On 30 January 2008, the Energy Regulator, prompted by the national electricity supply shortage and the subsequent load shedding, decided to commission an inquiry in terms of the Electricity Regulation Act of 2006. The scope of the inquiry covered the period from 1 November 2007 to 31 January 2008.

The purpose was to inform the Energy Regulator of the reasons for the electricity supply shortage resulting in national load shedding, and to recommend measures to be adopted in mitigation against the electricity supply shortage and to reduce the adverse impact thereof.

This article summarises the main findings of the enquiry. Recommendations will form part of a later article.

Industry

The electricity supply industry in South Africa comprises Eskom, which generates 92% of the electricity. The other 8% comprises power imports (4,5%), power generated by municipalities (0,5%) and private generators (3%). Eskom exports 5,5% of the electricity generated, and distributes and retails 60% of electricity sales in SA to 40% of customers. The remaining 40% is sold to 60% of the electricity consumers by 184 licensed municipalities and a small number of private distributors.

The primary energy used includes coal, gas, nuclear, hydro, heavy oil etc. Eskom obtains 80% of its coal from dedicated contracted pithead coal mines and the remaining 20% is purchased on short term coal contracts and transported to the power stations by road. In the period 78% of coal was delivered by tied collieries, 19% by road and 3% by rail.

The generation capacity reserve margin was 25% in 2002. In 2004, a policy decision was made that 70% of new generating capacity would be commissioned by Eskom and the remaining 30% by independent power producers. In 2006 the reserve margin was 16% and in 2008 it will be only 8% to 10% of peak demand. The supply of power and the demand for powered is continuously balanced by controlling the frequency to 50 Hz. If demand exceeds generation capacity the national control center first requests the demand market participation (DMP) customers to reduce load by pre-arranged contractual amounts. If this is insufficient then supply to customers on an interruptible tariff (IL) may be interrupted. Once all these options have been utilized manual load shedding is employed.

During the period 1 November 2007 to 31 January 2008 load shedding occurred due mainly to generating capacity and energy constraints experienced by Eskom. This increased in intensity culminating in a declaration of force majeure by Eskom and a request to customers to reduce load, resulting in the much publicised mining industry close down. The incidents were mainly caused by inadequate generator capacity resulting from generator trips. The more severe load shedding of up to 4000 MW occurred as a result of both capacity and energy shortages. Eskom provides a margin of 2000 MW for unplanned outages. The total unplanned events were well above this margin.

Analysis revealed the following

• A large amount of generating capacity was not available due to a high level of unplanned outages of generating plant.
• Emergency options, such as demand market participation (DMP) and interruptible load (IL) were used prior to load shedding. The generation shortages had reached a level where load shedding was so deep that the automatic under-frequency load shedding scheme was nullified. This meant that a relatively small incident could have precipitated a system collapse. 
• Eskom continued to export power to neighbouring countries in excess of its firm contractual requirements during the load shedding incidents.
• Imports amounted to 850 MW from Cahorra Bassa 
• Exports exceeded imports by 469 MW during the period.
  

Since regular national load shedding has been introduced, there have been major distribution system equipment problems in urban areas. There maybe a causal linkage to the more frequent operation of circuit breakers, which under normal conditions have a low duty cycle. This will be investigated further. Load shedding in the period is estimated to have cost the economy
R50-billion.

Plant maintenance

The 18 month rolling operations plan of February 2007 scheduled about 2000 MW more planned maintenance for January than what the operating reserve requirements would allow. The unplanned outages for the period were abnormally high, exceeding 4000 MW. There appears to be a conflicting requirement between the system operations and generation division within Eskom, which resulted in late rescheduling of planned maintenance.

The 2008 operation plan shows that a much tighter supply demand balance is expected this year, even with a moderate unplanned outage allowance. In order for Eskom to supply the 2008 demand reliably with sufficient operating reserve, almost half the planned maintenance outages would have to be deferred, or demand has to be reduced by between 2000 MW and 3000 MW.

Shortage of generation capacity was due to the low reserve margin giving less than the required room to perform planned maintenance and to cope with operational events such as the abnormally high level of unplanned outages and load losses. Inconsistent coal quality and wet coal led to uncontrollable combustion, higher component wear and coal handling problems causing load losses and plant failure.

It was found that generation plant performance deteriorated significantly after August 2007. Plant maintenance is based on risk evaluation and planned maintenance is constrained by the available opportunities to shutdown plant.

Eskom has a high vacancy rate of critically scarce skills at power stations (1500 vacancies out of 3200 positions), leading to increased stress on the staff. Levels of experience in maintenance, engineering and management are insufficient to meet the operational needs. The worldwide demand for scarce skills is impacting on Eskom’s need for skilled staff and on the external support that Eskom depends on. Part of organized labour considers labour policies to be a contributing reason for highly competent staff members leaving Eskom.

Eskom adopted the 90/7/3 operating philosophy, which aims at achieving a plant availability of 90%, with 7% of plant out of service for planned maintenance and 3% unplanned outages. There is a deteriorating trend in the 12 month moving average plant performance indicators, and Eskom is no longer meeting the target of 90% plant availability. The highest numbers of unplanned outages were due to failures which characteristically occur when plant is operated at emergency generation levels, necessitated by the reduced reserve margin. The planned outage rate is increasing despite a decreasing reserve margin due to long duration outages necessary for mid-life refurbishment. The financial, resource and operational plans to perform engineering and refurbishment work appears uncoordinated. The space to accommodate planned maintenance is severely restricted for the next five years.

The projected lifetimes of up to 60 years for coal fired power stations are long by International standards. Apart from maintenance cost, environmental constraints and fuel availability may become limiting factors, and the load profile would also be expected to change.

Loading analysis highlighted the limitations of pumped storage generation plant under conditions of capacity shortage. While the design intent is that low cost surplus electricity should be used in off-peak periods to replenish the storage, gas turbines were in operation for 20% of the pumping time and Majuba, a station which imports all its cola at high cost, was operational for 70% of the pumping time.

Generation plant availability is not coordinated on a national basis. Non-Eskom generation was mainly not available during the period in which Eskom experienced the unprecedented load.

Co-ordination and communication

All sectors of the South African economy were affected by load shedding. The disruption caught everyone unaware including the electricity distributors. Key large customers were individually consulted before load shedding, while other large customers claim that their supply was arbitrarily interrupted. Collaboration between distribution licensees and customers was generally lacking. Load shedding schedules were not adhered to. Even though planning and forecast of demand are routinely done by Eskom, the utility reacted as if they were caught unaware by the incidents. The lessons learned form the Western Cape Koeberg incidents of 2006, such as using a co-ordination centre and liaison with distributors, were not applied in the handling of national load shedding. Metro licencees acknowledged the need to communicate more effectively with one another and with Eskom during load shedding and restoration. Most did not have proper communications and coordination in place at the start of load shedding. Communication between Eskom and the municipal distribution licencees was inadequate.

Supply demand balance

Comparison of the demand projections of NIRP2 and NIRP3 with actual demand experienced indicate that the demand projections were within the expected accuracy. The NIRP2, Government IEP and Eskom ISEP had a shared view on the timing of new generation capacity. Execution of plans was affected by delays. The ISEP was based on a lower economic growth of 2,4% in 2004, which was only adjusted to 4% in 2006. Inertia of moving to the building of new capacity contributed to the delays. NIRP3 is premised on the return to service of mothballed plant and on the construction of open cycle gas turbine plants. Regardless of the more optimistic assumptions of NIRP3 the plan shows low reserve margins of 7 - 14% in the period 2007 - 2014 as well as a situation of unserviced energy ranging from 0,5% to 2% of the monthly energy demand in 2007/2008, a loss of 700 load hours per annum, well above the targeted level of 2,4 hours per annum.

The NIRP3 required capacity is not achievable due to commissioning lead times and slip that has already occurred. The current capacity does not provide the required reserve margin, which will only be restored by 2013. However the Eskom build plan remains 3000 MW below the capacity, which appears to be aligned with Eskom’s strategy of permanently removing 3000 MW from demand. Most of the planned generation projects experienced slippage of a year on average. The main reasons given were the delay in EIA approvals, delay in finalization of coal contracts and obtaining water licences, shortage of civil contracting capacity and land acquisition problems. There were no tangible reasons given for the long delays experienced in recommisioning of mothballed plants.

Primary energy

A declining trend in coal stocks started in March 2007 and continued during the year. From 20 December 2007 to 31 January 2008, coal stocks held at stations declined drastically by two million tons, equivalent to 12 days of generation. Eskom does not have an overall stock target, but a target per power station of a minimum of 20 days needs. The low stock levels in December contributed largely to the load losses experienced. The continuous trend of over forecasting and over projecting stock levels is an indication of inadequacies in Eskom’s generation and coal acquisition planning process. The reason for being so far off target must lie in using unrealistic targets and not being held accountable for missing those targets.

The sudden stock decline in December was due to the fact that deliveries from the short term contracted mines stopped during the holiday season, and the tied collieries were operating on a skeleton staff. Also the available coal fired plant burned more coal than expected, having to operate at inefficient emergency loading levels. Road haulage of coal to meet the requirements of power stations is not suitable to supplement the contracted coal that is available from tied collieries. Both the tied collieries and the road haulage underperformed during the holiday period.

There was an element of complacency on the side of Eskom management in not replenishing coal stockpiles timeously. One of the reasons given by Eskom was; " Eskom was not able to absorb cost overruns without incurring a loss, and therefore found it difficult to procure coal at these prices taking into account the impact on finances. At the end of August the stock days were comfortable and plans indicated that stock levels would increase. Stock levels decreased since August due to a higher demand, plant technical performance , coal quality, wet coal and logistics .The high coalprices made it difficult to procure coal on the open market without compromising the financial position"

To correct the coal stock situation, the purchase of 45-million tons of coal (6 months stock) has been approved. The coal suppliers see foregoing of foreign exchange brought about by this purchase as "crisis management in its worst form."

Coal contract management appears to be deficient as at all power stations the planned colliery production is below the requirements of the power station, and actual deliveries for the year are below the planned deliveries. The contracted level of coal from the tied collieries is below the requirements of the power stations due to the high load factors that have to be maintained. Certain mines produce far below their contracted levels. Planned production at other mines is above contractual levels, but not all mines are expected to achieve planned production. The write-off of large percentages of coal stock at certain stations shows that there are deficiencies in the control of coal deliveries, accounting for coal usage and management of coal contracts. Coal suppliers are of the opinion that the coal being received form short term sources is not of the quality for which the stations are designed.

There appears to be a conflict between Eskom’s business objectives and its reason for existence, namely the supply of electricity. This observation needs to be addressed with the shareholder and the necessary changes made to Eskom’s shareholder compact to prioritise security of electricity supply.

Legislation and licence conditions

On the assessment of the licences, it was found that only the generation licence is well aligned with the Act. The transmission licence and the South African grid code are drafted in the context of a competitive electricity market that was never introduced. Gaps and shortcomings that were identified did not have an impact on load shedding. Load shedding, in circumstances other than short term emergencies, could be regarded as the cutting off of paying customers, which is not allowed by the act without a specific agreement with the customer. The regulator is still investigating whether this is a legal recourse.

The preliminary findings are that no breaches of legislation, licence conditions or standards occurred. On of the main reasons for this was that these do not contain compliance criteria for pre-emptive load shedding and how this should be implemented. The grid code and NRS standards focus more on electricity supply shortages of a short term nature and using under-frequency load shedding as a defense against system disturbances. There is a need for the legal implications to be investigated further. Gaps were identified in the legislation, licence conditions and codes of practice for compliance monitoring and enforcement with regard to low reserve margins and pre-emptive load shedding as done by Eskom.

Eskom recovery plan

The Eskom recovery plan is divided into three phases. Each phase has a demand side target and a supply side recovery program. The first phase is a stabilisation program. The focus of this period is to achieve a reduction of 4000 MW by the end of February 2008. The second phase is the launch of a power conservation program, which has a strong element of power rationing, on 1 July 2008. It involves a continuation of the 10% voluntary curtailment and includes pre-emptive load shedding as required to meet the target. The third phase the aim is to reduce electricity consumption by 20 000 GWh per year (3000 MW) so as to raise the generation reserve margin to 15%.

The recovery plan uses both supply side and demand side initiatives. The supply side focus areas include IPPand co-generation bids for plants with a capacity between 5 MW and 1000 MW, coal stock recovery and reduction of the unplanned outage rate to be within the reserve margin allowance. Demand side focus areas include accelerated EEDSM, which aims to achieve a reduction of 800 MW, Power buyback, where Eskom will pay certain customers to reducedemand, and the power conservation program (PCP)

Finance and economics

The structure of electricity tariffs was not designed for a situation of electricity supply shortage. Internationally, in such situations, inclining block rate tariffs, time-of–use rates and real time pricing systems have proved successful in assisting with energy conservation. A review of the National Electricity Tariff guideline is necessary to allow such structures. The power conservation program (PCP) requires that electricity demand be reduced throughout the day. The resulting lower sales volume together with rising primary energy costs would result in increasing electricity prices in the medium to long term.

In its price increase application, Eskom has indicated that in the next five years it would be required to expand its capital assets by R343-billion. Though Eskom has not included the capital funding in its application, the increase applied for is 60% in nominal terms, which only includes increased primary energy costs and an acceleration of demand side management expenses. Eskom’s price increase requirement is far above that predicted by the modeling of electricity production cost in the NIRP3 case studies, which indicate that while the reserve margin is being restored, the national generation capacity build program has to provide for this and for growth in demand. During this period the increase in cost is expected to be 10% above inflation. After the reserve margin has been established, the cost increase is expected to be 5% above inflation. Although most of the financial implications of load shedding on the economy cannot be accurately quantified, the cost of unserved energy is estimated at about R50-billion.

There is a risk that threats of increasing the price of electricity to encourage energy efficiency are not well received by the public. Consumers do need to be made aware that the era of relatively cheap electricity is coming to an end, and that inefficient consumption patterns of the past will be increasingly difficult to maintain into the future.