IPP delays worsen SA’s energy constraints, says Eskom

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 01 Nov 2023
Eskom’s generation performance continued to deteriorate during the year ended March.
Eskom’s generation performance continued to deteriorate during the year ended March.

Delays in adding electricity produced by independent power producers (IPPs) into the national grid has exacerbated South Africa’s energy shortfall.

This emerged when embattled power utility Eskom yesterday announced its gloomy financial results for the year ended March.

In a statement, the state-owned company says the financial year marked a “disappointing period for Eskom, with the organisation experiencing a decline in both operational and financial performance”.

Eskom incurred a net loss after tax of R23.9 billion, a significant increase from the R11.9 billion net loss reported for the previous financial year.

Primary energy expenses, specifically the expenditure to supplement generation capacity through the usage of open-cycle gas turbines (OCGTs), remained the biggest contributor to the financial loss, with a total of R29.7 billion spent on Eskom and IPP OCGTs in the period under review. This is almost double the R14.7 billion spent in the previous year.

The utility notes that generation performance continued to deteriorate, with the overall energy availability factor declining to 56.03% versus 62.02% in 2022.

It adds that generation unplanned load losses increased to 31.92% from 25.35%, while planned maintenance performed at a similar level as last year, at 10.39% in 2023 and 10.23% in 2022.

Load-shedding pain

According to Eskom, the supply constraints were partly worsened by the delays in connecting more capacity to the grid through IPP procurement, as expected under the Integrated Resource Plan (IRP2019), resulting in a constant energy shortfall of approximately 5 100GWh for the year.

This shortfall meant an increase in stages and frequency of load-shedding and over-utilisation of OCGTs, it explains.

The IRP2019 envisages adding 14 400MW of wind and 6 400MW of solar PV, including an additional 4 000MW of embedded generation and 2 000MW of storage by 2030.

According to Eskom, load-shedding was implemented on 280 days during the year under review.

“Although the financial loss was projected earlier in the year due to several factors, the results are not telling a positive story,” says Eskom acting group chief executive Calib Cassim.

“As government continues to support Eskom in improving the balance sheet and managing liquidity, we are pinning our hopes on the generation recovery initiatives which we have put much effort into during the year to turn the plant performance around, and these have begun yielding the desired results.

“The recent improvement in generation plant performance gives us assurance that we are on the right track to meet our future energy availability target, moving a step closer to addressing the issue of load-shedding. Indeed, there is a long road ahead, but we will continue to give our all, as a collective.”

The company adds that the unbundling of Eskom into generation, transmission and distribution is under way, with the legal separation of the National Transmission Company of South Africa at an advanced stage.

Tariff increase

Presenting the financial results, Eskom acting chief financial officer Martin Buys stated revenue is the only key financial indicator to have shown an upward trend. It grew by R11.9 billion from R247.6 billion last year, to R259.5 billion in the current financial year.

He explained this is mainly attributable to the standard tariff increase of 9.61% allowed by the National Energy Regulator of South Africa.

Buys noted the increase in revenue was, however, among other factors, offset by a 5% decline in total sales volumes from 198 281GWh to 188 401GWh, primary energy expenses which increased by R22 billion, from R132.9 billion in 2022 to R154.9 billion, other operating expenditure associated with intensified maintenance increased by R6 billion from R28.8 billion to R34.8 billion, net finance costs which increased by 12%, from R33.1 billion in 2022 to R37 billion in 2023.

Eskom’s net debt was up by 2% from R389 billion in 2022 to R399 billion as at the end of March.

In addition to the R59.9 billion funding secured, Eskom received R21.9 billion equity support from its shareholder during the 2023 period.

This is expected to increase in future with the promulgation of the Eskom Debt Relief Act, 2023, which aims to provide relief of R254 billion during the debt relief period.

Eskom also revealed that arrear municipal debt escalated to R58.5 billion from R44.8 billion in March 2022 and continues to be a serious challenge to the utility’s liquidity and financial performance.