As part of Eskom’s updated assumptions for its tariff application for next year, the utility has said it plans to use R16.8 billion of diesel in its next financial year, which starts in April.
This is a substantial increase from the amount of R5 billion as part of its updated request to the National Energy Regulator of South Africa (Nersa) in January. It equates to a 235% increase from the submission earlier this year – more than triple.
This means Eskom will, on average, burn R1.4 billion of diesel a month.
At current diesel prices, Eskom cannot burn more than about R2 billion in diesel in 30 days, due to the physical constraints of getting diesel to its peaking plants.
Eskom says there has been a “significant increase” in diesel costs when compared with assumptions in January 2022, but that its change in the addendum is “related to changes in both volumes and price”.
It says volumes of diesel required have increased “due to the production planning process requiring further dependence on OCGT [open cycle gas turbine power] to meet the demand requirements”.
Basically, it needs to use its OCGTs more extensively to keep the lights on.
Price has ‘more than doubled’?
While it contends in its submission that the diesel price “has more than doubled”, according to the South African Petroleum Industry Association (Sapia), the wholesale price has increased by 41% between January and September (R16.63 to R23.50).
It is up 89% from January 2021 to September 2022 (R12.41 to R23.50). Eskom buys diesel from suppliers including PetroSA at a discount of around 30% to 35% to the wholesale price.
One hopes Nersa will interrogate these sorts of details presented as facts by Eskom in the current round of public hearings.
Even if one generously assumes the full 89% increase in prices, it means that Eskom is planning on burning nearly 80% more diesel than its original plan.
Diesel as a crutch
The documents submitted to Nersa are frustratingly short on detail, but in its January revised assumptions it said R5 billion in diesel costs would produce 1 058GWh (gigawatt hours) from its OCGTs. The changes in the addendum suggest that Eskom could be planning to generate nearly 1 900GWh from OCGTs next year.
In other words, it plans to use its diesel peaking plants almost twice as much as it originally planned.
Eskom has so far spent more than R8 billion on diesel this year, more than its annual budget – and its financial year is not even at the halfway mark. It is not yet clear how it plans to recover this expenditure.
Eskom expects an energy availability factor (EAF) across its fleet of 59% in FY24 and FY25 (astonishingly, the original application to Nersa in 2021 projected an EAF of 72%).
Despite this lower EAF, it says a further 10TWh (terawatt hours) of energy needs to be produced than it originally envisaged. It says “a significant increase in the energy utilisation factor and certain load factors is needed”. This is a not-so-thinly veiled reference to the load factors of its OCGTs.
Eskom also says factors that were not previously included in the process are:
- Various coal generation units at Eskom will be shut down over the next three years;
- Supply from the independent power producer (IPP) risk mitigation procurement programme not being available; and
- A “significant shortfall in renewable energy from IPPs not being available as updated in January 2022”.
This will see “concomitant increased use in OCGTs in accordance with the scheduling and dispatch rules”.
It foresees a roughly R15 billion increase in the cost of primary energy from R87.2 billion as per its January submission to R101.9 billion in last week’s update.
Of the 32.02% increase in the price of electricity that Eskom has applied for, 7.85% is due to these higher primary energy costs.
It says the majority of this – or 6.09% – is due only to the increase in diesel and fuel oil prices (used in its coal fleet) as well as the “volume increase in OCGT fuel”.
Moneyweb last week reported that it is clear that because of various court rulings, “regulator Nersa will have little room to deviate from Eskom’s numbers and limit the increase substantially”.
It is all but certain that customers will pay 32% more for electricity from April (municipal customers from July).
Eskom says that in response to the announcements by President Cyril Ramaphosa, it “will undertake further emergency procurement processes to secure any further available generating capacity”.
“This energy will provide further risk mitigation in the event that various assumptions in the production plan do not realise.
“It is hoped that these initiatives will further assist in minimising load shedding.”
The first of these was announced on Monday, where the utility launched three programmes to procure more than 1 000MW of supply.
Together, companies or producers with excess capacity and those who are able to produce specifically in peak periods should add about 1 000MW to the grid.
The utility will also import additional power from neighbouring countries. This is expected to formalise the addition of a further 200MW (which Eskom is already using when constrained).