The story unfolds with South African power utility Eskom. Eskom's electrical generation capacity is facing production problems due to poorly performing machines, poor quality coal, and new power plants struggling to come on line. Despite all its promises, last year Eskom was not able to activate the first unit of its 5,000 megawatt (MW) Medupi plant – set to be one of the largest coal power plants in the world.
The cost of this super-critical coal plant has ballooned despite soft loans from the World Bank. Medupi is now three times what the original estimates were, and is beset with technical problems ranging from software bugs to steam to run the turbines. The full story of the problems at Medupi is still to be told, but every grand-opening countdown so far has been delayed by another few months.
Eskom managed the whole procurement of Medupi internally, and has been struggling with problems from the start. With the African National Congress (ANC)'s own investment company Chancellor House co-investing with Hitachi, a provider of boilers, the procurement process has left lingering questions about links to back-handed deals. To be fair, Hitachi did win the boiler contract deal several years prior by default when the preferred bidder withdrew. Nonetheless, links to the ANC business arm have somewhat tarnished the image of the Medupi project.
Besides this, coal plant economic performance is also linked to downstream activity. The government is pushing Eskom to procure coal from companies that have strong black-empowerment credentials. Most of these deals are through short-term contracts to Eskom's power plants, which have been adding to plant costs since short-term contracts are costlier. Some estimates peg the yearly additional cost to Eskom's budget at 20% per annum at compounded rates.
Despite all of this, a different complex of issues is strangling Eskom's ability to function efficiently both internally and externally.
There seems to be no end to the recurrence of problems within Eskom’s organization, and nobody knows what the truth is anymore. Each week top managers leave Eskom, and the company is facing an increasing threat of high turnover of its experienced staff. So as the energy crisis progresses, the energy utility at the center is busy hollowing itself out of critical skills and experience.
The crisis is leaving Eskom a beleaguered and aimless ship full of panic. Financially the company is bleeding cash because it must run diesel power at greater volumes and higher cost. It is also losing political influence, and its new CEO has no hands-on experience running a power utility. There is a general and growing lack of confidence in Eskom.
A common South African street joke these days is that Eskom is the only company in the world discouraging its customers from using more of its product, which tells you the perilous state South Africans are in. The consequence of rolling blackouts and unstable electricity supply is the strangling of an already struggling economy. Small businesses are worried and growth is moving into negative territory. The patience of every citizen bound and vulnerable to this single monopoly is wearing thin.
No single reason presents itself for why South Africans are at this historical energy juncture, but it is a fact. Playing the blame-game does not change ground realities – the new government holds the problem, and its image is harmed and its credibility eroded each day the crisis continues. This weakness, whatever the source, becomes the happy feeding ground for political opponents.
How the current South African government handles the energy crisis is more important than whoever critics think is to be blamed for the ANC’s turmoil over the last 20 years. Eskom is responsible for a grid transmission system the size of Western Europe, which generates 95% of the country's power supply mostly from coal.
South Africa is the largest energy producer on the African continent. To put it into perspective, Nigeria has a population of 120 million while South Africa has 50 million; while Nigeria’s energy generation capacity is a mere 5 gigawatts (GW), South Africa's is around 42GW. Most of Nigeria runs off diesel, wood, and kerosene. If South Africa experienced a total black-out as California once did, it would not have the luxury of drawing from other nearby states to get working again. South Africa's grid and power system are an island system.
To deal with the crisis, the South African Presidency has set-up a "War Room" – so-called perhaps either as a war against time, or out of sheer loss of direction and disbelief. Eskom has been barred from participation in the room to ensure independence and to bring the real truth of Eskom's situation out. Until as recently as last year, Eskom managers were hoping that the underlying problems could be suppressed, and they might have even been saved if Medupi had eventually come on line. However, the forces of reality have seen to it otherwise.
What these underlying problems are remains to be seen, but a public trying to grapple with the reality is starting to make sense of the tight veil of secrecy. The sentiment remains that nobody knows the whole truth yet. It lends credibility to the argument that every power plant should have a daily report – like in other countries – about how much power can be expected from a plant for the day, at what cost, how much can be dispatched, if it is going to be off line, and the reasons why.
Such transparency does not exist in South Africa, even when accidents happen such as the explosion at Duvha in 2011, where a 600MW generator unit was destroyed single-handedly by what some claim to be inexperienced staff. The investigation into the causes of this damage remains a secret to this day, three years later.
The energy crisis not only causes panic but also a shortening of the national attention span. Hundreds of experts and knowledgeable institutions throw around ideas of how to rescue South Africans from the crisis. Meanwhile, any focus on Eskom and the people running the War Room is all short-term. And, so it will be for the next six months as the “War Room” tries to solve the Eskom crisis. There is a great opportunity for renewables here as we have low reserve margins. But the vulnerability for renewables taking off again depends on Eskom being fixed first and money injected into its bank balance.
Over the past four years, utility-scale renewables have seen unprecedented growth.The South African government has procured close to 4GW from independent producers through Renewable Energy Independent Power Producer Procurement (REIPPP) program. The program’s future hangs in balance, though, as there are still another 15GW needed according to the 2010 integrated resource plan. The IRP target of 19GW by 2030 could be more ambitious so as to main the installed capacity over a sustained period to see also growths in jobs and localization..
Some detractors blame renewables for the crisis, but this is a completely nonsensical argument given how little electricity is generated from renewables at the moment. At present, South Africans have no luxury: we should mobilise any modular technologies that can be built quickly, such as has been shown for large-scale wind and photo-voltaic plants.
South Africa must find an additional 5GW of energy within the next two years to place it in a safe space. Some of this could come from utility-scale renewables, but it seems the fastest way will be to create more flexibility for large firms and upper-income households to generate electricity for themselves, with government subsidies for solar water heaters for poorer households. The full potential for distributed generation through citizens’ agency has not been fully exploited. Once again, conservative mindsets in municipality electric departments combined with Eskom have been the ones hindering progress. They simply do not see the light, and use old, recycled, technical arguments to stall or even prevent new options from being realized.
They should not wait for the more drastic decision of taking energy intensive users – e.g., mining companies and smelters – totally off the grid for the next few months. This, a so-called red scenario, is not palatable at the moment, but would be the only way to boost power reserves if faced with a potential total country-wide black-out. Such a scenario’s economic consequences in terms of loss of output, export earnings, and job losses, are too severe to be contemplated as an available option, let alone as a last resort.