Power utilities need to master the act of balancing scheduled and unscheduled maintenance, says global growth consulting firm Frost & Sullivan. Programme manager for energy and environment Johan Muller adds that maintenance can be managed, provided a utility’s assets are relatively predictive.
However, the current state of South Africa’s electricity supply system is on a knife-edge, as is evidenced by the frequency of this year’s power outages and subsequent load-shedding.
“. . . State-owned electricity entity Eskom is starting to regard unscheduled maintenance as the norm, as its power stations are reaching the end of their life cycles and are being operated beyond recommended levels to accommodate supply gaps,” explains Muller.
He adds that the majority of Eskom’s current installed baseload power stations are past their midlife, requiring longer outages and more extended restoration time than usual.
Consequently, all electricity industry stakeholders, including energy-intensive users, metropolitan areas and end consumers, have a role to play in this “orchestra”, of which Eskom is the conductor, says Muller.
Cause For Concern
Citing research organisation the Bureau for Economic Research, which reports business confidence in South Africa, Muller highlights that business confidence in South Africa decreased to 49 in the first quarter of 2015, from 51 in the fourth quarter of 2014.
“Companies are concerned about the low growth rate in South Africa and are looking to diversify their service offering in East and West Africa.
“Moreover, while businesses are still investing in South Africa, the current political situation – amid talk of land grabs and nationalisation, and an influx of Chinese businesses – compounded by Eskom’s dire situation, is causing the country to lose its appeal as Africa’s destination of choice,” he explains.
He points out, however, that South Africa remains one of the more stable African countries and that South Africa’s economy is more mature and diversified than most economies in Africa, and, as such, “the lower growth figures make sense since we are not coming from a similar low economic base, compared with the other countries”.
Muller adds that the country’s power access rate of 84% trumps that of most African countries.
Steering the Ship
For Eskom to operate optimally, the absence of in-house politics is essential, Muller explains.
“The answer to South Africa’s energy demands is a strong leadership complement that not only understands energy – first and foremost – but also has the commercial insight to make the right decisions,” he says, expressing the concern that the power utility is in dire need of a visionary captain to help steer the ship back on course.
State-owned freight and railways utility Transnet CEO Brian Molefe was appointed last month as Eskom’s acting CEO, following the suspension of Eskom’s current CEO, Tshediso Matona, and three other senior executives and Eskom chair Zola Tsotsi’s resignation. Engineering News reported at the time that Molefe’s appointment dovetailed with government’s efforts to stabilise the Eskom leadership.
Despite electricity industry role-players suggesting strategies that Eskom can implement to mitigate its current challenges regarding generation and funding availability, ageing infrastructure, and maintenance and refurbishment backlogs, besides others, Muller maintains that “an answer to some of the most burning questions” could be the introduction of the private sector to manage power generation.
“Given the trend of increased private-sector involvement in education, healthcare, security and transport, the private sector is helping the public sector to meet the ever-increasing needs that they are unable to meet alone,” says Muller, stressing that this is also evident in the energy sector.
He argues that, while Eskom would like to retain its current monopolistic position, it does not have the balance sheet to do so.
“As such, it would be in Eskom’s and South Africa’s best interests to ensure that the private sector is increasingly involved in making their projects bankable and that there is a secure offtaker in the form of Eskom.”
Muller adds that government could decrease Eskom’s risk profile by transferring the responsibility of new-generation projects to the private sector.
Further, some of Eskom’s functional divisions could be privatised, and collaboration between the private sector and energy experts could be increased, he notes.
“Given the private sector’s record of completing work on time, within budget and at their own commercial risk, particularly in the renewable-energy sector, the choice is becoming easier and easier to make,” emphasises Muller.
He does, however, acknowledge that privatisation will not be a simple decision, owing to the intricacies of Eskom’s business model.
Short-Term Game Plan, Long-Term Delays
Muller points out that, as South African businesses need to remain competitive, weaning themselves off their dependence on Eskom is the solution that most are likely to implement.
“Businesses and the private sector ultimately have to turn a profit and keep their shareholders satisfied. This includes reducing their risk and operating independently from Eskom. In the short term, this will actually help Eskom, as it will reduce the strain on the grid, resulting in fewer blackouts and less load- shedding. However, this will also mean that Eskom will lose customers in the long term.”
He suggests that Eskom will need to adapt its financial model to accommodate changes in revenue streams, owing to a smaller revenue base.
While Muller recognises the necessity of the new builds for the country, he highlights that the completion of the Medupi and Kusile power stations will not suddenly solve South Africa’s electricity demand.
Eskom announced last month that the two long-delayed power stations, which are expected to collectively add 9 000 MW to the constrained national grid, will be fully operational by 2021.
“Eskom is intrinsically linked to the broader South African economy – and the more government pushes for growth – a positive push – the more strain is placed on Eskom to keep up. Further, an ageing asset base and local government struggling to perform distribution functions necessitate the need for the business model to be adapted to ensure sustainability.”
Muller also suggests that Eskom focus on other strategic points, such as ensuring the viability of projects before commissioning them and ensuring that projects are completed on time and within budget.
“The utility’s business model should also focus on finding practical ways of collecting debt from municipalities, moving towards realistic tariffs and focusing substantially more on efficiency,” Muller concludes.