State-owned electricity utility Eskom has confirmed that its new strategy, which will involve far-reaching changes to its business model, will seek to position the company for opportunities arising in the rest of Africa.
“Growth opportunities for Eskom are not restricted to South Africa. To grow the business, Eskom will need to become a strong pan-African utility,” Eskom told Engineering News Online in response to questions on the scope of the strategic changes being contemplated.
The review is also interrogating the prospects of Eskom offering new products and services, while responding to the technology changes under way in the electricity supply industry.
The utility also insists that the delay in the finalisation of its new long-term strategy will have no negative consequences for the timing of the release of its new corporate plan, which remains scheduled for completion by the end of February.
It has also reiterated that the new corporate plan will be fully aligned with the revised strategy, which will seek to make Eskom’s business model more responsive to technology changes in the industry, as well as the risk of a “utility death spiral”.
“It is essential that the strategy informs the corporate plan,” Eskom said in response to questions posed by Engineering News Online, after it was announced that the strategy would be finalised in mid-November 15, rather than by the end September as initially planned.
“Eskom still intends to deliver the corporate plan by end February 2018 as per the [requirements of the] corporate-planning cycle and Section 52 of the Public Finance Management Act.”
In addition, the existing corporate plan has already been adjusted to identify ‘no-regret options’ that would be supportive of the future strategy, such as cost-saving initiatives.
The strategy review was initiated in April, following the appointment of a new board in late February. In early August, Eskom appointed Boston Consulting Group (BCG) to support it with the development and delivery of the strategy.
BCG’s appointment arose from a tender released on June 8 to vendors listed on Eskom’s ‘Professional Services Strategic Management Panel A’. The value of the contract has not been disclosed, however.
The new strategy will cover the period to 2035 and will include financial and operational turnaround plans.
Eskom tells Engineering News Online that a key driver is the urgent need to improve efficiency and effectiveness in order to contain costs within the framework of the National Energy Regulator of South Africa’s (Nersa’s) tariff determinations. In parallel, however, it would be seeking upward adjustments to the tariffs as part of its fourth multiyear price determination application, which would be formally submitted to Nersa soon.
Eskom’s weak financial position is well documented, but there is currently growing concern about the group’s operational performance, particularly with regard to the performance of its 15 coal-fired power stations.
Ten stations are operating with insufficient coal stocks as determined by the Nersa’s grid code. In addition, a recent report by EE Publishers points to a further deterioration in the energy availability factor (EAF) arising from the power stations. The report states that this poor performance could affect South Africa’s medium-term system adequacy outlook.
Should plant performance not improve it could also have implications for the timing of the introduction of new capacity, as outlined in the Integrated Resource Plan (IRP). The draft IRP 2018, currently out for public comment, is premised on the Eskom fleet operating at an EAF of 80%.
During the first quarter of the current financial year, Eskom reported an EAF of only 75.4%, which also represented a sharp deterioration from the 83.4% reported for the 2017/18 financial year. However, the EE Publishers report revealed that the year-to-date EAF had since fallen further to 73.74% and was likely to decline as Eskom entered the high-maintenance summer months.
However, the revised strategy will also review Eskom’s entire business model to respond to global changes in the energy industry. The objective of the review is to put in place a framework for the evolution of the company structure and operating model from its current state to one that is “more flexible and agile”.
Once finalised, the strategy will be supported by “comprehensive human resources, stakeholder management, digitisation and analytics plans”.
It will also be translated into an “initiatives plan”, which will be executed through the five-year corporate plans. The plans will facilitate a transition from the current operating model and industry structure towards the new 2035 vision.
Stakeholder consultation has been under way since July and the Eskom board intends pursuing further consultations over the coming two months.