Mothball old Eskom plants early to save money, argues economist

Cape Town - Power utility Eskom is in a sustained financial crisis which has led to the highest tariff increases since the World War II, Dr Grové Steyn of consulting firm Meridian Economics told the National Energy Regulator (Nersa) on Monday.

This crisis at Eskom has also contributed to repeated downgrades with more to come, said Steyn on the first day of Nersa’s public hearings into Eskom’s application for tariff hikes in Cape Town.

• READ: Why Eskom is asking for a 19.9% tariff hike

Steyn said Meridian Economics is about to finalise a study on the economics of decommissioning Eskom’s older power stations and curtailing the power utility's capital expenditure programme.

“This financial crisis of Eskom, in our understanding, is caused by rapidly escalating costs over the last years due to enormous capital programmes and stagnant demand,” said Steyn.

“The main reasons for the rapidly escalating costs, in our view, are [...] costs like human resources and primary energy costs, especially coal.”

Some of world's priciest coal power

Steyn said that Eskom’s construction programme is the main driver of its cost increases. This includes the likes of the Medupi and Kusile power plants, both highly complex projects, which he argued have resulted in some of the most expensive coal power in the world.

“Eskom said that due to surplus capacity and the age of some of its coal-fired stations, some power stations may have to be decommissioned earlier than originally anticipated,” said Steyn.

Meridian Economics looked at what the result would be of an earlier decommissioning of older power plants such as Arnot, Camden, Grootvlei, Hendrina and Komati, as well as not completing Kusile units 5 and 6.

“I say let’s plan and deal with Eskom rather than wait to deal with a bigger Eskom crisis. A lot of these (older) power stations are not burning a lot of coal anyway, so the impact is already there,” said Steyn.

“SA has an independent regulator like Nersa because politics fail. That is why we have institutions to help us against the worst decisions which can be made.”

Steyn said it would be unrealistic to expect Eskom to immediately stop spending money on older power stations, but he would like to see Nersa tell the power utility that it needs to show it has practical plans to shut these stations down responsibly.

“So if we are right and this is the cheapest route forward for Eskom, then this is the best way forward and then, if Eskom does not have a plan for that, then Nersa should be aware thereof,” said Steyn.

“My view is that, given the technology revolution already in the industry, Eskom does not need to plan any more for ten years in advance – SA can procure the most efficient plant we need and have it in a few years.”

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