Eskom’s R680 billion spending spree = less electricity

South Africans have grown so used to frequent power cuts across the country, it’s become akin to daily bread. The instability in the electricity supply, combined with the rising tariffs, has had a dire economic impact. It has become a barrier to income generation, economic growth and development and businesses have suffered significant losses. What makes the situation even more dire is the revelation that between 2007 and 2021, Eskom invested R680 billion to increase its generation capacity. However, after this huge investment, Eskom produced less power than when it started. You would think money would allow us to keep the lights on but alas. The usual suspects have played a part:  poor planning, strikes, corruption, mismanagement, delays and budget overruns. So how did intensive capital expenditure cause Eskom’s electricity supply to decrease? Drikus Greyling goes into depth on the issue regarding the construction of the Medupi and Kusile power plants in 2007, which were touted as solutions to the power problem. Fast forward 15 years and neither power plant is fully operational. They produce far less power than the planned design capacity of 4,800MW. This is just one issue currently crippling the country’s power utility and it doesn’t look like the lights will be staying on anytime soon. This article was first published on MyBroadband. – Asime Nyide

Eskom blew R680 billion on power plants — now it generates less electricity

By Drikus Greyling

Between 2007 and 2021, Eskom invested R680 billion to increase its generation capacity. However, after this huge investment, Eskom produced less power than when it started.

Eskom started to ramp up its capital expenditure (Capex) in 2007 when South Africa started to experience electricity shortages.

Load-shedding first occurred in late 2007, and the new Medupi and Kusile power stations were touted as the solution to the country’s power problems.

Construction on Medupi and Kusile started in 2007 with initial budgets of R79 billion and R81 billion, respectively. The completion dates were set to be 2012 and 2014.

Nothing went as planned. There was poor planning, strikes, corruption, mismanagement, delays, and budget overruns.

Fifteen years after construction started, neither Medupi nor Kusile are fully operational and produce far less power than the planned design capacity of 4,800MW.

The two coal-powered giants have significantly exceeded the initial budget, with Medupi reaching a cost of R145 billion and Kusile reaching R161.4 billion.

However, it is not the end. In September, President Cyril Ramaphosa said Eskom would need an additional R33 billion to complete Medupi and Kusile.

The two projects pushed Eskom’s capital expenditure to record levels, reaching well over R50 billion per year between 2010 and 2017.

South Africans would have loved to see increased power production at the end of this huge investment.

It did not happen. In fact, following the intensive capital expenditure, Eskom’s electricity production decreased.

The chart below, which uses data from Eskom’s annual reports, shows Eskom’s capital expenditure versus its power production since 1990.

It shows that the more money Eskom spent on increasing its power generation, the less power it produced.

Another way to visualise how Eskom wasted money is to compare Eskom’s generated power per R1 million of Capex.

The chart below shows that Eskom’s capital expenditure was highly efficient from 1990 to 2000. It produced 58 GWh of electricity for every R1 million spent at its peak.

However, in 2000 things started to go south. Today, Eskom only generates 8.75 GWh per R1 million spent on capital expansions.

The data shows how poorly Eskom has spent its money to expand its generation capacity.

From 2007 to 2021, Eskom had total capital expenditures of R680 billion intended to expand its power-generating assets.

However, its power generation fell from 232,445 GWh to 201,400 GWh over this period.

It means that Eskom destroyed 46 GWh of power generation per R1 billion spent on increasing its power generation.

This article was first published on Daily Investor and is republished with permission.

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