Eskom’s power purchase plan: Will business have the excess capacity needed?

Eskom’s three-part power purchase programme – aimed at securing 1 000 megawatts (MW) of power to support the currently constrained power grid – is a move in the right direction, but questions arise around whether the private sector will have the capacity to support it. 

The utility’s procurement plan, which it revealed on Monday, is substantially reliant on private companies to supply the grid with excess power, with the first two programmes – namely the standard offer programme and the emergency generator programme – seeing private companies offering Eskom both short- and long-term energy support when needed.

The standard offer programme will see Eskom able to procure power from companies with existing generation capacity, at a predetermined price for a period of three years. The emergency generator programme will see the utility able to procure power – although at a more expensive rate – from independent generators for shorter intervals.

However, while he welcomes Eskom’s move to include the private sector in solving the country’s energy woes, independent energy analyst Roger Lilley doubts that big business will be able to meet the utility’s needs.

“I’m just cautious because it depends firstly on whether there is free capacity available from the private sector to supply Eskom in these sorts of quantities because this is a lot of power,” he tells Moneyweb.

“One thousand megawatts is a lot of power to have surplus and so we are going to be looking at very large organisations.”

Eskom noted that during its initial stages, the programme will focus on generators capable of supplying more than 1MW to the grid

Thereafter the utility will start making considerations to lower the thresholds to allow smaller producers to contribute.

“Maybe if many of them [big companies] get together [it would be possible], but that’s not what Eskom is looking for. They are looking for contracts or agreements starting at one megawatt. I don’t know who is going to be able to come to the party with that right now, except perhaps some of the independent power producers who have got the infrastructure set up and maybe have the surplus. So that’s probably the first place to look,” Lilley added.

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Not an immediate solution

Eskom’s plan comes after the country was thrust into another crippling round of load shedding which subjected consumers and businesses to Stage 6 power cuts – the highest stage to be implemented thus far out of eight possible stages. 

Stage 6 subjects the economy to between eight to 10 hours of rolling blackouts, with at least one session out of three a day with four straight hours without power. According to the utility this latest bout of power cuts, which saw the utility shedding 6 000MW from the grid, were necessitated by the continuous failure of several generation units. 

However, while the plan is a step in the right direction, it does not offer immediate relief from power cuts, even though the utility has ambitions to start signing agreements within this week. Analysts have warned it may take time to get this independent power to the national grid, and probably longer for the utility to secure the 1 000MW it requires. 

Even if the utility is successful, securing the 1 000MW will only supply enough power to reduce the intensity of load shedding by a single stage.

“This is not going to solve our immediate load shedding problems. All it will do is to give Eskom a little bit of breathing room in terms of some of the stressors that are on the network,” Lilley said.

“But that doesn’t mean they will stop load shedding immediately, at the very best, we can hope for one step down from our schedule because one stage is 1 000MW.” 

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Importing risks

The third part of Eskom’s procurement plan, the bilateral power import programme, looks at securing power imports from neighbouring countries. According to the utility, “Several countries have expressed an interest in selling additional surplus power to South Africa,” and this programme will allow Eskom the means to exploit this interest.

Eskom is already importing an average of 200MW from neighbours via the Southern African Power Pool, however, Lilley doubts the utility can get much more from immediate neighbours and as such believes it may have to look further afield. 

This however makes the country more susceptible to geopolitical risk, much like those facing Europe at the moment.

“There are risks and on top of that you’re putting yourself in the hands of foreign governments and we’ve seen what happens in Europe when they buy gas from Russia. Russia can just switch it off and they do.”

“This is certainly not a safe thing to do but what else do you do when your back is against the wall?” Lilley adds.

Listen: Independent energy analyst Chris Yelland on power procurement delays leading to the escalation in load shedding