Barclays offers glass-half-full look at Eskom challenges

We had half an hour of load-shedding this morning. As it wasn’t scheduled by Eskom the State-owned monopoly remains on track to break eight consecutive days of rolling blackouts. Perhaps someone at Joburg’s City Power flicked the wrong switch? The glass half full approach is supported in this summary of a downloadable report produced for clients of Barclays. The Emerging Markets economics team have some good news – they welcome newly appointed CEO Brian Molefe and reckon that despite a third of Eskom’s capacity being off-line, the risk of a grid failure is “quite low”. From their lips to God’s ears. – Alec Hogg       

By Peter Worthington and Miyelani Maluleke*

After a period of relative calm, South Africa’s energy shortages worsened to a new level last week, with Eskom declaring 8 straight days of load shedding from early morning until late at night. And on Tuesday and Wednesday last week the load shedding was escalated to Stage 3 for the first time since early February.

• Eskom said that the load shedding was due to 9500MW (initially) being offline unexpectedly but did not detail the specific difficulties. Shortages of water and diesel reserves at the pumped storage open cycle gas turbines were a factor, However, there were also clearly breakdowns at some coal-fired generating plant as well, suggesting that poor maintenance leaves the finely balanced system vulnerable to shocks.

• Although Unit 6 of Medupi finally has been synchronised, the rest of Eskom’s build program for the new Medupi and Kusile coal-fired plants and the Ingula pumped storage facility continues to be delayed. Work stoppages at the Medupi power plant continue. In January Eskom pushed out the target data for the synchronisation of the first unit of Kusile from December 2015 to the first half of 2017.

• This week the Department of Energy announced a number of welcome advancements in South Africa’s program to procure additional electricity generation from independent producers through a variety of technologies (expanded renewables, cogeneration, gas, and coal). None of the announcements will immediately address South Africa’s current electricity shortages, however.

• We think the risk of a grid failure is quite low given the existence of a well developed set of load reduction protocols and a single national operator. The backup for restarting in event of a failure is the pumped storage facilities, but a reboot would take some time.

• We also view the appointment announced late on Friday of Brian Molefe as acting CEO of Eskom in a very positive light, noting his success in turning Transnet around.

* Peter Worthington and Miyelani Malukeke are economists in the Emerging Markets operation of Barclays.

To download the full report, click here.