National Electricity Shortage Response Plan

Meeting report

The Chairperson acknowledged apologies from Eskom, the Department of Public Enterprises (DPE), and the Director General of the Department of Minerals and Energy (DME). He pointed out that there was only one delegate from the DME and also that the DPE and Eskom had a pre-arranged meeting with Standing Committee on Public Accounts.
 
Department of Minerals and Energy presentation
Mr Ompi Aphane, Chief Director: Electricity, began by apologising for the absence of the Director General. He highlighted that the presentation was not focused on the past but on the response to the shortage of electricity. He began by explaining the figures that pertain to demand and supply. He stated that the year-on-year peak growth was 1709 MW which is 4.9%. The demand for electricity always reached its peak at the beginning of winter. He said that the increase occurred in light of the declining reserve margin. The reserve margin was the section that was kept aside in case one of the plants broke down. It was a type of insurance. The reserve margin was calculated by looking at the ratio of the peak demand versus operational capacity.
 
Mr Aphane said that according to the seven-year forecast, the reserve margin would continue to decline and could sink to a low of 2% in 2012 from 25% in 2002. He said that all being equal if things were left as they were then the further decline of the reserve margin would be inevitable.
 
Mr Aphane then retraced the power shortage saga which began during the second week of January. On Monday 14 January the shortage of electricity was at 2000MW. He explained that it was customary for the repairs on plants to take place during summer, before winter began and it was at this period that repair work was due to be done. He drew attention to the fact that the shortage eventually peaked to a high of 3000 that week. At this point load-shedding became imminent. Power outages could take two forms, either they could result from the need to perform unplanned repair work or they could be planned outages, which was load-shedding. Since the plants were being driven harder and also because of the incessant and heavy rains, this had caused defects in the coal. These defects in turn might result in plant failures.

Mr Aphane explained that historically the export price for coal was high and as such the Department ends up having to use poorer quality coal (which was less expensive). Local mines tend to prefer selling their export quality coal and pay the associated penalties instead.

He said that some progress had been achieved since the beginning of the power crisis. There were three initiatives that were embarked upon in response to the power crisis. First, they had made attempts to restore the system to a workable reserve margin. He explained that the pick up was not easy for South Africa. The second initiative involved combating the supply chain problem. They had been trying to increase the coal stock pile in the last few weeks. Finally they had begun repair work on faulty plants and they hoped to complete this before winter.

Mr Aphane explained that there were two ways in ensuring the stabilisation of the power crisis. The first form of intervention would be the ‘demand option’. The idea here was to reduce the demand for electricity by teaching power conservation and by rationing among other things. The effects of this option would be felt in the interim. However the long-term option was the supply option. This involved the building of new plants, the contracting of independent power producers and the use of alternative sources of power such as waste heating. Government had embarked on such initiatives. With regards to the reduction of demand, the government had in the past introduced the DSM (change of light bulbs in residential units to fluorescent) and it intended intensifying this drive. In terms of supply the plan was to bring more plants to working order. It was estimated that by 2015, 21503 MW would have been added to the system.

He noted that there was a fast track option that could result in the further rise of electricity supply by 2015. Under this option the government would consider the use of gas-fired plants, co-generation and the improvement of coal quality in an attempt to increase supply. They could also ensure that maintenance of plants was done consistently to avoid unplanned outages. Finally they could contract Independent Power Producers. If they achieved this, they could introduce 3000 MW to the system.

Mr Aphane explained that in order to fast track the reduction of demand, the government would have to continue with load-shedding, start power rationing and introduce a power conservation program. This would involve an aggressive energy efficiency drive in Government and State owned building. They would also restrict the sale of incandescent lights. The government could also introduce national housing specifications for water heating and building standards. In addition they could introduce a Solar Heating programme.

Mr Aphane said that load-shedding needed to be scheduled and for the public to be informed of the planned times of outage. Additional demand side interventions included the switching of residential cooking load to gas, connecting traffic lights to solar power, public lighting being reviewed and pro-poor cost reflective tariffs. Demand reduction could be done in three phases. The first was the recovery phase where the government tried to regain control of the power system. This phase ended in February. The second phase was the Power Rationing period during which the government would also be preparing for the third phase, the Power Conservation Program (PCP).

Mr Aphane explained that the overall savings target of the PCP was 10%. During this phase there would also be quota allocations. In addition a Penalties and Incentives Scheme would be introduced. Under this scheme companies would be subject to a penalty if they went over their quota. On the other hand those that used less would be rewarded. The estimated yield from this procedure would be 23000 MW per annum. The PCP would be initiated on 2 April 2008 and would have a 24-month time frame.

Repeat offenders against the PCP would be ‘named and shamed’ and/or would be subject to cut-offs. Essential services, such as hospitals and traffic lights, would be exempt from penalty. For smaller consumers, they would look at inclining block tariff structures as disincentives. They would implement DSM technology-based incentives or savings incentives, if savings were over and above the overall target. The plan to reduce demand among small consumers would be centred on the modification of electric geysers (installation of a timing mechanism to switch off when not in use) and the restriction of the use of incandescent lights.

Mr Aphane concluded his presentation by listing proposed Energy Efficiency Regulations. The first was the requirements for water heating in commercial and residential buildings. He explained that such regulations would include rules informing the installation of electric geysers in dwellings with a value that exceeds R750 000. In those dwellings with a value less than R750 000, additional geyser insulation would be installed. These regulations were to be set in place no later than 2010.

In addition to these requirements, the installation of electric geysers that did not incorporate solar heating facility to office blocks, hostels, resorts and shopping malls would be prohibited. Finally all electric geysers would be required to be fitted with a facility for the licensee to remotely control the electricity supply to it.

The second proposed energy efficiency regulation set prohibitions in respect of lighting, space heating, ventilation and cooling in commercial and residential buildings. This regulation would also come into effect no later than year 2010. Finally, norms and standards would also be set for reticulation services.

The delegation from the Department of Public Enterprise (DPE) joined the meeting at this stage and the Chairperson gave them the opportunity to speak before the discussion commenced.

Department of Public Enterprises input
Ms Portia Molefe, Director General of the DPE, commenced by offering her apologies to the Committee as they had a pre-arranged meeting with SCOPA that had just ended, hence their delay. She began by explaining that if demand were reduced by 10% then the Department would be able to sustain their energy capacity, that was to say, that they would reach a workable reserve margin. Despite the power crisis, South Africa still remained one of the cheapest electricity providers compared to other competitive countries.

Ms Molefe said that the Department had been faced with some constraints with regard to the building of plants or alternative equipment. She said that even if they tried to bring in capacity (increase supply), if prices do not reflect cost then they would always be chasing a margin that was difficult to meet. However she said that if 10% reduction in demand was not achieved, then the state would still be in a precarious position in 2012 and beyond. This 10% reduction should be a base-load reduction. This meant that it must be completely eradicated.

The task at hand included the removal of 2 million geysers in residential areas and the installation of non-electrical heating mechanisms. The only problem was that the state lacked the capacity and the funds to do so. An alternative would be to motivate medium to high-earners to shift to the new geysers independently.  

Mr Brian Dames, the Chief Officer of the Eskom Holdings, continued, saying that the demand for electricity had grown since 1994 and yet there had been no investment in electricity since then. There had also been very little maintenance since then. There was a need to act quickly to restore a workable reserve margin to ensure the continued growth of the economy.

One of the ways through which the reserve margin could be restored was by continuing the maintenance of plants. Another way was to continue with the planned outages during summer. The only problem was that if they exceeded the stipulated planned outages, then they could not meet demand.

Mr Dames stated that in the past the state had managed to deal with the energy crisis efficiently. He explained that last year planned plant work was completed on schedule and as such outages in winter were avoided. However, the state was faced with limited access to equipment for plants which a lot of private players had access to. He explained that South Africa was not the only country faced with energy problems and as such the competition for resources was also a limitation that the state was faced with.

Finally Mr Dames assured the Committee that albeit a Herculean task, he did not see a reason why the country could not deal with it. A lot was being done already to stabilise the situation and with the recently acquired aid of the French government, the state should be able to control the situation.

Discussion
The Chairperson opened with a question regarding hydro-electricity. He explained that he had heard that China was building a hydro-electric plant worth millions that would provide over 20000 MW of electricity. He asked if it was possible for South Africa to follow suit considering that the country was surrounded by vast amounts of water (the ocean).

Mr Dames (Eskom Holdings) responded that despite the existence of the ocean, the country did not have a lot of water sources. He explained that to build such a plant would require the existence of large water sources such as big rivers and dams. The only alternatives that South Africa had was to use gas and to build larger power plants.

Mr M Matlala (ANC) commended the DPE and the DME for their presentations. The Committee had been left in the dark for too long which was not a good thing because they had been precluded from performing their duties as an oversight committee. He said that they had to rely on hearsay and misinformation from the media.

Ms Molefe apologised for keeping the Committee in the dark for so long. She said that DPE appreciated the oversight responsibilities of the Committee but often found that their meetings clashed with those of the Portfolio Committee for Public Enterprises. She hoped that the Autumn school held by the Department would be able to improve capacity.

Mr Matlala said that it was good to hear that it was the growth of the nation that had contributed significantly to the shortage of electricity and not mismanagement. One of his concerns was whether the State would still be able to fulfil their goal of universal access to electricity by 2012.

Ms Molefe replied that the Department still hoped to fulfil this goal. The ability to do so was still there. The only problem was that the funds for this program had shifted from the DME to another Department. This caused a problem with the roll-out. Eskom could and would perform this mandate to the extent that they were funded.

Mr Matlala asked for the departments to explain whether the power situation was a crisis or a setback or a state of emergency.

The Department did not comment on this.

Mr Matlala also asked the Departments to clarify exactly how much power was imported and exported.

Mr Dames replied that the amount of energy that the country imported was less than 3% of their capacity. The export of electricity was necessary to maintain future relations with surrounding states such as Botswana and Mozambique.

Mr Matlala asked whether there was any truth to the allegations that the situation was caused by lack of or defective skills within the departments. He also asked whether the racial undertones of these allegations were justified.

Ms Molefe replied that to make the power crisis a race issue was not right. She said that the crisis was caused by poor planning. The intention of the State was to bring the private sector in. In addition there had been a lot of investment into skills building.

Mr Dames added that South African technicians were some of the best in the world and that they reflected all the rainbow colours of the nation. He explained that there was no one (however skilled) who could come into SA and solve the situation overnight.

Mr Matlala noted that the response to the electricity shortage should not focus only on how to increase supply and reduce demand but must also deal with the parallel issues that had resulted from the power shortage such as job loss and crime on the rise.

Ms Molefe explained that the Department was still waiting for the full report on the capacity required by mines. This report would be completed by the end of the week. Finally she assured the Committee that the plan was to retain the system and as such they hoped to secure the jobs of all those affected.

Mr N Mathibela (ANC) asked what provisions had been made for poor households. She requested that information be provided to the public about the time schedules for load-shedding. She asked what was being done to save jobs in the mining industry which was one of the most adversely affected industries. She expressed her concern that the Committee had still not managed to meet with Eskom to date.

Ms A Dreyer (DA) questioned whether the Department had considered conducting maintenance work in December when most industries were either closed or had slowed down production as opposed to January when they were all kicking back into action.

Mr Dames explained that maintenance had to be done during all of the summer months and could not be restricted just to December. He also pointed out that in December there was a problem with finding people to contract as most companies close down for the holidays.

Ms Dreyer asked if the quality of coal had dropped or whether the state had been using the poor quality coal all along.

Mr Dames explained that export quality coal created more ash and had less heat value. Perhaps an alternative would be to use a mixture of export and poor quality coal.

Ms Dreyer asked if the power shortage would affect economic growth. She had heard that Eskom would not be issuing construction projects for a while and she wondered how long this would last and what the effects would be.

Ms Molefe explained that if one looked at the relationship between the GDP and electricity demand, one could see that the growth in GDP was higher. They were told only recently that the GDP had been set at 6%. The demand focus for Eskom was sector based. For every bit of excess capacity used, there was a cost attached to it. Even though they were working to restore the reserve margin, there was a cost attached to this (that is, the excess coal was not free, it cost the government a lot to acquire it.)

Adv H Schmidt (DA) argued that considering that Eskom had had day to day feedback on what the growth in demand was since 2002, they should have revisited their policy. He asked why this had not been done. If it was known that it takes five years to build a power station, then why had they not initiated this in 2000? If one considers that the majority of power stations were around 30 years old, one could expect that most of them would be over 35 years old by 2015. In light of the fact that most of these plants were being over-used, it was safe to assume that they may become redundant before 2015.

Mr Dames explained that the decision not to build was a policy decision and one that Eskom did not agree with. Even after being told not to build in 2003, Eskom had still undertaken an initiative to restore one plant that had been inactive for a while. It was not fair to say that Eskom was doing nothing. The policy had been a mistake and now we were living with the consequences of this mistake.

Adv Schmidt asked why the State had not yet enlisted the help of the many Independent Power Providers that were on hand, in particular the Botswana team that had offered to help with power supply. He asked the departments to confirm whether the advisory team to the Cabinet had been appointed and asked them to clarify what the role of this team would be.

Ms Molefe replied that she was not aware of such a structure. She said that she would consult with the Director General of the DME on this matter.

Adv Schmidt asked what had been done with regard to the solar water-heating initiative. He asked the Department’s to clarify what the practicalities of this initiative entailed. He concluded by saying that the dominance of Eskom was what prevented the Independent Power Providers from further investment in power supply.

Mr C Kekana (ANC) argued that the statement that South Africa provided the cheapest electricity compared to competitive countries was ill-informed. The price of electricity must be determined according to affordability in South Africa and it was not right to compare the price of electricity to First World states.

Mr Dames accepted that it was unfair to compare electricity prices with developing countries. However even if one compared SA to similar countries such as South Korea and Rwanda, one could see that the price in SA was really cheap. The idea of Free Basic Electricity would be reviewed but he noted that the question of equity was chief.

Mr Aphane added that at the moment tariff distribution was such that Eskom passed on their costs to the municipalities and key customers. The idea was not to make a profit but to recover costs.

Mr Kekana commended the DME for an excellent presentation but added that it was necessary for them to paint a full picture as to the effects of the power shortage particularly how much electricity was being consumed by each sector, how much needed to be saved by each sector and how this would be done. 

The Department did not comment on this.

Mr Kekana asked if the planned response to the crisis would counter economic growth. Growth was inevitable and must be taken into consideration. He also asked how many plants were ineffective and how long it would take to restore them to working order. Finally he questioned whether there was any hope for hydro-electricity.

Mr E Lucas (IFP) said that South Africans had been tolerant of the power shortage crisis. He was concerned about the plans put forward to combat the shortage. He asked why certain plants had been shut down in the past. If maintenance and modification had taken place since 1994, then this situation could had been avoided. He also complained that the Committee had been kept in the dark for so long.

Mr Dames explained that builders had been hired in 2004 to start work on new plants but unfortunately this was a late start date, hence the crisis. The existing plans were that plants would begin to be replaced by the end of this twenty-year period. They would try to maintain the fifty-year life span of most plants.

Mr Lucas asked why there had been nothing in the presentations on Nuclear Energy.

Mr Dames explained that at the moment the State was not in a position to deal with the idea of nuclear energy. He said that they had neither the skills not resources required. He said that this was work in progress.

Mr Lucas also asked why Eskom did not use export quality coal. He asked what the position was with regard to the Botswana and Mozambique power stations.

Mr Dames replied that the Department had been waiting to hear from Mamabula Power Station in Botswana as they were interested in the contract offered. He explained that the Department could not move on until their counter-parts were ready.

Mr Lucas advocated the use of solar power as an alternative and suggested that perhaps another alternative would be to divide the country into two time zones.

Mr Dames said that there was a need to research the practicality of daylight saving. In the past this had not been an option as Johannesburg was the centre of the economy. Now that the Western Cape was also a contender perhaps this could be practicable.

Ms E Ngaleka (ANC) stated that she was confident that if we all contribute then we would manage to control the situation. She asked whether stakeholders would also embark on Consumer Awareness Programs in support of the conservation strategy. Personally she would like to see this happen. She also suggested that the public should be provided with time schedules for intended load-shedding.

Mr Dames explained that it was difficult to give exact times for when load-shedding would occur because in most situations the time that Eskom intended for the electricity to be cut off was not necessarily the same as the time that the technician would actually manage to reach the plant and turn off power. As such there was a need for power to be synchronised. He pointed out that the Johannesburg municipality had managed to develop and distribute a schedule of this nature.

Mr L Greyling (ID) commented that the State was at fault for not building plants to generate capacity. On the matter of the quality of the wet coal, he thought that the leaks should simply be repaired. He acknowledged that the Committee had failed in their duty of oversight. It might be necessary to appoint an independent commission of inquiry to look into future planning before jumping into reaction.

Mr Greyling said that there was a need for the development of an electricity pricing program that co-relates to the cost of supply but takes into consideration the plight of the poor. He asked why the country was still selling electricity at a reduced price to major international companies yet they need it for the South African public.

Mr Dames stated that the pricing was based on a curve. He further explained that the South African economy was heavily dependent on the mining industry. When mining goes to smelt, the effect of this on the power capacity was enormous. One had to appreciate the value adding from the mining sector. South Africa could not be a manufacturing state without such initiatives in place. He denied that the smelters got a reduced price.  

Mr Greyling pointed out that for as long as Eskom was in charge of most of the electricity supply, there was no assurance that co-generation would take place or even the use of renewable energy because they had never considered this in the past. This responsibility should be given to Independent Power Providers.

Mr Dames agreed that there was a need to bring in the Independent Power Provider structures.

Finally Mr Greyling said that although he supported the solar heater scheme, he felt that it may turn out to be too expensive and the State may not be able to reach their target unless they subsidise the initiative.

Mr Dames explained that the solar initiative would actually create up to10 000 jobs. Although he accepted that the solar power alternative was not feasible for low-income households, he believed that it was the answer to reducing demand among large consumers.

Ms D Seadimo (ANC) asked what plans had been set in place to improve the quality of coal.

Mr Dames replied that the effects of poor quality coal only appeared after a while. They could not use export quality coal but an alternative would be to mix export quality coal and poor quality coal.

Ms Molefe concluded the discussion by accepting that there was a lot of work to be done. The Department would look into alternative power sources such as water and wind. The Department accepted that they should have started refurbishment sooner. There were projects with Mozambique that were still pending with regard to coal and hydro-electricity supply.

Ms Molefe said that the price of compact fluorescent lights (CFLs) was also an issue that needed to be addressed as the price was too high to enforce the mandatory shift from incandescent lighting to CFLs. Many countries were in the process of also purchasing CFLs hence the price hike. The state would look into running free replacement programs.

Ms Molefe added that it was important for the regulations on restricted use of lighting to come into place. She emphasised that essential services would be excluded from these regulations. They would take steps to ensure that back-up generators were in place for essential services such as hospitals. She assured the Committee that they would work on a load-shedding schedule.

The Chairperson said that there should be a workshop dealing with issues of access to electricity for the poor and giving a comparative analysis of how other states had dealt with power shortages, among other things.

The meeting was adjourned.