State-owned power utility Eskom has to implement changes in several key areas to ensure efficient electricity generation and operational management, combined with cost improvements, says management consulting technology services and outsourcing company Accenture South Africa.
Accenture South Africa Energy MD Ken Robinson tells Engineering News that the areas Eskom should focus on include securing proficient capital build services, using big data analytics to assist in predicting electricity demand and power failures, and determining an appropriate tariff, which should also include achieving cost savings as the latter two concepts are linked.
Robinson suggests that, any company that has a capital programme of more than R10-billion a year, should create a specialist department providing capital build services to its capital project managers – and Eskom’s capital expenditure exceeded R59-billion in its 2014 financial year.
“The model for building capital projects has to evolve – there should be a grouping of qualified professionals that can provide the services required for capital projects,” he emphasises.
“If 2% of Eskom’s annual capital budget is used for capital build services, adequate staff could specialise in disciplines, such as corporate governance, industrial relations, procurement, information technology systems, finance, human resources in a project management office, as well as the communication of required information.”
Robinson notes that Accenture currently assists Eskom in providing such specialist services to the Presidential Infrastructure Coordinating Commission for three Strategic Integrated Projects (SIPs).
These include SIP 1, which aims to unlock the Northern Mineral Belt, and involves minerals major Exxaro building a coal mine in the Waterberg region, in Limpopo.
About 20 State-owned enterprises and agencies, including Transnet Freight Rail, Richards Bay Coal Terminal, the Trans-Caledon Tunnel Authority and the Department of Environmental Affairs require coordination for this SIP, as well as the generation and transmission of power from Eskom, Robinson notes. “The specialist service approach is enabling Eskom to successfully act as SIP coordinator,” he says.
Eskom is currently developing technology solutions for some of its engineering challenges using SmartPlant software, assisted by Accenture. The software is designed to organise engineering and plant data to facilitate improved maintenance decisions, Robinson notes.
While SmartPlant currently involves only static plant data and original equipment manufacturer specifications, this data can be linked to transaction and sensory data to facilitate proactive maintenance.
Using big data analytics to process the considerable amount of data generated by the power stations could enable Eskom to predict potential breakdowns, supply and demand gaps, and manage required maintenance, he believes.
“Artificial intelligence can apply organised data analytics, derive learning curves from past situations and anticipate future requirements through monitoring plant operations and the external environment conditions.”
Robinson suggests that Eskom should further develop this function, stressing that this use of analytics would be “a reasonably normal application of new digital techniques and new powerful technologies”.
Eskom’s cost challenges, which necessitated a cash injection of R23-billion at the beginning of this year, include primary energy costs – largely diesel and coal – and net employee benefits, Robinson says.
Another challenge is the National Energy Regulator of South Africa’s partial rejection of Eskom’s requested tariff increase in the third multiyear price determination that started on April 1, 2013, and will end on March 31, 2018.
“For Eskom, the low increase in tariffs means costs need to be reduced,” he suggests.
“Primary energy accounts for about 50% of Eskom’s total revenue, with the Ankerlig and Gourikwa open-cycle gas turbines operating on diesel at a cost of about R3/kWh – well above the selling price. And employee benefits amount to another 15% of revenues,” he states, noting that Eskom’s headcount has increased by almost 50% over the past ten years.
Robinson points out that a lack of cost savings or inability to reduce primary energy purchase costs could lead to the power utility requiring subsidies. And he warns of the dangers of subsidising electricity.
He explains that critics often point to the economic distortions created by subsidies, particularly subsidies that are used to promote specific sectors or industries. Generally, such subsidies tend to divert resources from more productive to less productive uses, thereby reducing economic efficiency, he says.
“In my view, electricity subsidies should be limited to free basic electricity for the poorest households, not applied to the entire economy,” states Robinson.
Restoring the Reputation
Although Robinson suggests that it will take Eskom at least five years to show real benefit from the suggested changes, he believes that the power utility should be able to restore its former respected reputation.
“The will exists and if senior management and management apply the techniques and technologies proven worldwide, then this imperative can be achieved,” he concludes.