Eskom on the state of the power system and on securing coal resources

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Public Enterprises

23 April 2013
Chairperson: Dr G Koornhof (ANC)
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Meeting Summary

Eskom stated that reduced imports and unplanned outages had left no space for planned maintenance work on power stations during summer. Maintenance work would have to be done during the coming winter to improve reliability. All customers were urged to reduce demand and "beat the peak" from 5pm to 9pm. An energy conservation scheme or similar measures was needed as a safety net. Supply and demand would have to be balanced. Eskom emphasised that they could not do it alone and "everybody must work with us". During the evening peak, geysers and non-essential lighting and pool pumps had to be switched off. Alternatives to electric heaters had to be found. Eskom would implement a generation maintenance strategy based on 80% availability; 10% planned maintenance and 10% unplanned outages over five years. An update was also given on the new Medupi coal-fired power station, which would start to provide power by the end of 2013.

In discussion, Eskom was asked about the possibility of a second nuclear plant; Medupi power station delays and what penalties Medupi would incur for backlogs. There was interest about blackouts, outages and load shedding as well as the use of solar heating and green options. Members appreciated that Eskom was open about the power challenges facing the country and what had to be done to avoid load-shedding. Comments were made about the possibility of legislation facilitating energy conservation as a way of life and what government departments were doing to lead by example. Several members felt that there was not enough emphasis on appealing to heavy electricity users to conserve, instead of ordinary residential customers. Eskom was confronted by the allegation that it was taking from the poor to subsidise the rich through current hikes. There was a question about the effect of unplanned maintenance on the economy, and about Eskom's vision beyond 2017.

The Eskom briefing on securing coal resources stated that declining volumes from long term contracts had forced more short/medium term purchases, mostly delivered by road. Mpumalanga basin and Waterberg were important coalfields. Challenges to coal mining included poor road networks; high transport costs and depleted coal deposits. Investment and recapitalisation were needed for coal production. Eskom faced increased competition for South African coal from other countries. High grade coal reserves in Mpumalanga were being depleted. Enablers identified were rail transport options and domestic access to coal in Mpumalanga and Waterberg. An upward trend in coal exports was foreseen to last until 2016. That would lead to scarcity of coal for domestic use.

In discussion, questions were asked about coal mines operating without water licences; high grade coal being exported, whether low grade coal could be used in the Medupi and Kusile power stations; if coal could be declared a strategic item; if conveyor belts could be used instead of degraded roads, to transport coal; how Eskom approached challenges raised in the National Development Plan (NDP), and how Eskom would align itself with the NDP. The NDP had to rely on a coal mine industry with problems, which created policy uncertainty. There was concern about the lack of infrastructure in Mpumalanga and Waterberg and support for an increase in rail lines. There was a call for a scientific analysis of coal in the country and for commitments about emissions and climate change.
 

Meeting report

Eskom update on the state of the power system
Mr Brian Dames, Eskom Chief Executive, noted that the power system had been tight in summer due to reduced imports and unplanned outages, including Koeberg Unit 1. That left less space for planned maintenance work. Extensive maintenance work would have to be done during winter to improve reliability. Power systems were aging and required maintenance. Eskom teams were preparing contingency plans to manage the impact of severe weather events. All customers were urged to reduce demand, especially over the evening peak from 5pm to 9pm. Eskom had done a review of the five-year maintenance plan to ensure that power stations deliver more sustainable performance. There were initiatives in place regarding supply and demand, but there was concern about the impact of the tariff decision on those. An Energy Conservation scheme or similar measures was needed as a safety net.

Mr Dames emphasised that Eskom could not do it alone. Four steps were required to beat the evening peak between 5pm and 9pm. Geysers and pool pumps had to be switched off; non-essential lighting had to be switched off; alternatives to electric heaters had to be found, and power alert messages had to be responded to by switching off appliances not used. A drop in demand of 2000MW during that period would ensure security of supply.

Eskom would implement a generation maintenance strategy based on 80% availability; 10% planned maintenance and 10% unplanned outages over five years. Poor Cahora Bassa availability impacted on the power situation. Coal stocks were at high levels despite labour unrest. Eskom had entered into mutually beneficial arrangements with large customers in terms of power buybacks.

An update was given on Medupi, the first new coal-fired power station that Eskom had been building for 20 years. The station would begin to produce power by the end of 2013.

Discussion
Mr E Marais (DA) asked Mr Dames if the building of a second nuclear plant was being considered.

Mr Dames responded that Cahora Bassa and Koeberg had a massive impact. They were important for the long term and they were viable. They had to be upgraded. The future of nuclear energy was linked to the fact that the most coal was found to the north of the country. The availability of water was also crucial. There was an integrated resource plan for the country. Supply options were balanced. Nuclear was considered viable, and there had to be a long term plan. If there had there been such a plan in 1998, Medupi would have been already completed.

Mr Mongesi Ntsokolo, Eskom Group Executive: Transmission, added that Koeberg provided power for the whole of the Western Province. The Koeberg load size was important. Cahora Bassa was a high voltage direct current provider. High-level skills were needed to operate it. There was a slow response to issues and failures. Skills protocols were slow because the project was managed from another country. The line from Mozambique was 2000 kilometres long and exposed. Powerlines had been flooded and towers had fallen. Mozambique was not reliable when it came to refurbishing. The medium term prediction was that South Africa had to double its nuclear capacity.

Mr Marais asked what was owed to Eskom by municipalities over 30 days.

Mr Dames replied that at the end of March the amount was just over one billion rand.

Ms N Michael (DA) asked what had caused the backlog that had led to winter maintenance for the first time during the coming winter.

Mr Dames replied that Kusile and Medupi had to be completed.

Ms Michael asked what penalties there were for backlogs at Medupi.

Mr Dames replied that every effort would be made to hold contractors to the contract.

Ms Michael referred to Billiton supply contract which stipulted that Billiton smelters may be turned off at most two hours a week when there are electricity shortages on the network. Mr Dames had said that electrical supply to customers would have to be dropped to protect the country. She asked about implications for investors.

Mr C Gololo (ANC) commented that government could set an example for power conservation by switching off the air conditioning in this venue. He had flu, and it was too cold. He asked what means of communication would be used to get the message out to consumers.

Mr Dames answered that social media would be employed. There were communication managers in every province with extended communication networks. The message for this winter was that everybody had to work with Eskom. It had to be understood that units had to be taken out for maintenance.

Mr Gololo asked what outages would be due to maintenance performed in the coming winter.

He asked if it was not better to save electricity by leaving the geyser on, than by putting it on and off.

Mr Dames replied that it was better to switch it off. They could stay on during the day and night, but outside of the evening peak period.

Mr A Mokoena (ANC) said that he was proud of Eskom for coming through during the World Cup, although it was preceded by blackouts.

Mr Mokoena referred to rumours that Mr Dames would be leaving Eskom.

Mr Dames replied that he was "fully committed" to lead Eskom. The workforce of 40 000 had to have stability. He had a good team.

Mr Mokoena asked about the relation between blackouts, outages and load shedding.

Mr Dames replied that load shedding was to avoid total blackout, where the whole country lost all electricity. An integrated power system could manage load shedding on a rotational basis.

Mr Ntsokolo added that outage was to deal with a local network fault, which was what would happen during winter maintenance. Blackout happened when all supply was lost. Generators had been designed so that they would turn off if they went below a certain frequency. Load shedding was a deliberate reduction of the load to prevent blackout. It had to be certain that there was an operating reserve. Due to interruptibles, the load would be dropped to match the supply. There had to be a safety net under frequency load shedding. It was a self protecting system that prevented the cascade into total blackout. There had to be emergency reserves and operating reserves. Key customers had to be reduced. There was a code by NERSA that gave procedures for what to do when problems were encountered. Regulation was under national control.

Mr Mokoena asked about progress in the employment of nuclear energy.

Ms C September (ANC) said that it was good that Eskom was being open and facing the country about the challenges. It was in the national interest that Eskom say what they were prepared to do.

Ms September asked when legislation would be considered to ensure that everyone was on board for energy conservation. Conservation had to become a way of life. Ad hoc measures were inadequate. She asked about available data that could indicate whether government institutions were taking the lead in establishing conservation as a way of life. There had to be consistent and sustainable programmes. The question was what the components of such programmes would be. Government had to lead.

Mr Dames replied that Eskom was developing a conservation policy. It would regulate building and equipment standards.

Mr Simphiwe Makhathini, DDG: Energy and Broadband (DPE), referred to an energy efficiency policy rollout. A safety net energy conservation scheme was launched in 2008. The Department of Energy had worked on draft regulations in the previous year. Other options of energy conservation would be refined. The Department of Energy was being engaged.

Mr Dames added that there was Ministerial interaction with other departments. The matter had been raised in the Department of Public Works.

Ms September remarked that statements about beating the peak suggested a certain category of people. Heavy users with big houses had to be addressed boldly. Poor people did not have swimming pool pumps to switch off.

Ms September noted that Committee had appealed to Eskom to call upon them to take the conservation message to their constituencies.

Ms G Borman (ANC) was likewise pleased that Eskom had given the facts, instead of trying to manage things quietly. She shared the concern of Ms September about conservation. ANC members of the Portfolio Committee had asked about energy savings in government departments, and the response had been poor. She asked if the Eskom campaign would show how people responded.

Ms Borman said that she was concerned about oversight. Oversight bodies other than the Committee could fall flat on their face. She asked why the completion of Medupi had been left so late, after intense efforts to get it right.

Mr Dames conceded that Eskom could have been more involved with labour disputes. Ten weeks had been lost. Eskom could have intervened as contractors had to be held to what they had to do. There had to be a mediator on site. Eskom was spending money to keep an eye on contractors.

Ms Borman referred to the target of one million for solar water heaters. There had only been an uptake of one third of that. She asked why the figure was so low. She noted that reserve days had been increased to 47, against risk. She advised that it be further increased.

Mr M Nhanha (COPE) thanked Eskom for the information, and for a job well done. Issues had been clarified and South Africans were reassured.

Mr Nhanha remarked that he agreed with Ms September about appeals to people who could afford pools. Not everyone had pools or two geysers. He felt that Mr Dames had fallen short on this point. Domestic consumers accounted for less than 20% of power use. There were problems with user behaviour. The onus was falling on those who consumed less, to change. He asked if big consumers were also being asked to act differently.

Mr Dames replied that small customers would be talked to in the winter. 3000MW were driven by residential customers. Big users had made efforts to save power, and were getting the same message.

Mr Nhanha remarked that municipal workers had to clean streets at night, because the streets were too busy by day. He asked about the rationale behind doing maintenance in winter by night. He asked if Eskom was hitting back at consumers for being dissatisfied with electricity rates.

Mr Dames emphatically denied that it was a matter of hitting back at consumers. Koeberg and Cahora Bassa had been out, and could not be maintained.

Mr Nhanha referred to Slide 19 about buyback programmes. Smelters in the country were getting cheap electricity. He asked how much was bought back, and whether smelters were getting power at cost price.

Mr Dames responded that Eskom did not buy back from Billiton. Eskom was not paying them. They could be interrupted without compensation.

Mr M Sonto (ANC) wondered if rumours that the CEO was packing his bags, would be confirmed that day.

Mr Sonto said that the strategy of informing the public was good, but asked if such emphatic messages were going out to big factories and mines. He asked what the difference in approach was between big consumers and ordinary domestic consumers like himself. He remarked that it had been mentioned in a meeting the previous week that Eskom was taking from the poor to subsidise the rich through the current hikes. Billiton was a case in point. He asked Eskom to comment.

Mr Dames replied that the Billiton contract was in front of the Regulator, they were treated the same as everyone else. The public was participating in the process.

The Chairperson referred to the 10% unplanned outages, and the intention to have less than 4500MW outages in winter. He asked who would be doing that, and whether it would be costed. He asked about the effect of unplanned maintenance on the economy. Eskom said that it intended performing essential maintenance on nine power generation units between April and August 2013. He asked if the closure would be after hours, and whether it would stretch over long periods.

Mr Dames replied that the unplanned 10% could vary. 4500MW from the current fleet would be unavailable on an unplanned basis. Closure could extend over considerable periods of time.

The Chairperson asked about an Eskom vision for beyond 2017. Eskom had been mentioned that the units were past their midlife. He asked how Eskom would achieve more energy generation.

Mr Dames replied that beyond 2017, the vision was for the country to double the size of the energy system. The energy system had to be integrated with Southern Africa. Gas resources had to be developed. Energy security and access would have to be dealt with. There had to be adaptation to climate change such as droughts. Robust plants had to be designed. Placing of nuclear sites was important.

Eskom briefing on securing coal resources for power generation
Ms Carin de Villiers, Eskom's Parliamentary Affairs Manager, noted that Eskom had a portfolio of long, medium and short term coal contracts. Declining volumes from long term contracts had prompted greater short/medium term purchases, mostly delivered by road. The Mpumalanga basin and Waterberg were two of the most important coalfields for power generation. The majority of long term contracts were held by three large mining houses.

Underinvestment in the coal mining sector and rising production costs would force a realignment in domestic and export prices. Challenges to coal mining included poor road networks; high transportation costs, and depleted coal deposits. The coal market required substantial investment and recapitalisation. There had not been any major new mining developments in the previous decade. Eskom was facing increased competition for South African coal from other countries. Domestic electricity supply was facing challenges such as deteriorating quality and diminishing quantity of coal resources. There was the aging of existing collieries, and the depletion of higher grade coal reserves in Mpumalanga. Mines were underperforming, and mining projects were behind schedule.

Eskom had identified key enablers to securing its coal requirements. These included efficient rail transport options; price stability; domestic access to coal supply in Mpumalanga and Waterberg, and access to alternative fuel supplies.

Analysts had indicated that the upward trend of coal exports would continue until 2016. That implied scarcity of coal supply for domestic use. Trends did not favour domestic coal users, especially Eskom as the largest coal customer in the country. Higher coal mining input costs put pressure on domestic coal prices.

Discussion
Ms Michael referred to press reports that some coal mines were operating without water licences. Eskom was thus buying illegal coal. A state owned entity had to obey the law.

Mr Dames replied that the Eskom requirements about water was clear. It was a matter between the mines and the Department of Water Affairs. Mines had to apply to that department.

Mr Gogolo remarked that stockpilers had a role to transport coal. He asked if conveyor belts could be used, due to the degraded Mpumalanga roads.

Mr Dames replied that the optimum distance for conveyor belts was 17km. Beyond that, railway lines had to be built.

Mr Gogolo asked if Medupi and Kusile were using low grade coal. He asked if any grade of coal could be used.

Mr Dames responded that the capability to burn low grade coal had been built up over decades. Mines were producing both export quality and lower grade coal. Going forward, higher quality coal would be needed. The supply could be mixed for Medupi and Kusile.

Mr Mokoena extended a plea to Eskom to establish a science expertise about coal. The Secretary of the NUM had said that there were 48 billion tons in the coal reserve. The question was why high grade coal was being exported through Richards Bay, while low grade was used locally. It forced the country to use too much coal.

Mr Dames agreed that a seminar was needed. According to the Council of Geoscience, South Africa had a lot of coal.

Ms De Villiers replied that geological information and the Council for Geoscience could give information about coal reserves.

Ms September remarked that coal was dominant in the South African energy supply. South Africa was making commitments based on emissions and climate change. There were new avenues to be explored. The National Development Plan had to rely on a mine industry with problems. There were policy uncertainties. The coal mines wanted to export more than give it to the country. That continued to create uncertainty. It was necessary to rely on parties who were not on board. She asked what was being done about the challenges raised in the National Development Plan.

Mr Dan Marokane, Eskom Group Executive: Technology, replied that the Integrated Resource Plan (IRP) 2010 recommended the doubling of nuclear, green and solar technology. Eskom requirements were based on existing stations, so there was no growth. Other technologies were growing.

Ms Borman remarked that the Waterberg region was strategic both for export and domestic production. There was a problem with infrastructure in the area. She asked about a long term pro-active stand on coal for export or for local use.

Mr Dames replied that exports were needed for investment in mining. There was coordination with Transnet for an integrated network. Other countries had achieved a balance between export and domestic use.

The Chairperson remarked that Transnet had a role to play in increasing rail lines, through a capital expansion programme. There were two strategies working against each other. He asked about the possibility of declaring coal a strategic item. There had to be a balance between capital expansion for Transnet, and bigger mines. He referred to the alignment of government departments with the NDP, that Ms September had touched upon. He asked how Eskom was aligned to the NDP, when it came to coal supplies.

Mr Dames replied that there had to be investment in export rail lines for coal. Mines and power stations also had to be linked, in cooperation with Transnet. Alignment with the NDP meant that there would be engagement with the National Planning Commission before reports.

Mr Marokane added that there was a shortfall in medium term resources. The logistics plan had to be reviewed. More volume had to be introduced. Coal mines had to be close to power stations.

Mr Dames added that Medupi was an example of a power station built next to a coal mine. The coal plant was built up before the power station was built.

The Chairperson concluded that it would require a national effort to keep the lights on.

Minutes of the 17 April meeting were adopted.

The Chairperson adjourned the meeting.
 

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