Power supply security for 2010 World Cup & beyond: briefing by Eskom

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Public Enterprises

01 March 2010
Chairperson: Ms M Mentor (ANC)
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Meeting Summary

Eskom delivered a presentation indicating that adequate energy could confidently be supplied for the 2010 FIFA World Cup.  However, in order to do so the voluntary assistance of consumers, the South African Power Pool and the use of gas turbines might also be needed. In the long term, an energy deficit appeared to be looming with inadequate energy supplies by 2012. In order to avoid system failure, energy efficiency and many other alternative measures would have to be considered. The committee identified Eskom’s risk management plan, and specifically the security of infrastructure, as weak areas and requested a presentation on this at a later date. The costs of building new plants and Eskom’s own cost saving measures would also be discussed in a future presentation.

Meeting report

Eskom presentation

The Secuity of power supply for 2010 World Cup
To establish the amount of power needed for the 2010 World Cup, Erica Johnson, Chief Officer Customer Network Business pointed to statistics from the 2006 World Cup in Germany. The total electricity consumption for this four-week period had amounted to 13 Giga-Watt Hours (GWh). To place this number in context, 215 000 GWh had been supplied by Eskom to the whole of South Africa in the last year. While the stadia constituted only a small portion of the overall power demand, it was nonetheless understood that it was an incredibly important portion.

Current forecasts indicated that a demand of 37.24 GW could be expected due to winter consumption patterns. It was anticipated that an additional demand of 275 Mega-Watts (MW) would arise over the tournament period. Eskom indicated that it had sufficient generation capacity to cater for this additional demand. If required open cycle gas turbines could also be run, and an agreement with the South African Power Pool (SAPP) had been reached to increase imports and decrease exports over this period if necessary. Furthermore all maintenance of power stations was being completed during summer months, with only critical maintenance to take place during the World Cup itself.

Tto ensure a reliable supply of power, key installations must be identified and the electricity supply chain fully aligned. Because many key installations fell under municipalities, Eskom had taken the initiative to assist where it could. Especially since the power outages during local matches at the Orlando, Bloemfontein and Loftus Versveld stadia had occurred in municipal installations.
 
Eskom stated that it completed its preparation phase for the World Cup Tournament and was in simulation phase. Tests of the 2010 FIFA World Cup response plans were to be undertaken in the period February to March 2010. The areas to be tested included the alignment of communication, emergency communication and technical responsiveness, security and alignment with disaster management.

Aweakness was the security of infrastructure and routine theft of equipment;this challenge was therefore identified and it was to be ensured that that security to dedicated links was fully supported.

Eskom’s internal auditors were also currently assessing the levels of readiness, in order to highlight any areas of weakness well before the World Cup.

Members of the Committee were reminded that the 2009 Confederations Cup had run smoothly with no electricity incidents affecting matches, despite Koeberg station being out of action.


Overview of the South African Power System

A very tight balance between supply and demand currently existed. This balance was supported by a “very thin transport infrastructure”, and this situation would prevail for the foreseeable future. Aaround 28 000 km of transmission line was used by Eskom with 27 power stations being operational. Two ‘mothballed’ coal fired stations were being returned to service (RTS) while three more were being built (Medupi, Kusile and Ingula). However, the largest 138 industrial customers used nearly 40% of the energy, the largest 40 000 customers consumed 75% and eight million residential customers used 25%.

An approximately 2% energy reduction was seen for 2009 versus 2008. This was attributed to large industrial consumers producing less due to economic factors. It was also shown that the peak energy demand during winter 2009 was 36 000 MW, while the peak demand for 2010 would foreseeably be 37 240 MW, as mentioned earlier.

Kkey issue in managing the power system lay in creating an adequate Operating Reserve Margin. The reserve margin was an indicator of the reliability of a power system – showing long-term adequacy and short-term security. This meant that on a day-to-day basis a 4 to 6% reserve margin was necessary in order to meet demands. In the long term (25 years ahead) it would be necessary to have a reserve of above 15%, in order to keep supplying energy according to economic growth. Not managing a supply and demand imbalance would result in a collapse of the system. The 2010 World Cup would not however “change issues of security or adequacy” but would rather require “site specific preparations and a specific operational awareness level”.

The Chairperson asked whether this reserve margin was based on that of first world countries, and what sort of reserve margin was needed by a developing country.

Eskom answered that while 15% was a very lean reserve, and was ideally the minimum, it was adequate for a coal-based system such as South Africa’s. Similar developing countries such as Malaysia, India and Thailand also aimed to fall within a 15 – 25% reserve margin. However, the nature of the reserve margin depended very much on the type of energy a country used and the specific risks that country faced.

The short-term outlook for the year was therefore positive with a high level of confidence in providing adequate energy supply for the 2010 FIFA World Cup. Risks persist and energy efficient initiatives have to be focussed on to restore a healthy reserve margin.  If energy efficient measures were not put in place by winter 2010 the risk of interruptions in the power system would increase.

The security of power supply in the medium and long-term
It was brought to Members’ attention that a demand and supply imbalance would exist in the next three years until the first unit of Medupi Power Station was commissioned. While no capacity shortfall existed in 2010, by 2011 the shortfall would have risen to 1387MW and to 2720MW in 2012. This shortfall would also mean that the gap for periods of maintenance would decrease dramatically. By 2012 the country’s energy requirements would be unmet, resulting in an energy deficit.

In the medium term the adequacy of supply from 2011 to 2013 was a serious concern. In order to ensure system adequacy, demand side management and energy efficiency would be essential.

By 2017 a 15% reserve requirement would no longer be adequate. Energy efficient initiatives offered an opportunity to reduce energy usage by 8 -15% in next five to ten years. By 2017 Eskom’s expansion programme would contribute at least another 14GW; however to power the South African economy in the long term 20GW of generation capacity would be needed by 2020, with an extra 40GW needed by 2030.

The completion of Medupi and Kusile power stations, with a possible requirement for a third-base power station by 2017, was therefore an immediate consideration. Coal based stations built by Eskom or Independent Power Producers would also have to be considered a possibility. A continued focus on energy efficiency was highly necessary. Most importantly, the role of nuclear and renewable energy sources would have to be decided on within the next two years. If this challenge was not dealt with, the economic growth of the country would inevitably be strained. A culture of energy efficiency would have to be established.

The Chairperson asked the Eskom members what the long-term implications of the coming tariff hike would be.

It was explained that Eskom was currently “playing catch-up”. There had been enormous growth in the economy, and energy requirements, since 1994 but with no investment in the energy utility itself. New plants and different forms of energy were undoubtedly required to keep up with the demand, but in order to do so an investment in energy would have to be made. The tariff increases formed part of such an investment.


Discussion
Mr L Greyling (ID) pointed to the fact that Eskom’s 138 largest customers used 40% of the energy. Confidential agreements in which these large industries paid a much-reduced rate for electricity had long been established between these consumers and Eskom. Had these agreements been renegotiated and would the tariffs affect these industries at all?

Mr Greyling also asked about the demand going forward, in that 40GW extra was needed by 2030. If energy prices were to increase far fewer energy intensive industries would be attracted to South Africa and less energy would be needed in the future. The mistake of acquiring too much energy capacity had been made by Eskom before, how had they come to their calculations and was this error going to be avoided now?

Mr E Rasool (ANC) asked about the generating capacity of Eskom itself. How much energy was exported and how much was actually made use of by South Africa? Moreover was the reserve margin a theoretical construct, since energy could not be stored? Was the 15% simply an indication of oversupply? If this was the case, the infrastructure could perhaps be improved so that a reserve margin was created by entities other than Eskom. For example hotels and hospitality centres for the tournament could be incentivised to install solar energy systems and create a reserve of energy in this manner.

Dr G Koornhof (ANC) wanted to know what the increase of 275 MW during the World Cup was based on and how this number had been arrived at. Also, how reliable were the supply authorities, such as municipalities, outside of Eskom? How reliant was Eskom on the municipalities?

In the long term, what cost cutting measures was Eskom taking itself and what was it doing about energy efficient measures? Eskom was also asked for their view on independent power producers.

Dr M Mangena (AZAPO) pointed to looming energy deficit in the period between 2011and 2013. How quickly could wind farms be established to deal with this problem, and would such farms make a dent in the energy crisis?

Mr P van Dalen (DA) commented that when there was a large reserve margin, Eskom entered into contracts with industries to supply electricity at reduced rates. However, when the reserve margin dropped the “tax payer and the poor” were made to bear the brunt of increased electricity costs. Would it be possible to build a clause into these contracts that ensured in times of low reserve margins industries also paid more?
Mr van Dalen also questioned the theft of infrastructure. What was Eskom itself doing about this problem? If a major theft of infrastructure occurred during the World Cup, what measures and plans were in place to deal with this?

Dr S van Dyk (DA) stated that the Integrated Resource Planning (IRP) made provision for alternative forms of energy such as water, wind or solar power to be developed. However, now that Eskom was to only receive a tariff increase of 25% and not the 45% would these areas still be open to development?

What was to happen after the World Cup? Everything was geared towards the tournament, but could blackouts and load shedding be expected after this? Forewarning for industries and households was necessary if this was to be the case.

Ms G Borman (ANC) wanted to know what plans Eskom had in place to deal with the unexpected during the World Cup, especially regarding the security of supply. It was commendable to see Eskom working with municipalities, but some stadia burnt lights all day long. What energy saving measures was in place with these municipalities?

Mr C Gololo (ANC) commented that an indicator of the electricity supply being under sever strain was often seen on television. If this indicator was shown everyday throughout the summer, what of the electricity supply during winter months?

Mr M Nhanha commented that a change in attitude towards energy efficiency was desperately needed. Electricity was often lost from the generators where it was created, were there any innovative ways to address this loss?

The Chairperson asked to meet with Eskom in the future in order to hear a report on the risk management in place and especially to deal with the security of infrastructure.  The issue of renewable sources of energy also needed to be urgently discussed, as well as the introduction of independent power producers.

She criticised Eskom’s presentation for being very silent on matters regarding nuclear energy. This source of energy would have to be discussed, and a decision taken in the immediate future, as the lead time on nuclear plants was ten years long. With the energy deficit between 2011 and 2013 looming, why not fast track renewable and alternative sources of energy?

Lastly, there was speculation that the new power plants Eskom was building were overpriced. Had Eskom visited other countries to learn from their plants? Could these pricing decisions be explained?

Eskom responded to the Chair’s question, saying that a presentation would be made to the committee at a later date indicating exactly what steps Eskom was taking to mitigate the risks the period of 2011 – 2013 posed. Substantive answers to all questions regarding this matter could then be made.

The majority of large industries would experience an increase in the cost of electricity with the tariff hike. The Regulator would determine exactly how much of an increase these industries saw. A few contracts (less than ten) had been established prior to 1994 and these were not subject to increases. Eskom was renegotiating this and requested the confidentiality to do so. 

Mr van Dalen questioned whether it would not perhaps be easier and cheaper to terminate these contracts and pay the necessary fines.

The Chair echoed this and said that it had been recommended to Eskom that these agreements be terminated. Eskom however would have to negotiate this and report back to the committee at a later date.

Eskom addressed the issue of the 275 MW extra needed during the world cup, stating that much background work had been done to come up with this figure. Sites in Germany, Korea and Japan had been visited as well as host cities for the European Football Cup to determine how they had met power requirements. This was then translated into what would need to be achieved locally.

Eskom stated that it generated 95% of the energy available in South Africa. Municipalities and Independent Power Producers (such as Sasol) also had their own generation capacity and supplied 1.8 GW overall. The figures shown at peak demand times (37.24 GW) indicated what Eskom itself had to supply.

It was conceded that there were definitely concerns surrounding the power supply from municipalities. However, Eskom could not answer just how reliable the municipalities were In terms of the status of 2010 readiness, Eskom believed that the municipalities were indeed ready but Eskom was standing by with extra generation should it be needed. While the outages experienced during local games were localised failures, and not Eskom’s, the utility was assisting municipalities nonetheless.

Dr Koornhof asked whether Eskom had a platform or meeting point on which to discuss this fully with municipalities.

Mr Rasool pointed out that it did not matter whether power outages were localised failures or the fault of Eskom. Rather it impacted on “Brand SA” and that internationally no one would make the distinction of who was at fault. All entities were responsible for such failures, but because Eskom had so often been in the “dog box” it would more likely than not be blamed.  A suggestion was to strengthen platforms between Eskom and the municipalities with a regulatory treaty.

The Chairperson agreed stating that it was both the responsibility of Eskom and the committee to close such “loop holes” between entities. Moreover, the committee would conduct oversight visits to the municipalities where outages had occurred.

In terms of the security and theft of infrastructure, Eskom commented that it had just won a landmark case against those caught stealing its property. Legislation now supported Eskom’s battle in this matter. Furthermore, key areas of infrastructure had been identified and security and technology in these areas had been increased. Scrap yards that bought such infrastructure were also being visited, the equipment was being recovered and the yards were to be prosecuted. Eskom was also working closely with the South African Police Service and police measures were being stepped up in areas known for theft.

The Chairperson reiterated that such procedures would have to be elaborated on and that Eskom would have to return and present its risk management plan.

Eskom stated that it was looking to increase its own efficiency and that capital savings measures specifically had been taken. These too would be discussed with the committee at a later date.

One hundred MW wind farms had indeed been planned. Establishment of such projects would however take some time as land had to be procured, environmental impact assessments undertaken and the farms would have to be connected to Eskom’s grid. Farms were expected to start in the 2011 – 2013 period as they had much shorter lead times than energy plants.

Regarding load-shedding, Eskom admitted that the supply would be very “tight”. The country as a whole would have to work together to ensure energy efficiency and prevent power interruptions. Eskom was committed to doing its part.

Television indicators of a strained electricity supply were aired during summer months when Eskom did its maintenance of plants. During winter months,only critical maintenance was undertaken and all plants would be available to deal with the increased demand.

The Chairperson requested Eskom’s schedule of planned maintenance so that the committee could use this as a system of checks and balances to ensure outages were indeed planned.

Eskom affirmed that energy loss at its generators was monitored closely to ensure that it fell well within recorded benchmarks. Eskom did however have its own programmes to reduce energy loss and was constantly looking for newer and more innovative ways to do so.

Eskom answered that the new plants being built were not in fact overpriced. The costs were comparable to anywhere else in the world and peer studies had been undertaken. These facts would also be shown at a later meeting.

In terms of alternative sources such as nuclear energy Eskom agreed that this was definitely an important option and that decisions on this matter had to be made soon.

The Chairperson concluded that more co-ordination was needed between parliamentary committees and between these committees and Eskom to ensure that all entities played their part in the smooth supply of energy to the country.

The meeting was adjourned. 

 

 

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