Eskom faces rising surplus or plant closures

Eskom’s local power surplus is set to rise as it brings on more generation capacity at a time when local demand for energy has dropped to an 11-year low.

The rising surplus means that Eskom will have to start closing its highest-cost power stations to save costs.

Failing this, it will face increasing financial pressure as it could ultimately struggle to find a buyer for the surplus power, either locally or in the region.

Last year, Eskom’s power sales fell to 214 121GW of power – the utility’s lowest energy sales since its 2006 financial year when it achieved energy sales of 207 921GW.

Eskom already has a surplus in the region of 4 000MW at any given time as it has brought on 9 157MW of extra capacity power since 2005.

Over the five years from April this year to March 2022, it is planning to add more than 7 000MW of extra capacity; yet, during this time, forecasters are expecting local economic growth to stay below 2% per year, so little of the extra capacity is going to be absorbed by local demand.

Thava Govender, transmission executive at Eskom, said this week “if there is no growth and we continue to see negative growth, that surplus will go to between 3 000MW and 5 000MW and continue to grow beyond that”.

In its results presentation material, Eskom noted: “Surplus capacity currently exists and is projected to grow steadily over the next three years.”

Some of the oldest and most costly coal-fired power stations that Eskom has in operation include Camden, Grootvlei, Kriel, Komati and Hendrina, all in Mpumalanga, which together have a generation capacity of 9 400MW.

However, in May, Eskom reversed a decision to close five power stations to maintain the jobs of its employees as well as those employed at the coal mines that supply the stations.

Eskom is selling part of the surplus power to customers in the rest of southern Africa, with international power sales increasing by 12% in the year ending March to about 15 000MW.

Eskom’s installed capacity now stands at 44 134MW.

Chris Yelland, managing director of EE Publishers, said that over the past decade, local consumption had dropped as the price of power skyrocketed, which prompted more efficient use of power.

The relationship between economic growth and local power use had decoupled as the country became less dependent on primary industries and manufacturing and shifted toward the less power-intensive service sector.

Yelland said that an increasing power surplus would lead to Eskom having to close its high-cost power stations to save money.

Eskom is also looking to reduce its use of government guarantees. It has drawn R215 billion of its total of R350 billion in government guarantees.

That said, Eskom’s acting CEO, Johnny Dladla, said that the utility would be releasing R105 billion in government guarantees over the next two years by converting this debt to unguaranteed debt.

Eskom’s chief financial officer (CFO), Anoj Singh, said the replacement debt could be raised from export credit agencies.

The reduction in Eskom’s reliance on government-guaranteed debt would reduce the burden on the fiscus, Eskom said in its annual report.

Eskom has lost control of debt owed by municipalities, despite threatening local authorities with power cuts and entering into payment arrangements.

Municipal debt owed to Eskom rose from R6 billion at the end of March last year to R9.4 billion at the end of March this year.

Eskom has payment arrangements with 60 municipalities of which 20 are honouring these agreements, 11 are “partially” honouring the arrangements and 29 are in default.

In Soweto, R5.3 billion in debt, before interest, is owed to Eskom and 99% of this amount is overdue and unpaid.

Eskom has R32.4 billion in debt owed to it by industrial power users and municipalities, of which R15.4 billion is within due date and R17 billion is overdue.

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