come at a time when Eskom is under intense financial pressure.

It also comes at a time when South Africa is meant to have an excess of electricity supply. But it appears that due to a number of factors Eskom’s available generation capacity is lower than believed.

Eskom said its reserve margin is still high at 32.9%. The reserve margin is a calculation assessing the difference between the utility’s total installed capacity against the peak demand in a year. During the load shedding crisis it dropped to levels of around 5%.

But its energy availability factor (EAF) has declined substantially in recent months falling from 70.97%, in January, to 69.76% as of 26 March. According to a draft board report, leaked to the media last year, Eskom has been targeting an EAF of 78%. The EAF is a measure of power station availability across Eskom’s fleet taking into account any energy losses that are not under plant management control.

The Mail & Guardian understands that a number of issues have contributed to the need to increase the use of the OCGTs. These include planned maintenance of its generation fleet, which is typically done in summer; the placing of old, less efficient units into “cold reserve” and “extended cold reserve” to save costs as capacity has grown but demand for electricity by the economy has flattened; and an increase in unplanned outages – or technical failures at power stations. The picture is further complicated by issues of coal supply to certain power stations.

As a cost saving measure Eskom placed a number of generation units into cold reserve and extended cold reserve. According to the leaked report generators in cold reserve are taken offline but are available to be called back into service at short notice – typically 12 to 16 hours – while plant in extended cold reserve is considered unavailable, as it takes five or more days to return it to service.

But Eskom said that the increased used in OCGTs in February and March was primarily due to delays in units coming back from planned outage including 3 units at its Lethabo station which is on a half-station shut down. As well as some units having to go on planned maintenance that could not be delayed, including a refuelling outage at Koeberg.

“The expectation is that OCGT usage will ease from April as more units come back on line,’ it said.

Concern from one industry insider was that the added risks of running the expensive OCGTs when Eskom was in the midst of a cash flow problem was more acute than the risk of a return to the “bad old days” of load shedding.

But Eskom said that although any changes to its operating regime “will impact on its short-term liquidity”, there was currently “no material impact” as it was expecting a number of units to return from maintenance.

Until recently Eskom has been unable to raise funds on the debt markets because of funders’ concerns over governance- precipitating a liquidity crisis.

But following the replacement of Eskom’s board, and the appointment of a new acting chief executive Phakamani Hadebe, Eskom was able to secure a bridging loan from the Public Investment Corporation – after which it reached agreement with a number of local banks for a syndicated loan of R20-billion.

“Eskom has, however, seen improving investor sentiment and has been able to secure some domestic funding after the R20-billion loan,” the utility told the Mail & Guardian.

“There is a growing appetite with more investors wanting to buy Eskom bonds.”

On Tuesday, Hadebe reportedly told parliament that it had managed to raise around R43-billion from the market.

The electricity supply picture is further complicated by questions of coal stocks at power stations, some of which have been at the coalface of controversy over contracts with Gupta-linked companies.

Eskom’s coal stockpiles are massively distorted by coal stored at its new plants Medupi and Kusile, which are not fully operational, as well as Lethabo, which is partially shut down. Stripping out the coal at Medupi and Kusile, as well the excess at Lethabo, Eskom’s coal stockpiles stand at 29.2 days. This is below the overall target of 37 days.

Late last year the report flagged problems with coal supply to Arnot, Tutuka and Majuba Power Stations.

One of the companies contracted to supply Arnot, on a short term basis, was Tegeta, owned by the controversial Gupta family. Tegeta also supplies Hendrina after it bought the Optimum coal mine. Tegeta’s Braakfontein mine supplies Eskom’s Arnot power station, while its Koornfontein mine supplies the Komati power stations. The company however, along with others in the Gupta stable, has been placed into business rescue.

But Eskom said coal supply has not contributed to levels of unplanned outages.

Instead these have been driven by unit breakdowns, and exacerbated by those requiring long periods to repair, as well as units on planned outages returning later than the original planned date.

In response to specific queries about supply to Tutuka, Majuba, Arnot and Hendrina Eskom said there was “continuous supply” to these stations whilst stockpiles are low.

It added “more coal contracts are being concluded and will add to the current supply”.

In the past, Eskom published on its website a detailed medium term adequacy report, with weekly peak capacity and demand forecasts to indicate the health of the power system. It also sent out biweekly state of the system bulletins through its media desk, while a national “power alert” campaign was broadcast on television – advising consumers during peak times whether they needed to switch off major appliance to reduce electricity demand.

The medium term adequacy report is now published annually in October and no weekly demand and capacity forecasts are included. Its bulletins were discontinued in May 2015 and the power alert is no longer broadcast. These changes have been seen as a failure of Eskom to be transparent with the public.

Instead Eskom is actively trying to boost electricity demand as its sales have plateaued as growth in the economy has plummeted in recent years and consumers have sought out alternative supplies.

But civil society group, the Organisation Undoing Tax Abuse (Outa) has written to Eskom’s new board, requesting that the company begin supplying this kind of information publicly again.

“In the quest for civil society to understand the efficiency of Eskom, we need to have the information,” said Outa’s Wayne Duvenage.

“This is what transparency of state owned entities is about and we are entitled to that information.”

This kind of information keeps the public and civil society better informed particularly in relation to the multi-year price determination process, he said. It would also improve governance as transparency made it better to hold Eskom to account he said.

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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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