Despite the problems experienced at Eskom’s two new coal-fired power stations, Medupi and Kusile, where costs have ballooned and delays abound, the utility is going to go ahead with completing the projects.
This was revealed at a promised power systems update presented to journalists at Eskom’s Lethabo power station on Wednesday by the ministry of public enterprises, together with the utility’s board and management.
The power plants — built on a mountain of debt — have come in over budget and way behind schedule, playing havoc with Eskom’s finances. The utility’s debt now amounts to more than R420-billion and its revenues cannot cover its operating costs and service debt.
This has led to soaring tariff increases and repeated requests for government support. In February’s budget, the treasury agreed to further financial help, granting Eskom R23-billion a year for the coming three years. But this amount is likely to rise to as much as R150-billion in the coming decade.
According to Eskom chairperson Jabu Mabuza, the utility now anticipates a R250-billion funding gap.
It would cost in the region of R44-billion to complete both stations, at R18-billion each — to correct the various defects and design flaws identified at the stations would add roughly R8-billion.
To stop construction — which would involve incurring penalties of about R10-billion, paying for the preservation of the plant that has already been built (at R3-billion), and potentially having to incur further costs to restart construction at a later date (around R8-billion) — would cost around R21-billion.
While this meant a saving for Eskom of close to R24-billion, “there are bigger socioeconomic prices to pay”, Mabuza said.
Most important was the fact that there was “no answer” to the gap in power supply that would result if Medupi and Kusile were not completed. The utility would need to procure further supply to meet this gap, he said, but using figures supplied in the integrated resource plan, R24-billion could only buy 600 megawatts.
Furthermore, this would only come onstream in 60 to 66 months’ time. The cost of finishing the remaining units at both power stations would add close to 4 000MW to the grid, and this could be done sooner, as Medupi is currently 94% complete and Kusile is close to 89% complete.
There could also be further potential costs to the grid if both power stations were not completed — namely the risk of further load-shedding and procurement of diesel to run Eskom’s peaking power stations.
Load-shedding costs the economy R2-billion per day according to Mabuza; Eskom spent R50-million a day to prevent load-shedding by using its open-cycle gas turbines.
Halting completion of Medupi and Kusile would not put an end to the ageing of Eskom’s existing fleet, added Mabuza. Breakdowns at Eskom’s older power stations due to failure to implement proper maintenance at the plants — many of which are nearing the end of their lifespan — was a key factor in the latest round of rolling power cuts.
But academics and energy experts have argued that stopping construction on at least one of these stations — namely Kusile — made more economic sense than ploughing ahead with them.
In 2017, Meridian Economics published a research paper by authors Grové Steyn, Jesse Burton, and Marco Steenkamp. They effectively calculated that if it cost more than R5-billion to complete the last two units of Kusile, their running costs compared to bringing in alternative sources of energy would simply no longer be economically viable.
Burton, who is a researcher at the University of Cape Town’s Energy Research Centre, told the Mail & Guardian that it appeared that Eskom had been seduced by its attachment to the stations.
“What we showed is that for units five and six [the last units of Kusile] the running costs are comparable to alternatives and will be more expensive if you still have to spend capital [to complete them],” she said.
She said it was possible that fixing flaws in the units that had already been built may make financial sense, particularly given the state of the rest of Eskom’s coal fleet, which has grown increasingly unreliable.
But she pointed out that Kusile’s last unit was not expected to be online until 2021 or 2022. By this time there could be cheaper, replacement renewable energy online to fill the gap. The capital spent to build this would come from other investors so Eskom would not have to raise further debt or ask for more government bailouts. “If you don’t have capital — and Eskom [said] that they have a R250-billion funding gap — then reducing expenditure is of paramount importance,” she said.
Problems with Medupi and Kusile have been myriad. Official cost overruns on the plants have reached more than R300-billion. Eskom outlined serious design flaws at Medupi and Kusile in February, revealing that none of the units in commercial operation are consistently running at required load factors.
But Ian Morrison, co-convener of the technical review panel, and fellow member Phindile Mookesti, argued the stations could be “world-class assets” once the problems are addressed: “When we compare the two plants … globally, to the fleets across the world, Medupi and Kusile are not that bad,” said Mooketsi.
The new-build projects needed space in order to sort out defects, optimise maintenance and operations and then “we should have a world class asset,” Morrison said.