Eskom faces more power supply risks

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BR Eskom 1105[1]

Reuters

Eskom had to declare back-to-back power emergencies on Thursday and Friday as unplanned outages at four generating units reduced already thin margins during its massive maintenance programme. Photo: Reuters

Johannesburg - Eskom is heading for another challenging week as there appears to be no reprieve from the crisis that forced the power utility to declare back-to-back power emergencies on Thursday and Friday.

Although the emergencies only lasted several hours, they have added to persistent concerns about South Africa’s power supply, a vital input for many of the country’s key industries, from manufacturing to mining.

The fact that the platinum sector is embroiled in a protracted pay strike could prove to be a blessing in disguise for Eskom as the industry has reduced output.

Even so, Eskom was forced on Thursday and Friday to plead for co-operation, asking industrial, commercial and residential customers to reduce usage.

The prospect of further emergencies looms this week if the company fails to resolve the capacity constraints that started when four generators collapsed during maintenance operations last week.

On Friday, Eskom again pleaded with customers to use electricity sparingly. It supplies 95 percent of the country’s power and it requested industrial power users who include ArcelorMittal South Africa, BHP Billiton and Glencore Xstrata to cut their consumption by at least 10 percent to ease the power supply pressure.

The pressure on Eskom is made more acute by massive delays in the construction of two massive multibillion-rand coal-fired power stations, Medupi and Kusile.

Their construction followed rolling blackouts that hit South Africa in 2008 as Eskom grappled with fallout from years of underinvestment and strategic mis-steps by government.

“It is important that consumers continue to save and reduce their consumption as we remain on high alert as the electricity system remains tight in the coming week and into the foreseeable future, until new capacity comes on line,” Eskom said at the weekend.

“Eskom did not at any stage implement rotational load shedding. Any power cuts that customers may have experienced would have been due to localised problems.”

Politically, load shedding will not go down well in an election year. South Africans go to the polls on May 7.

Sustained energy challenges also present problems for future economic growth in a country that is battling to reduce unemployment, contain labour unrest and attract foreign direct investment.

The good news is that Eskom’s challenges are unlikely to lead to a downward revision of current estimates for economic growth, according to economists. But further constraints on intensive-energy consumers such as the resources sector may affect future output figures.

Dennis Dykes, Nedbank’s chief economist, said: “Bear in mind most have been on short supply [for a while].” Dykes said further savings could be squeezed from household consumption, which was nearly 20 percent of the total demand.

About 23 percent of Eskom’s 42 500 megawatt of installed generating capacity has been out of service this year, according to calculations made using Eskom’s data. Capacity exceeded supply by an average of 7.5 percent during the period, half of the 15 percent buffer that the utility targets.

The commissioning of the long-awaited Medupi power station by the end of the year is expected to provide relief.

“Eskom does get its act together but it’s been disappointingly slow,” Gina Schoeman, an economist at Citigroup, said. “But at the end of the day we will be guaranteed supply that will inject confidence into the private sector.”

She said growth estimates for this year were downbeat and expected the early part of next year to be slow. – Additional reporting by Bloomberg


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