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Power utility Eskom needs to burn more cash to keep our lights burning

Eskom admitted yesterday it would have to burn closer to R8 billion on its open cycle gas turbines (OCGT) rather than the R1bn it had originally envisaged in this financial year, as it faces bleaker generation prospects. Photographer: Dean Hutton/Bloomberg

Eskom admitted yesterday it would have to burn closer to R8 billion on its open cycle gas turbines (OCGT) rather than the R1bn it had originally envisaged in this financial year, as it faces bleaker generation prospects. Photographer: Dean Hutton/Bloomberg

Published Jan 19, 2022

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ESKOM admitted yesterday it would have to burn closer to R8 billion on its open cycle gas turbines (OCGT) rather than the R1bn it had originally envisaged in this financial year, as it faces bleaker generation prospects.

It will likely deal with more blowouts from its coal fired plants and a scheduled shutdown of Koeberg if it is to keep the lights on and the economy ticking over this year.

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At the second day of public hearings for a 20.5 percent increase in electricity tariffs before the National Energy Regulator of South Africa., Eskom chief financial officer Calib Cassim said the utility had to override costs of production against the necessity for power in the economy, hence it would be prudent to spend more on diesel fuel for the OCGT that it had previously.

Cassim said that Independent Power Producer projects and the 100 megawatts (MW) embedded electricity production programmes by the private sector were progressing, but would perhaps only kick in by 2023, while the utility had an obligation to keep the lights burning.

This came as energy analysts speculated that Koeberg’s life extension as well as the downtime required to prepare for this could cost close to R50bn in maintenance and related expenses, increased OCGT usage, key customer supply curtailment and result in load-shedding.

Cassim had to fend off heavy criticism from civil society and advocacy groups who maintained that the population had already been bled dry by the state of the economy and could not afford an increase in electricity tariffs, let alone the escalating shortfalls the utility was trying to make up for through tariff increases, which would be invariably burnt-up through more diesel usage.

Eskom admitted at the hearings that it was unlikely to achieve the 72 percent energy available factor (EAF) of its generation fleet, underlying the application for a 20.5 percent tariff increase, because the EAF figure came in at 61.75 percent for the last calendar year, down from 64.79 percent in 2020.

“We are projecting spending closer to R8bn than R1bn in financial year 2022 … which is more than R4bn of the R293bn we need on asset recovery costs for Medupi, Kusile and Ingula,” Cassim said.

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The loss of Medupi unit 4 due to an explosion last year had not been factored into the 72 percent EAF assumption, nor that one unit of the Koeberg nuclear power station will be out of service for most of the year.

This represented a loss of about 1 700MW to the system.

The shortfall in production would have to be made up for by OCGTs which would increase the utility’s spend even though the sales forecast still remained at unsustainable levels for Eskom.

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“A bleaker outlook is more of a reality that Eskom finds itself in. The public, I am sure, is aware of the performance of the fleet, but reducing the costs, even with the OCGTs, will make for a bleaker outlook.

“We are looking at the costs against the proficiency of keeping the lights on and the economy going,” Cassim said.

Analysts said yesterday the economy faced the threat of an uncontrollable nose-dive if Eskom gets a 20 percent increase, together with other amounts from claw-backs and court rulings which may increase tariffs closer to 40 percent.

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