ENERGY

Eskom's new roll-out programme

Eskom chairman, Zola Tsotsi
energy zola tsotsi.jpg

South Africa’s steady economic growth, together with its mass electrification programme, has increased the demand for electricity which is expected to be twice the current levels by 2030.

Energy demands are rising fast, almost keeping up with supply, and together with the government’s Department of Energy (DoE), Eskom has embarked on a massive roll-out programme to bring electricity supply and demand into balance.

Eskom was established in 1923 as the Electricity Supply Commission converting in July 2002 into a public, limited liability company wholly owned by the South African government.

This year, Eskom celebrates nine decades of electricity generation, transmission, trading and distribution – supplying about 95% of electricity used in South Africa, and around 45% used in Africa.

The government’s Integrated Resource Plan (IRP) provides a rolling projection of South Africa’s cumulative electricity demand.

The current IRP, which was gazetted in May 2011 covering the period from 2010 to 2030, reflects national government policy considerations regarding building and localising renewable energy technology for additional electricity generation, with a commitment to lessen carbon dioxide emissions.

Eskom’s generation group already maintains several plants including gas turbine, hydroelectric, pumped storage and nuclear units in addition to coal fired plants. The company is now focusing on accelerating transformation with power projects that have a direct impact on securing the future supply of electricity in meeting rising demands.

Additional power stations and major power lines are being built including the Medupi and Kusile coal-fired power stations, two new gas-turbine plants, the Ingula pumped storage plant, and two renewable energy plants.

Eskom’s Chairman, Zola Tsotsi, says, “Transformation is on top of our agenda. We allocated the huge responsibility of accelerating projects to a sub-committee board of which I am also the chairperson. We appointed various executives to ensure that, what the board wants to see happen, does actually happen.”

The board set specific targets and performance requirements to fast-track the transformation: “We want to use our spent capacity to drive our roll out agenda on a national basis,” says Tsotsi.


The case of renewables

The Renewable Energy Independent Power Producer Programme (REIPPP) launched in August 2011 is responsible for the majority of renewable installations and currently provides for the procurement of 3 725MW by 2016.

This is to be derived from renewable energy sources limited to onshore wind, solar photovoltaic, concentrated solar power, biomass, biogas, landfill gas and small hydro power technologies.

The REIPPP’s main objectives include localisation, economic participation by historically disadvantaged individuals, job creation and skills transfer.

Currently less than 1% of generation in South Africa is carried out by Independent Power Producers (IPPs). Current policy envisages that eventually 30% of generation capacity —excluding nuclear energy – will come from IPPs.

“The biggest problem for individuals to get involved in REIPPP projects is finance,” says Tsotsi. 

“I believe that if work and effort is put to breach that financial gap, far more locals will be able to enter the energy space.”

Eskom’s supplier development programme is focused on bringing in entrepreneurs (or IPPs) into the renewable space to provide services based on what is possible in the legislative framework and what opportunities are provided. Eskom is the initial buyer and distributor of all power produced by the renewable IPPs.

Under the REIPPP, government will pay for IPP generated power, whether Eskom buys it or not, which ensures IPPs are guaranteed payment for all the power they can produce. Legislative measures are being prepared to eventually place this function with a new systems operator. It is crucial that the private sector plays a role in addressing the future electricity needs of the country.

This will reduce the funding burden on government, relieve the borrowing requirements of Eskom and introduce generation technologies that Eskom may not consider part of its core functions. Private sector generation and IPPs can play a vital role in off-grid, distributed generation, co-generation and small-scale renewable projects. They can greatly assist in the introduction of new skills and enable the benchmarking of performance and pricing.

Eskom has set up the Grid Access Unit (GAU) for IPPs and generators as the point of entry for IPPs’ and generators’ grid connection to the Eskom grid. This will result in the substantial development of skills and capacities, so that local enterprises can get involved in manufacturing, supply, maintenance and operation of components, plants and facilities. With regard to skills, Tsotsi assures us that we have the basic capabilities: “However, access to tertiary education remains key. Our tertiary institutions are very well founded, but we also have to have junior programmes that prepare individuals to get experience in energy.”


The need for base load energy

South Africa needs to add some 45GW of energy by 2030. More base load energy is therefore needed as renewables will not be able to reach this capacity. A new base load procurement programme is expected to be announced shortly by the DoE.

Apart from the proposed 9% allocation of renewable energy to the total electricity generation mix, international interest is keenly focussed on the allocation of 20% nuclear power to the grid. “If South Africa decides to build a nuclear plant, let’s say as of this year, we’ll have another eight years before it will be operational, which leaves a gap, so we must look at a bridging programme,” Tsotsi explains.

“And we’re going to need additional capacity beyond what we’re currently constructing to reach full capacity by 2030, if we juxtapose that with what it takes and the time frame of getting nuclear up, we are going to have another gap, and could be looking at the same situation we face now, a very tight power supply.”

Tsotsi adds that there are no other suitable energy resources available to fill these gaps other than Coal 3. In August 2013, Cabinet approved the building of the third coal-fired power station named Coal 3, with construction likely to start once Eskom’s two current coal-fired projects, Medupi and Kusile, are complete.

The third Multiyear Price Determination (MYPD) budget, approved by NERSA earlier this year, did not make provision for Eskom to fund projects beyond its current build programme which only includes the Medupi, Kusile and Ingula power stations.

However, Cabinet’s backing of Coal 3 would enable Eskom to build on the lessons learnt from Medupi that experienced various funding, planning, contracting and building pitfalls. Coal 3 will incorporate technology solutions that decrease water use and emissions relative to Eskom’s installed base.

In June 2013 Eskom signed a research agreement with Sasol to jointly explore the full value chain of Underground Coal Gasification (UCG) technology development. UCG is a coal to synthesis gas technology that uses air or oxygen to gasify coal in the coal deposit underground through a series of injection and extraction wells.

UCG has the potential to utilise coal that is not minable through conventional mining technologies. UCG, as a mining method, has the potential to unlock strategic coal resources in a future carbon-constrained world.


Gas could be a game changer

There are also some promising developments around shale gas which could be a real game changer. If we can succeed putting in place an effective gas programme in the next five or six years, gas can pretty much contribute to the base load programme and beyond.”

Currently, South Africa does not have demonstrable gas resources: “But that doesn’t prevent us from successfully entering the gas industry, as there’s lots of gas available in international markets. We’re currently looking at converting two of our power stations in the Western Cape to gas plants.”

Eskom’s MYPD aims to strike a balance between the possible short-term negative effects of increasing electricity prices, the sustainability of the industry, and South Africa’s long-term economic and social needs.

“Currently we have a trajectory with the MYPD that we’ll have to pay in five years by 31 March 2018. Prognoses have shown that gas will be cheaper than coal. What I personally think will happen, is that gas will slow the increase in the cost of power. If we could have gas as a sustainable source in the next five years, the price will be very close to coal, so we might be able to lower that trajectory.”

Importing gas will be the first phase with more jobs created along the line. “As we develop our own gas resources we simply transfer from import to local supply, with an even greater impact on costs and employment opportunities.”

Fracking, which is actually a slang term for hydraulic fracturing, refers to creating fractures in rock formations by injecting water into cracks to cause gas and oil pockets flowing out of the formation and into the wellbore from where it can be extracted.

In South Africa there is much controversy around the subject. “People don’t really understand what is involved with fracking. We use pressure of water to unlock pockets of gas underneath the ground. Now the only environmental impact you will have is when you contaminate the water table with the hydrocarbons in it.

“This is not a permanent set-up though. Water is only used to reach the gas. Once the pocket is open you no longer need the water. My thinking is, in reality, we shouldn’t have a concern about it as I think it will have very little impact on the environment,” says Tsotsi.

Tsotsi says another aspect to take into account, is that the drilling for gas through fracking, might have a secondary effect of freeing underground water streams that are normally trapped.

Balancing the grid

Throughout the decades, Eskom has been doing extremely well in providing a continuous supply of energy, “And considering what it takes to be able to do that, the complexity of having balancing power readily available to consumers on a continuous basis, we actually experience a success story every day,” says Tsotsi.

During the past winter Eskom, essentially for the first time, could do maintenance work on plants during peak usage times, and still managed to deliver unbroken electricity to consumers.

“Except for the incident in 2008, South Africans never actually had the experience of not having power for long periods of time. It’s a commodity these days that we all take for granted," Tsotsi says. Eskom also uses Integrated Demand Management (IDM) which is dedicated to ensuring short-term security of electricity in a crisis situation using various means to optimise energy utilisation.

It’s a process by which electricity utilities achieve predictable changes in customer demand and load profile, and can be considered an alternative to the provision of additional generation.

Electricity supply and demand has to be balanced instantaneously to ensure constant stability of the electrical system. To assist this process, Eskom has initiated the Demand Market Participation (DMP) programme, which entails voluntary reduction of demand (customer loads) to assist with the balance of electricity supply and demand.

The balance is maintained by reducing demand rather than increasing supply. Customers who participate in the DMP programme are compensated for their efforts to assist managing the power system.

The future in energy

With regard to the future direction of energy in South Africa, other electricity players must also have an independent ability to access markets, and the concern is that Eskom is in the most favourable situation.

The transmission grid, which comprises network assets above 132kV system operation, is mainly owned and operated by Eskom with about 45% control, supplying directly to end-users in South Africa. The other 55% of the distribution grid is owned and operated by approximately 187 municipalities across the nation.

The vertical unbundling of the electricity supply chain is now possible with the proposed establishment of a new state-owned company, the Independent System and Market Operator (ISMO). “The ISMO bill is intended to address what many commentators see as a monopoly situation. There’s no problem of that happening when we have a mature market. However, currently we have huge loans and need the asset base to act as buffer to these loans.

“At the moment one cannot design the market on the basis of supply differentiation. ISMO is much too premature in the country, but in future there might be larger scope for it.”

There are various challenges to bridge before each household in South Africa has access to electricity. “We continue to address that issue. In 1994, Eskom empowered 30% of households; today we cover about 85%. We were supposed to have 100% coverage by 2012.

“But government gave municipalities the right to provide electricity, and the role of electrification was spilt between municipality and Eskom. Funding to municipalities wasn’t always directed for the purpose of providing electricity so it slowed the process down. If government returns to the original strategy, I certainly believe 100% electrification can be done in a short space of time,” Tsotsi says.


Eskom in Africa

Eskom buys electricity from, and sells electricity to the countries of the Southern African Development Community (SADC).

But the future involvement in African markets might be limited to those projects that have a direct impact on ensuring security of supply for South Africa.

In providing power to the rest of the African continent: “Access is a serious matter,” says Tsotsi. “The task for South Africa is to support the continent in creating proper infrastructures to provide electricity to their growing populations.

“We’re involved in power purchase agreements with countries which have energy and generation capacity. To have the infrastructure is one thing, but to operate it is another thing, that’s why we support them by building additional power lines and to interlink their own communities.”

Eskom have much value to offer countries struggling, “Eskom not only offers resources or assets, but also makes energy generation work for them by way of skills and innovative programmes. We have developed particular expertise with specific high capabilities such as project management and operations."


As the chairman leads

The Eskom chairman has a demanding leadership role in making transformation possible and addressing the various challenges arising each day, but Tsotsi is most capable in such an intriguing environment.

Before being appointed as chairman of Eskom in June 2011, Tsotsi headed the business planning unit of Eskom from 1995 to 2004, and served as chairman of the Lesotho Electricity Authority until May 2011.

He holds a BSc (Hons) in Chemical Engineering obtained from the University of Surrey in the UK. He was former director of the Lesotho Highlands Development Authority, the Lesotho Electricity Corporation, the Water and Sewerage Authority, the Lesotho Electricity Authority and the association of Basotho Consultants.

Tsotsi is always available in the organisation to intervene, “To ensure we’re capable as a company. The role of a leader in this situation is linking up all the stakeholders to ensure there are no situations that inhibit the production of electricity and making it available in all sectors without interruption.”

Tsotsi says it’s a complex role with much political content because of competing interest from a multiplicity of political environments, businesses, NGOs, farmers and social entities. I have to manage and make sure we lead an organisation that enables all of these complex environments to work together in sync.”


A sustainable outcome

Given that Eskom’s sector is long term in nature and that many decisions have implications for decades, it is vital that the company takes robust and responsible decisions in sustainability.

Eskom’s main vision is to build the powerbase for sustainable growth and development, and to provide a solid foundation by creating value for stakeholders and society, while reducing the safety, health, and environmental impact of its operations.

Therefore, Eskom continuously reviews sustainability developments through the use of appropriate indicators drawn from different indices within the business. The index addresses economic, environmental, social and technical aspects of the organisation and provides a score from a holistic perspective, which is used to determine a long-term sustainability status.

Unfortunately, in early February this year, Nersa granted Eskom a yearly increase of 8% for the period from 2013/14 to 2017/18, instead of the 16% it had requested.

This translated into allowable revenue for the period of R862 billion, rather than the nearly R1.1 trillion sought, which makes it tricky to manage all sustainable practises.

“We’re currently busy with reconfiguring the business primarily through national intervention, looking at what to change while not forgoing the key successes of Eskom,” explains Tsotsi.


Worldwide recognition

Eskom is rated as one of the top 20 utilities in the world. “A group of the world’s top utilities that produce electricity, cumulatively accounting for almost 75% of the world’s electricity supply, invited Eskom to be part and parcel if their society.

“That shows we are held in high esteem, since the entry rudiments must be a minimum self-generated capacity of 50 000MW. 

“Eskom’s current asset base is capable of producing just about 41194 MW. Despite the shortfall, they saw it appropriate to ask Eskom to be a member," says Tsotsi.

Eskom recently received the award as the best company to work for in South Africa.

Eskom has also been named the overall winner of the 2013 Nkonki State Owned Companies (SOC) Integrated Reporting Awards for a second year running. The awards recognise state-owned companies that have excelled in integrated reporting in the country in 2012.

For the past 23 years, Eskom has rewarded excellence in the field of energy efficiency through the eta Awards, acknowledging exceptional effort in the more efficient use of energy by individuals, students, companies or other institutions.

Opportunities in energy

While the rate of alternative energy development is slow, mainstream awareness and government pressures are growing along with the demand for energy.

The opportunities for entrepreneurs in the energy sector are staggering, as over the coming decades, more and more people will demand more and more energy to enjoy higher standards of living and continuous access to technology.

The future of power engineering therefore lies in the wisdom and experience of the engineers, technologists and technicians of today.

It’s only with human ingenuity, innovation and technological genius in unlocking energy sources that we can secure a constant power supply in forthcoming years.

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