Eskom plan to keep the lights on could accelerate downward spiral

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Photo: Gallo Images
Photo: Gallo Images
  • Industry and mines warn that Eskom maintenance is not sufficient.
  • Stakeholders are imploring the regulator to demand a maintenance plan from the utility.
  • The regulator also heard a proposal that tariffs should be linked to inflation. 

Large industrial electricity users and the Minerals Council raised the alarm on Friday that Eskom’s plant is likely to deteriorate even further over the next year, due to its plan to increase the load factor on plants to keep the lights on.

Already close to 40% of Eskom’s plant is unavailable at any one time due, in the main, to unplanned breakdowns - with SA experiencing record high levels of load shedding in 2021. This is reflected in the metric called the energy availability factor (EAF).

The Energy Intensive Users Group and the Minerals Council gave evidence at the National Energy Regulator of SA (Nersa) public hearings on Friday, where Eskom’s tariff increase application is under scrutiny. Eskom has asked for a 20.5% tariff increase for 2022/23.

It will also hike prices by an additional 5% to recover costs incurred in previous years. 

Among the issues picked out in the tariff application was Eskom’s stated intention that due to low EAF, it would load coal plants that are in working order more heavily, to keep the lights on. 

Fanele Monde, who presented on behalf of the EIUG, said that Eskom’s plan to increase the utilisation factor was risky, especially since it had not increased the amount it planned to spend on maintenance. 

'They will break down'

"Once you do that, the plants cannot take that hard driving and they will break down. We are also saying that we are not seeing a corresponding increase in maintenance budgets," he said in an interview afterwards. 

In his presentation, Monde "implored" Nersa to demand a detailed maintenance plan from Eskom and not to accept its 10% budget allocation for the year, which seldom varied from year to year.

Presenting on behalf of the Minerals Council, chief economist Henk Langenhoven also expressed concerns about the trade-off between reliability and increasing energy output by driving plants harder.

"Running the plant above the benchmark is going to lead to more wear and tear and more outages," he said. 

Despite promises by Eskom CEO Andre de Ruyter, when he took up his position two years ago, that Eskom would practice "reliability maintenance" and perform maintenance according to equipment manufacturers guidelines, Eskom has experienced severe cash flow problems which have prevented timeous maintenance. 

Both EIUG and the Minerals Council appealed to Nersa to introduce some stability and predictability into the electricity price path. Electricity costs are 20% to 40% of input costs for large users. In the mining industry, for instance, Eskom’s proposed 20.5% hike would raise costs by 13.3%, said Langenhoven.

Nersa sets electricity tariffs on a basis of a methodology in which projected costs that Eskom can demonstrate it efficiently incurs can be recovered through the tariff. It is also able to recoup costs retrospectively for subsequent years. This has led to a high and unpredicatable tariff path as Eskom tries to make tariffs cost reflective.

The EIUG proposed that SA introduce a model in which tariffs are set at CPI plus 1% or 2% to enable a slower migration towards cost-reflective tariffs. The Minerals Council proposed an "electricity inflation targeting" model that would set a target band for tariff increases in the same way the SA Reserve Bank targets inflation.

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