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ESKOM'S Frankenstein monster looks intent on making a comeback, the unwelcome beast.
It’s been five years since South Africa has seen load shedding, a lifetime for a five-year-old but for some it feels like yesterday.
How can anyone forget the summer of ’08 when the malls blacked out at 12, or the hospitals that had to scramble for generators so that they could keep doing life-saving operations?
At a time when the world was seeing a massive commodities boom, South African mines had to shut down operations as Eskom couldn’t guarantee electricity supply.
A horror scenario.
The load shedding of 2008 had an enormous effect on the current state of the economy and came at a huge cost. In fact, the National Energy Regulator of SA (Nersa) in 2008 published a report saying it had cost the economy R50bn.
What’s behind the latest noises from government, which seem to indicate we should start buying candles and steel ourselves for more load shedding?
The main cause for the growing concern seems to be that Eskom has not been granted the tariff hikes it applied for at the end of 2012.
Last year Eskom applied for tariff increases of 16% per year for five years. This followed on a period of three years of increases that were, on average, 25% per year.
Eskom made it clear that it needed the increases to keep the country's lights on.
The power utility is busy with a capacity expansion programme that will cost R337bn and add 17 000 megawatts (MW) of new generating capacity to the national electricity grid by 2018/19.
This massive build programme, the country’s largest since the dawn of democracy, will add more than a quarter to the country’s total generation capacity by the time it is completed.
To finance the programme, Eskom has raised more than R180bn in debt on local and international capital markets. It expects to increase this to over R360bn by the end of the current build programme.
And therein lies the rub, because how does Eskom finance this massive debt?
Nersa's tariff shock
The company is sitting with a weak balance sheet and a shareholder that has indicated it will not be putting huge amounts of equity back into the company anytime soon. That left only two viable alternatives.
The first is to generate some equity itself, and for Eskom the easiest way to do this would be to sell off one or two of its more modern power stations.
The second alternative lies with increasing profit, and to do that Eskom needs to generate more revenue. To achieve this, tariffs need to be increased - and substantially so. Hence Eskom’s request to Nersa for a tariff proposal of 16% per year.
Aside from Eskom’s debt programme, it also has to keep operations running and with escalating costs, this is proving a difficult challenge.
Coal costs alone are expected to rise from R35bn in 2012/13 to R57.7bn in 2017/18. This is a serious problem.
Eskom still insists the cost of generating electricity is not fully covered by existing electricity prices. Cost-reflective prices are critical to enable Eskom to recover the cost of producing electricity, while supporting the finance needed to build new power stations.
But now Eskom has not received its 16% rise, with Nersa granting increases of 8% per year only over the next five years.
While consumers will breathe a sigh of relief, this may have dire consequences as it leaves Eskom with a shortfall of around R190bn over the next five years it has no idea how to finance.
Eskom’s new build programme is already on average 18 months to two years behind schedule, with more delays expected due to labour unrest. As demand starts to exceed supply, Eskom is already using its last resort peaking power plants more and more.
This costs Eskom dear, due to the huge cost of the fuel needed to run open cycle gas turbine peaking power plants.
The company is increasingly pointing out its tight margins in the media, and on various platforms is urging consumers to use electricity sparingly.
Eskom simply wants demand not to outstrip supply, as this would surely lead to new load shedding.
It cannot build the new power stations any faster, so the alternative is that South Africans have to help to keep the lights on. We also need to start thinking outside the box to try and prevent load shedding.
How to avoid load shedding
So what can we do to prevent this?
Crack down on electricity theft
It is estimated that up to 1 000MW of electricity gets stolen by illegal connections, and many businesses are also culprits in this regard.
Institute daylight saving time
Don’t get why this hasn’t been tried in South Africa before. Cape Town people should put their watches 90 minutes ahead of Gauteng people. This means that the 7pm peak period, when everyone's cooking and showering, will be split in two, lowering the demand. Ergo 7am in the morning.
Switch off geysers and pool pumps
It is estimated that if 4 million houses switched off geysers, load shedding could be prevented.
Essentially, the core problem occurs between 5pm and 9pm when most people arrive home from work. This is a major problem, especially during winter when demand can jump by about 3 000 MW in an hour - more power than our neighbouring countries use.
It's time to cut back on electricity usage or face the impact of load shedding and frankly, there are too many people in the world already to risk protracted periods of blackouts with no TV.
- Fin24
*Follow James-Brent Styan on Twitter at @jamesstyan. Views expressed are his own.
It’s been five years since South Africa has seen load shedding, a lifetime for a five-year-old but for some it feels like yesterday.
How can anyone forget the summer of ’08 when the malls blacked out at 12, or the hospitals that had to scramble for generators so that they could keep doing life-saving operations?
At a time when the world was seeing a massive commodities boom, South African mines had to shut down operations as Eskom couldn’t guarantee electricity supply.
A horror scenario.
The load shedding of 2008 had an enormous effect on the current state of the economy and came at a huge cost. In fact, the National Energy Regulator of SA (Nersa) in 2008 published a report saying it had cost the economy R50bn.
What’s behind the latest noises from government, which seem to indicate we should start buying candles and steel ourselves for more load shedding?
The main cause for the growing concern seems to be that Eskom has not been granted the tariff hikes it applied for at the end of 2012.
Last year Eskom applied for tariff increases of 16% per year for five years. This followed on a period of three years of increases that were, on average, 25% per year.
Eskom made it clear that it needed the increases to keep the country's lights on.
The power utility is busy with a capacity expansion programme that will cost R337bn and add 17 000 megawatts (MW) of new generating capacity to the national electricity grid by 2018/19.
This massive build programme, the country’s largest since the dawn of democracy, will add more than a quarter to the country’s total generation capacity by the time it is completed.
To finance the programme, Eskom has raised more than R180bn in debt on local and international capital markets. It expects to increase this to over R360bn by the end of the current build programme.
And therein lies the rub, because how does Eskom finance this massive debt?
Nersa's tariff shock
The company is sitting with a weak balance sheet and a shareholder that has indicated it will not be putting huge amounts of equity back into the company anytime soon. That left only two viable alternatives.
The first is to generate some equity itself, and for Eskom the easiest way to do this would be to sell off one or two of its more modern power stations.
The second alternative lies with increasing profit, and to do that Eskom needs to generate more revenue. To achieve this, tariffs need to be increased - and substantially so. Hence Eskom’s request to Nersa for a tariff proposal of 16% per year.
Aside from Eskom’s debt programme, it also has to keep operations running and with escalating costs, this is proving a difficult challenge.
Coal costs alone are expected to rise from R35bn in 2012/13 to R57.7bn in 2017/18. This is a serious problem.
Eskom still insists the cost of generating electricity is not fully covered by existing electricity prices. Cost-reflective prices are critical to enable Eskom to recover the cost of producing electricity, while supporting the finance needed to build new power stations.
But now Eskom has not received its 16% rise, with Nersa granting increases of 8% per year only over the next five years.
While consumers will breathe a sigh of relief, this may have dire consequences as it leaves Eskom with a shortfall of around R190bn over the next five years it has no idea how to finance.
Eskom’s new build programme is already on average 18 months to two years behind schedule, with more delays expected due to labour unrest. As demand starts to exceed supply, Eskom is already using its last resort peaking power plants more and more.
This costs Eskom dear, due to the huge cost of the fuel needed to run open cycle gas turbine peaking power plants.
The company is increasingly pointing out its tight margins in the media, and on various platforms is urging consumers to use electricity sparingly.
Eskom simply wants demand not to outstrip supply, as this would surely lead to new load shedding.
It cannot build the new power stations any faster, so the alternative is that South Africans have to help to keep the lights on. We also need to start thinking outside the box to try and prevent load shedding.
How to avoid load shedding
So what can we do to prevent this?
Crack down on electricity theft
It is estimated that up to 1 000MW of electricity gets stolen by illegal connections, and many businesses are also culprits in this regard.
Institute daylight saving time
Don’t get why this hasn’t been tried in South Africa before. Cape Town people should put their watches 90 minutes ahead of Gauteng people. This means that the 7pm peak period, when everyone's cooking and showering, will be split in two, lowering the demand. Ergo 7am in the morning.
Switch off geysers and pool pumps
It is estimated that if 4 million houses switched off geysers, load shedding could be prevented.
Essentially, the core problem occurs between 5pm and 9pm when most people arrive home from work. This is a major problem, especially during winter when demand can jump by about 3 000 MW in an hour - more power than our neighbouring countries use.
It's time to cut back on electricity usage or face the impact of load shedding and frankly, there are too many people in the world already to risk protracted periods of blackouts with no TV.
- Fin24
*Follow James-Brent Styan on Twitter at @jamesstyan. Views expressed are his own.
