S.Africa’s power problems stem from generation capacity

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“We simply haven’t got enough power generation capacity. We didn’t build power stations 20 years ago when we should have done so and we’re living with the results of those bad decisions. Eskom stations are right at the edge – they’re running absolutely flat out,” energy analyst, Andrew Kenny, told CNBC Africa.

“They couldn’t take time off because we couldn’t afford to take machines off – this winter they just had to. One of the consequences of doing that, after the panic of 2008, we’ve built 14 gas turbines in Atlantis and Mossel Bay which are cheap to build and very expensive to run – you don’t want to run these things at all – and recently they’ve been running flat out.”

South African electricity utility, Eskom reported that the cost of using open cycle gas turbines was up 231 per cent to 2.3 billion rand in the first half of this year and that 635mw power purchase agreements may come to an end in two weeks.

“To give figures to it, Eskom’s average selling price is about 65 cents, 60 cents a kilowatt [per] hour, the cost of running these things is three rand a kilowatt hour. A year ago these things cost, for the half year up to September, one billion rand in fuel. In the last six months they cost 3.3 billion rand in fuel. That’s one of the reasons why Eskom’s profit is down – you don’t want to be running these things but you have to because there’s nothing else to run,” Kenny explained.

“I’ve just heard that Eskom is threatening to end their power purchase agreements. I hope that it’s bluffing because if it’s true, what are they going to do? There’ll have to be either load shedding or [they’ll have to] run these gas turbines even harder, which probably will cost them more so it’s extremely serious.”

Kenny added that while the holiday season may not be a problem, the 2014 winter period may prove to be.

“What I’m worried about is next year, especially towards winter, because this problem just gets worse and worse. The stations are running harder, getting older and relief only comes in the second half of next year when the first unit of Medupi, which has been delayed by over a year or so, comes on,” he said.