BUSISIWE MAVUSO: It’s cheaper for Eskom to build new plants than boost maintenance

POSTED ON: October 25, 2022 IN by Admin
Eskom Eskom

By Busisiwe Mavuso

With its debt service costs reduced dramatically, Eskom would be able to operate more freely, particularly in implementing its strategy to help resolve the energy crisis.

The relief to Eskom’s balance sheet when government takes over a big chunk of its R400bn debt will mark another major step forward in our struggle to stabilise our energy supply but it will only provide relief in the short to medium term. The amount will be confirmed in the medium-term budget policy statement this week but it’s expected to be around R200bn. It will then allow space for Eskom to take on much cheaper climate financing to unlock the Just Energy Transition.

This debt relief is one part of a broad range of interventions, many contained in the emergency energy plan announced in July, that are being implemented with the overall goal of increasing generation capacity by 15GW in the short term – the level Eskom says we need to close the current energy deficit to end the worsening power cuts.

It’s important to note there are many types of debt discussed related to Eskom. Debt relief is related to loans and bonds Eskom has outstanding. The other key issue is the problem of non-payments by both residents and municipalities. Municipalities owe more than R43bn to Eskom, of which more than R30bn is overdue. They also struggle to collect revenue: municipalities together are owed more than R120bn by residents. Many of these municipalities are plagued by maladministration, lack of capacity and corruption. That’s a political problem and until resolved, Eskom will never be a financially sustainable enterprise..

Eskom itself, with its debt service costs reduced dramatically, will be able to operate far more freely, particularly in implementing its strategy to help resolve the energy crisis. How it spends its newly available funds is important, bearing in mind that its debt will still be considerable and investments are needed in numerous areas, from repurposing power stations for the just energy transition to upgrading grid infrastructure to accommodate new power plants.

In the short term, the aim is to end loadshedding as quickly as possible. Much of the focus has been to increase Eskom’s energy availability factor – the amount of time that a plant is able to produce electricity over a certain period, divided by the amount of the time in the period. Eskom’s overall EAF has fallen from 65% last October to below 60%, which translates to just under 32GW against demand of 32GW-36GW.

Eskom has been ramping up its maintenance in the past few years but from very low levels after about a decade of neglect, and many of the plants are ageing. Some were supposed to have been decommissioned but were extended in 2016 by replacing components when they reached their end of life.

There’s a danger here of chasing unrealistic EAF targets. To put the argument in a nutshell, Eskom plant has deteriorated to such an extent that it’s cheaper to build new power plants with high levels of EAF than to increase maintenance of existing plant and infrastructure to reach the 75% EAF level that has been bandied about in the media.

With or without the debt relief, Eskom doesn’t have the amount of money that would be required to undertake a high EAF strategy. This wouldn’t be a bit of maintenance around the edges, it would in effect be paying to rebuild the old plants because they’re in such poor condition. And it will take time – plants would have to be taken offline for long periods, possibly up to two years, which would increase loadshedding stages over an extended period because there is zero reserve capacity, putting more strain on the plants that are operational, which itself will lead to more breakdowns and more unplanned outages.

The quickest route to achieving higher and more reliable energy supply and ending loadshedding is to generate new plants that allow some space for Eskom to spend enough on maintenance to stabilise EAF at round 60% until yet more new plants come online.

That’s where the focus needs to be and while there’s a pipeline of a potential 8GW in the short to medium term from projects announced since the market’s deregulation, the faltering Renewable Energy Independent Power Producers’ Procurement Programme needs urgent attention. The 2,583MW from bid window 5 is being delayed as many IPPs are struggling to reach financial close because of soaring inflation since it was held in 2021. Many of these projects will fail to close.  While bid window 6, with its 4,200MW of planned procurement, is a step in the right direction, it’s a drop in the ocean of the massive ramp-up of renewable generation required.

Much depends on the sense of panic that is engulfing the entire country over the energy crisis finally translating into a comparable sense of urgency in the Department of Mineral Resources and Energy.

• Mavuso (@BusiMavuso2) is CEO of Business Leadership SA. This article first appeared in Business Day.

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