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Analysis
Eskom: from a crisis of capacity, to a crisis of rising prices, declining demand and funding
by Chris Yelland, investigative editor, EE Publishers
An energy sector leader recently observed that the electricity crisis in South Africa is maturing (perhaps like cheese), from generation capacity issues, to issues of the electricity price, tariffs, the price elasticity of demand, and the capacity of Eskom to finance its generation, transmission and distribution activities.
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Amid the onset of regular load shedding in late 2014, a so-called "War Room" was established comprising representatives from various government departments and Eskom, and headed nominally by Deputy President Cyril Ramaphosa. This was not a creature of statute, but a temporary structure intended to focus on five core short-term issues that had been identified, and to complete its work in a timeframe of six months or so.
While it may appear that the War Room interventions and new leadership at Eskom have stabilised the generation capacity crisis, we should take little comfort that load shedding has stopped when electricity demand in 2015 is some 5% less than in 2014, and about 10% lower than it was in 2007.
Fig. 1: Week-on-week Eskom demand (MW): 2013, 2014 and 2015
The further 5% drop in demand in 2015 has indeed provided welcome space for Eskom to keep planned maintenance levels at about 5000 MW without the need for load shedding in recent months. However, recovery from the generation maintenance backlog is a long haul.
The reality is that Eskom's generation plant availability has not yet improved to where it should be (i.e. 80% or more), but has reduced further since 2013 and 2014, and has remained flat in 2015 at about 72%, despite statements to the contrary by Minister Lynne Brown based on information fed to her by Eskom. But while plant availability in 2015 has further declined, the decline in electricity demand has been greater still, thus staving off load shedding, at least for the time being.
Fig. 2: Eskom plant availability: Week-on-week energy availability factor, EAF: 2015 vs. 2014
However, the recent application by Eskom to NERSA to claw back variances in revenue and costs for the first year (2013/14) of the multi-year price determination period from 1 April 2013 to 31 March 2018 (MYPD3), clearly illustrates the problem.
The decline in energy sales volumes and the increase in operating costs from those projected for the 2013/14 financial year in MYPD3, has resulted in a claim by Eskom for an additional R22,8-billion to be recovered via the tariffs in 2016/17 from the paying customers of electricity. This is made up of a R11,7-billion claim from reduced sales volumes, and an R11,1-billion claim from increased operating costs dominated by higher than projected diesel costs of some R8-billion in 2013/14.
In August 2013, Eskom claimed a claw-back of R18,4-billion (and was granted R7,8-billion by NERSA) for the full three-year MYPD2 period (2010/11, 2011/12 and 2012/13). This has now risen to a claim of R22,8-billion for the single 2013/14 financial year, and is expected to rise still further for 2014/15 and 2015/16 based on known further reductions in electricity demand and rising costs in these years.
Claw-backs via the tariffs will add significantly to the electricity price trajectory, over and above the 8% per annum granted by NERSA over the five-year MYPD3 period. A compounding problem arises from the elasticity of electricity demand in the face of steeply rising electricity prices significantly above the inflation rate, which further reduces electricity sales volumes and increases claw-back claims, in a vicious circle... (more)
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