Eskom 'going down and under very, very fast'

With a new report detailing how Eskom is wasting billions of rands constructing power stations to supply electricity for which there is no demand, the state utility is “going down and under very, very fast”, says energy adviser in the presidency Silas Zimu.

With the power parastatal’s poor governance and cash crunch – it holds just above half its funding requirements for the current financial year – it is heading for a parliamentary inquiry similar to the one the SABC faced.

“What happened at the SABC portfolio is coming to Eskom. I personally believe that we’re not going to have the same Eskom that we had 10 years ago,” said Zimu.

He said breaking up the power utility had been in discussion since 1995, but the question was how to go about it and what parts to sell.

“Let’s sell the distribution first, but I wonder if you will buy Soweto,” he said, in reference to certain municipalities contributing to Eskom’s R9.4 billion arrears debt.

However, on the supplier side, coal-powered stations such as Arnot and Komati would be opportunities for the private sector to participate with government.

Zimu was speaking at the Windaba energy conference in Cape Town this week, during the same session in which a hard-hitting report on unnecessary expenditure on power generation was presented.

Energy savings 

Compiled by consultants Meridian Economics, the report examines how decommissioning a number of old power stations and halting the planned construction of two Kusile units would save the cash-strapped utility between R15 billion and R17 billion, without affecting the security of power supply.

Rather than the increasing demand for electricity forecast by the 2010 Integrated Resource Plan (IRP), demand for the past decade has dropped marginally.

The result has been that the ambitious construction of the 4 800 megawatt Kusile and 4 764MW Medupi coal-fired power stations has been unnecessary.

Both projects have been plagued by delays and massive cost overruns.

Demand is about 78 terawatt hours below the 2010 IRP projection, an amount similar to the energy output of two and a half Kusile power stations at full output, states the report.

READ: Fitch puts Eskom on Rating Watch Negative

Meridian director Grové Steyn said the costs of the new build programme had forced Eskom to implement the highest tariff increases since World War 2 and led to a crisis in its financial viability.

At the same time, South Africa has embarked on a successful renewable energy procurement programme which is able to supply wind and solar energy at competitive prices, although this has been stalled by Eskom’s refusal to sign further contracts with the independent power producers.

“We need a more decentralised, market-based system,” said Steyn.

However, he believed the “break-up” of Eskom would not happen as a result of planning, but because of a financial crisis.

Eskom spokesperson Khulu Phasiwe directed City Press to a letter written by Eskom head of corporate affairs, Chose Choeu, in which he defends the build programme.

Choeu states that Eskom’s financial challenges are not due to excessive operational costs, but due to implementing tariffs that don’t reflect costs.

He said this includes the cost of renewable energy.

Although renewable energy costs have reduced to around 62c per kilowatt-hour with new technology, he states the average price Eskom pays is 215c/kWh, costing R16 billion per year.

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