[DEBATE] : (Fwd) Eskom power cuts
pbond at mail.ngo.za
Fri May 23 05:38:31 BST 2008
(Finally some sense dawns at Megawatt Park: "Earlier on Thursday, Eskom
said it interrupted supplies to aluminium smelters late on Wednesday,
the SABC reported." And nonsense from Anton Eberhard on the need to
privatise electricity generation.)
Power cuts expected
22 May 2008, 19:45
Power cuts could be expected between 5pm and 10pm on Thursday due to
technical problems at power stations, Eskom announced.
"About 16 percent of Eskom's installed capacity is currently not
available due to planned maintenance, unplanned outages, and load losses."
The power utility said any additional technical problems that may arise
during the Thursday evening peak period would compel Eskom to introduce
emergency power cuts.
"Emergency load shedding remains a measure of last resort after Eskom
has utilised all available resources, including gas-fired and
hydroelectric generating plant, and after existing demand market
participation agreements with large industrial customers have been
Eskom said in the event of power cuts on Thursday night, it would cut
off areas according to its previously drawn-up schedules available at
"Eskom is appealing to all South Africans to intensify their drive to
save electricity during tonight's [Thursday's] peak period."
The power utility said all consumers were urged to continue treating
connections as live and recommend that during the cuts all appliances be
switched off, rather than being left to come back on immediately when
power was restored.
Earlier on Thursday, Eskom said it interrupted supplies to aluminium
smelters late on Wednesday, the SABC reported.
The utility said this occurred as colder weather boosted demand and six
power plants required repairs.
The utility's demand side general manager of Eskom Andrew Etzinger told
the public broadcaster of Eskom's installed capacity of 40,274
megawatts, 6156 megawatts was out of service.
This left 34,118 megawatts available and Etzinger said they expected
the, demand to peak at 33,567.
Six coal-fired plants had generator units out of service because of
breakdowns, including boiler-tube leaks, and scheduled maintenance work.
22 May 2008
On the private road back to power supply security
IT IS now inevitable that the private sector will have an expanded role
in restoring electricity supply security in SA. This may seem a
surprising assertion, given Public Enterprises Minister Alec Erwin’s
recommitment in Parliament last week to the “vanguard role of
state-owned enterprises (SOEs) in powering a developmental state”.
Yet serious initiatives to secure increased private investment in
electricity generation have already begun. Eskom is running three
separate processes to contract private power.
Erwin does not, of course, rule out private participation. He talks of
the advantages of SOEs accessing private capital markets and also of
entering into partnerships with local and global companies that can
provide access to new strategic technologies. Yet he remains deeply
committed to building a developmental portfolio of SOEs in areas such as
network infrastructure (electricity, freight transport and broadband) in
order to pursue public and strategic objectives.
Eskom remains one of the government’s foremost champions in achieving
this vision. Yet, as Allister Sparks argued on these pages a few weeks
ago, Eskom’s failure to keep the lights on reveals the limits of the
developmental state. Eskom used to be regarded as SA’s premier SOE.
Since 1994, Eskom has provided electricity to more than 3,5-million new
households. In 2001, the Financial Times of London named Eskom “Power
Company of the Year”. In 2004, it received the Markinor Sunday Times
award for SA’s “most admired brand”. Such awards are now inconceivable.
Yet many within the African National Congress and the government still
hold a deep antipathy to the role of the private sector in
infrastructure. In part this stems from an old ideological stance around
the role of the state. But it is also informed by unfortunate
experiences with private sector participation. The strategic equity sale
of part of Telkom resulted in neither improved services nor lower costs.
This was not surprising given the fact that the government did little to
mitigate the market power of this new private monopolist. Yet the
enduring memory of many in government is that we were screwed by the
Some government ministers still believe that the power crisis is a
result of the private sector not investing in 2001 -04, when a
competitive market was being designed. A more recent example is the
collapse of negotiations with a private investor to build 1000MW of
peaking plant. In December 2003, the cabinet mandated the minerals and
energy department to run a competitive tender for independent power
producers (IPPs). Five years later, the process is in disarray, in part
because the preferred bidder demanded changes that were so far from the
original tender that even the project’s senior lenders walked away
because of the risk of legal challenges to the legitimacy of the process.
But the ultimate lesson from these examples is not the futility of
private sector investment in infrastructure — too many successful
international examples could be cited. Rather, it is the importance of
state institutions learning how to contract the private sector more
effectively. The department’s IPP bid process was excruciatingly slow
and complex. Thousands of pages of clarifications were issued along the
way to bidders. Key issues remained unresolved for long periods. No
reserve bidder was retained. It is sobering to note that even if the
department had reached financial closure, the plant would only have come
on line in 2010, seven years after the process started. A similar tender
in Jordan, also for an open-cycle gas-turbine plant, commenced later and
the same bidder, AES, is already producing power. Across Africa, there
are more than 40 IPPs, many of them in countries with investment
climates much more challenging than ours.
Prior to the recent tender, there was no way for the private sector to
enter the South African power market. The government had abandoned plans
for a power exchange where private generators could sell electricity and
there was no contracting framework for IPPs. With Eskom’s average
electricity price less than half the price of new power, no consumer
would contract directly with IPPs. The only way for IPPs to enter the
market would be to sign a long-term power purchase agreement with Eskom
who would then average out prices for consumers.
And that is what will now happen, not because of any ideological shift,
but rather because there is no alternative. Eskom is quietly getting on
with the process of contracting private generators. It is doing so
because it understands that even if it restores its coal stockpiles and
gets its existing generators to operate more reliably, and even if the
price of electricity rises to more economic levels and consumers save
electricity, and even if its own investment programme in new generation
capacity delivers on schedule, we will still be short of power over the
next five to seven years. As one Eskom executive put it, Eskom’s “big
coal, big nuclear and big networks” investment strategy will take time
to materialise; multibillion-rand base-load power plants take years to
plan and build.
In the meantime, the private sector can potentially offer smaller, more
flexible and quicker solutions in the form of IPPs and industrial
co-generation plants (using waste combustible materials and heat to also
generate electricity, which can be fed back into the grid).
Crucial to the success of these programmes will be a robust, transparent
and fair contracting framework. Eskom staff are starting to learn
valuable lessons in negotiating with potential private suppliers. They
have also engaged experienced international legal and financial
transaction advisers. It will be critical that contracts are as clear
and as simple as possible so certainty is provided and investment
decisions are made as soon as possible. It is encouraging that, in its
medium-term power purchase programme, Eskom appears to have revealed its
avoided cost and has indicated it is willing to contract at prices of
between 65c/kWh and 105c/kWh between 2009 and 2013, falling
progressively from 2014 to an eventual level of 35c/kWh in 2018. These
prices are very much higher than its current sub-economic tariffs.
But the current procedures for contracting the private sector also
create potential contradictions. In effect, Eskom will be acting as a
single-buyer of power produced by IPPs, while at the same time also
investing in its own generation plant. Ideally the planning,
contracting, system operation and transmission functions of Eskom should
be in a separate and independent institution, but major restructuring
will be unwise and is unlikely in the midst of a power crisis.
Nevertheless, careful thought should be given to an institutional design
and governance mechanism that gives the regulator, investors and
consumers confidence that Eskom is procuring and contracting
transparently and fairly.
Even if state-owned utilities such as Eskom (and also Transnet and
Infraco) remain strategic instruments to realise government policies,
their difficulties in delivering reliable and appropriately priced
infrastructure services reveal the limits of the developmental state and
hence the imperative to also facilitate private sector participation.
Therein lies the core challenge for the government. We shall be able to
provide reliable and competitively priced electricity (and transport and
telecommunications) only to the extent that the government learns to
contract the private sector effectively, or introduces private
competition where that is possible.
# Eberhard is a professor at UCT’s Graduate School of Business. This is
the final article in a series assessing progress towards restoring power
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