Briefing by Eksom on power outages in the Western Cape

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE, PUBLIC ENTERPRISES PORTFOLIO COMMITTEE, AND SCIENCE AND TECHNOLOGY PORTFOLIO COMMITTEE: JOINT MEETING
14 March 2006
POWER OUTAGES IN THE WESTERN CAPE: ESKOM BRIEFING

Chairpersons: Mr E Mthethwa (ANC); Mr Y Carrim (ANC); Mr E Ngcobo (ANC)

Documents handed out:
Eskom’s Response to the Recent Cape Supply Interruption Incidents and Eskom’s Build Programme

SUMMARY
The Minister for Public Enterprises denied that there was a national crisis in electricity generation. However the low reserve margin for electricity supply, caused by an economic growth rate 1%-1.5% higher than projected, could not contain the loss of generation capacity through the closure of Koeberg Unit 1 in the Western Cape, and resulted in electricity supply failures.

Eskom explained its recovery plan to keep Koeberg Unit 2 running at a lower capacity until Koeberg Unit 1 had been repaired. The consequence of running Unit 2 at a lower capacity was a possible electricity supply shortfall of 300 MW-400 MW during peak hours. Eskom outlined its demand side management (DSM) plan to reduce the impact of this shortfall on its customers.

Members’ questions focused on the possibility of a recurrence of power failures in the Western Cape, and on perceived inadequacies in Eskom’s technical risk management. Members were concerned that Eskom’s research and building programmes were directed at coal-fired power stations rather than renewable energy resources.

MINUTES

Statement by Minister for Public Enterprises
Mr Alec Erwin, Minister for Public Enterprises, denied that there was a national crisis in electricity generation. However, the reserve margin for electricity supply, which should be about 15%, had fallen below 10%. This was caused by an economic growth rate 1%-1.5% higher than projected, which resulted in electricity demand growing faster than projected. Eskom responded to the increased rate of economic growth by accelerating its refurbishment programmes (in 2003-2004), and by planning future electricity generation projects together with the Department of Minerals and Energy (in 2003-2005). The loss of 900 MW in the Western Cape through the closure of Koeberg Unit 1 could not be contained within the lower reserve margin, and resulted in the electricity supply failures.

The assertion by the business community that foreign investors were reluctant to invest in energy projects due to the electricity supply problems in the Western Cape was unfounded. An aluminium smelter referred to in media reports had not approached Eskom in order to enter into negotiations (as was required for any investor that wanted to use more than 50 MW of power). Eskom was currently negotiating with another aluminium smelting company, and could not support two aluminium smelters.

The notion that interruptions to electricity supply in the Western Cape would curtail the projected 6% economic growth rate was ‘untrue’. Eskom was engaging in capital expenditure of R84 billion on a building programme that would improve electricity generation capacity. This programme would have a favourable impact on the economy over a period of 20-30 years, and would facilitate growth in supplier industries.

The Unit 1 generator at Koeberg was shut down after a bolt, which was found in the generator, damaged the rotor. Through government intervention, Eskom had secured a replacement rotor from a French company. An investigation was being conducted to determine whether the damage to Unit 1 was caused by negligence or a deliberate act of sabotage. At the conclusion of the investigation, the Minister for Public Enterprises would announce the findings in Parliament.

Ms L Xingwana, Deputy Minister for Minerals and Energy, added that the Department of Minerals and Energy believed that there was no national energy crisis. However, there was a localised problem with electricity supply in the Western Cape due to the incident at Koeberg. The Department would accelerate the building of a gas-fired power station in the Western Cape, and also initiate a national education programme for energy conservation.

Eskom briefing
Mr T Gcabashe, Eskom Chief Executive Officer, explained that the recent interruption to electricity supply in the Western Cape between 11 November 2005 and 28 February 2006 occurred while Unit 1 at Koeberg was closed down. Most of the power stations in SA were located in Mpumulanga, where there were large coal deposits, and high-voltage transmission lines brought power into the Western Cape. Koeberg provided base-load generation capacity in the Western Cape and also helped to keep the voltage stable along the long transmission network.

Koeberg’s maximum generation capacity (1800 MW) added to the maximum transmission capacity (3500 MW) provided sufficient power for peak demands in summer and winter. Once Unit 1 of Koeberg (900 MW) was closed down, the constraints on the generation system became so high that any risk on the system led to load shedding.

The only running unit at Koeberg (Unit 2) was due for refuelling in mid-March. In order to avoid refuelling, Eskom had devised a recovery plan to keep Unit 2 running until mid-May at an average of 66% capacity (480 MW-600 MW). By this time, a new rotor would have been installed in Unit 1 and repairs completed so that it could start up when Unit 2 was closed down for refuelling. One of the consequences of running Unit 2 at a lower capacity was a possible electricity supply shortfall of 300 MW-400 MW during peak hours.

Eskom was aiming to achieve demand side management (DSM) savings of 400 MW to minimise the impact on customers of the shortfall during peak hours. These included the installation of efficient lighting and an energy conservation campaign. Eskom had also entered a contract with commercial and industrial users whereby it would pay compensation for such users to come off the system during peak hours. In the medium term Eskom planned to build open cycle gas turbines in Atlantis and Mossel Bay that would generate an additional 1050 MW.

Eskom’s R84 billion building programme was planned according to a projected gross domestic product (GDP) growth rate of 4%. As the current GDP growth rate was 5%, electricity demand was increasing faster than projected. Eskom would need to accelerate its building projects to meet this higher demand, as well as to replace power stations that would be decommissioned during the 20-30 year building programme.

Discussion
Mr A Mlangeni (ANC) felt that Eskom’s presentation was technical and complex, and he requested a ‘simple’ explanation for the power failures in the Western Cape that could be conveyed to members of his constituency. Mr Erwin said that, ‘in simple terms’, a very serious accident caused the closure of Unit 1 at Koeberg, resulting in the loss of 900 MW of power and the subsequent power shortages in the Western Cape.

Mr S Dithebe (ANC) suggested that Eskom should investigate the use of fuel cell technology and research the harvesting of energy from landfills in order to augment its generation capacity. He asked how Eskom planned to distribute compact fluorescent lamps (CFLs) as part of its plan to introduce energy-efficient lighting. Mr Gcabashe replied that of the 5 million CFLs that would be distributed, 1.875 million would be distributed free of charge, door-to-door, while the balance would be made available at cost through government agencies.

Advocate H Schmidt (DA) noted that Cabinet had adopted a White Paper in 1998 that indicated that the Department of Minerals and Energy should invite foreign companies to invest in energy projects in SA. Why had the Department failed to adhere to this policy? Ms Xingwana answered that the collapse of energy markets around the world during 2001 caused government to review its policy on the privatisation of energy supplies. Government decided to strengthen Eskom so that it would provide 70% of SA’s energy needs, while private companies would provide 30%.

Advocate Schmidt commented that the suggestion by the Minister for Minerals and Energy, Ms L Hendricks, that possible sabotage at Koeberg was politically motivated was ‘unfortunate on the eve of an election’.

Mr C Morkel (PIM) enquired whether the French government had attached any conditions to the spare rotor that it was offering as a replacement for the damaged rotor at Koeberg Unit 1. Mr Erwin responded that the French and SA governments had agreed that once the damaged rotor from Koeberg Unit 1 was repaired, it would be sent to France in exchange for the spare rotor that France had offered. The SA government had also agreed to underwrite the risk that France would need to buy electricity from another country if their rotor malfunctioned during the period in which they were without a spare.

Mr Morkel observed that environmental impact assessments on Eskom’s building projects to improve electricity generation capacity would lengthen the time frames for these projects. He suggested that the relevant laws could be amended to reduce delays to building projects caused by environmental impact assessments.

Mr J Stephens (DA) stated that Eskom had demonstrated inadequacy in the area of technical risk management. Although specific problems affecting electricity supply (such as fires) were unforeseeable, generic problems were foreseeable and should be addressed by contingency measures. What was the status of technical risk management at Eskom?

Mr Erwin replied that, in order to deal with such a configuration of events as led to power failures in the Western Cape, Eskom would need to build a much larger generation capacity. Government would need to consider this matter in future, taking into account implications of cost and excess capacity. Mr Gcabashe added that Eskom had a separate risk management department that determined the top ten risks in the organisation and reviewed these each quarter.

Mr Stephens expressed concern over the environmental impact of coal-fired power stations that Eskom was planning to build. As an alternative, Eskom should consider building power stations in agricultural areas where bio-diesel could be used as a fuel.

Ms Xingwana responded that the Department of Minerals and Energy was also concerned by the ecological effects of the use of coal as an energy source, and it was in the process of developing a policy on bio-fuels. The economy was growing so rapidly that a variety of energy forms (such as coal, nuclear energy, and renewable energy) should be used.

Mr Gcabashe added that coal was the most abundant resource that could be used to meet the increasing energy consumption in SA. Eskom was aware of the environmental impact of coal-fired power stations, and was investigating methods of reducing carbon-dioxide emissions from these stations.

Mr E Lucas (IFP) asked whether the problems with electricity supply in the Western Cape would affect the government’s programme for providing electricity in all areas of the country. Mr Gcabashe insisted that Eskom was confident of meeting national targets for extending the electricity supply infrastructure in the next two years.

Mr Lucas queried whether gas-fired power stations could be established using the gas reserves on the west coast. Mr Gcabashe replied that Eskom was monitoring the progress of companies that were prospecting for gas on the west coast.

Ms N Kondlo (ANC) noted that although Eskom was investigating possible sabotage at Koeberg Unit 1, it had not given an assurance that such an incident would not recur. Some of the reasons for the power shortages in the Western Cape were unforeseeable, while others, such as increased demand cause by economic growth, should have been foreseen. Eskom’s presentation showed that there was a high risk that power failures would recur in the Western Cape during the period in which Koeberg Unit 1 was closed down.

The Co-Chairperson, Mr Carrim, commented that Eskom’s assertion that the power outages in the Western Cape had not undermined economic growth as infrastructure investment to increase generation capacity would improve economic growth, was ‘credible’. However, this response did not translate into a practical answer that Members could repeat in their constituencies. Eskom should explain clearly whether power failures would recur in the Western Cape.

Mr V Moosa, Chairperson of the Eskom Board, responded that Eskom, together with Members, should develop an ‘appropriate message for the public’ explaining the reasons for the power failures. Although Eskom could not guarantee that power failures would not recur, it was making every effort to avert a future electricity supply crisis.

The possibility of foreseeing power failures in the Western Cape depended on the broader economic situation that was projected. Behind the question of whether Eskom should have foreseen the possibility of power shortages was the question of Eskom’s credibility. This should be evaluated according to Eskom’s record.

Mr C Gololo (ANC) asked whether the Western Cape would experience power outages in 2007 and 2008. Mr Moosa stated such power outages would not occur.

Mr Gololo enquired whether the power shortages in the Western Cape would affect the government’s programme for supplying electricity to rural areas. Ms Xingwana asserted that the Department of Minerals and Energy was committed to its programme for electrifying rural areas.

Mr C Kekana (ANC) asked whether Eskom considered nuclear energy a long-term alternative to fossil fuels. Mr Moosa replied that Eskom did not consider nuclear energy as the alternative to coal, but rather as one of the options for future energy projects.

Mr L Greyling (ID) stated that whatever the outcome of the investigation into the incident at Koeberg Unit 1, a breach had taken place, whether this was a security breach or a mechanical breach. Mr Erwin conceded that a breach had taken place and reiterated that Eskom would provide Members with details of the investigation on its completion.

Mr Greyling claimed that, while energy-intensive investors may not be retreating from SA as a result of power failures in the Western Cape, the investment climate in Cape Town had been adversely affected. Did the government plan to compensate small businesses in the Western Cape that faced liquidation as a result of power failures?

Mr Erwin expressed regret over the losses incurred by small businesses in the Western Cape during the power failures. However, power outages were a business risk. Government could not be held responsible for business risks as this was a matter of insurance. The appropriate forum for businesses to discuss this was the risk committee established by the Premier for the Western Cape.

Mr Greyling was concerned that the bulk of Eskom’s research and development budget was allocated to research into nuclear energy rather than renewable energy forms. Ms Xingwana replied that renewable energy forms were not affordable, and SA was following the example of many other countries (such as the United Kingdom and Germany) by researching nuclear energy. Mr Erwin added that ‘every major economy’ was engaged in the debate on renewable energy forms. Systems such as the wind generation system in Europe were heavily subsidised and therefore not economically viable for developing economies.

Professor I Mohamed (ANC) queried whether the Department of Minerals and Energy had formulated a nuclear waste management policy, and whether it possessed an evacuation strategy in the case of a nuclear event at Koeberg. Ms Xingwana responded that the Department had drawn up a ‘radioactive’ policy which included a strategy for nuclear waste management. The Department would continue to research nuclear waste management, and would plan for excess nuclear waste over a twenty-year period.

Professor Mohamed recalled that in 2002-2003, Eskom requested an electricity price increase of 7%-8% for the purpose of building more power stations, but was denied by government. Ms Xingwana confirmed that the decision taken by government was correct as there was no need for a price increase at that time.

The Co-Chairperson suggested that Eskom should reform the manner in which it communicated with the public, and invited Eskom to attend quarterly meetings with the Public Enterprises Portfolio Committee.

The meeting was adjourned.