1. Electricity demand was higher than expected

Transcription

1 South Africa s Power Crisis: understanding its root causes and assessing efforts to restore supply security Centre for Development and Enterprise Round Table 5 May 2008 Prof Anton Eberhard Management Program in Infrastructure Reform and Regulation Electricity blackouts: dispelling bogus arguments 1. Electricity demand was higher than expected GWh Eskom long term sales forecast track record Actual High 4% Low 2%

2 Eskom long term sales forecast track record GWh Actual High 4% Low 2% More bogus/misleading arguments 1. Electricity demand was higher than expected 2. Planning was inadequate 3. Regulated prices prevented Eskom from investing in new plant 4. Rain and wet coal 5. Insufficient coal: poor roads, growth in exports,. 6. Private sector not interested in investing 7. Consumers not cooperating in saving electricity GWh Eskom long term sales forecast track record Actual High 4% Low 2%

3 Electricity blackouts: ultimate causes (1) Insufficient generating capacity Eskom s investment programme 4 years behind Moratorium from New build programme has slipped DME contracting of IPPs unsuccessful Reserve margin 31% Reserve margin 15% Reserve margin 7% Megawatts Ideally need 20% reserve margin to cater for planned maintenance, unplanned Peak demand outages and Supply system capacity stability 3

4 Electricity blackouts: ultimate causes (2) Eskom unable to keep its existing generators working adequately 90 : 7 : 3 plant availability : planned maintenance : unplanned outages 86 : 9 : 5 76 : 10 : 14 Negligence in coal contracting Equipment and maintenance failures Example: 28 January 2008 MW Eskom capacity+imports Operating reserves Planned maintenance Breakdowns (e.g boiler tube ruptures, etc) Reduction in capacity (e.g. wet or insuff coal) Total capacity available for supply Expected demand Consequence: massive load-shedding diamond, gold and platinum mines shut down What are root causes? Systemic management and governance failures? Who has / will take the rap? 4

5 Electricity blackouts: ultimate causes (3) Focus is currently on generation but security of supply also threatened by unreliable networks Once again need to understand ultimate causes Uncertainty because of lack of progress in EDI restructuring has led to underinvestment in human and physical capital The next power crisis: distribution fails Government & Eskom s response plan 1. Restore coal stockpiles 2. Improve generation plant availability 3. Eskom s investment programme 4. Co-gen 5. New IPP window 6. Energy efficiency and DSM Load Supported curtailment by or electricity pre-emptive price load-shedding increases when all else fails! 5

6 Ensuring that Eskom s kit operates satisfactorily New executive manager - greater urgency Coal stocks being rebuilt at massive cost: main reason for request for 53% real price increase But stockpiles currently still uncomfortably low (5-12 days) with resultant vulnerability to wet and poor quality supply RWE audit of plant maintenance Contracting back of experienced staff But many key posts remain unfilled Have systemic management, organisational, contracting and maintenance failures been addressed adequately? Camden Grootvlei Komati OCGTs Ingula Medupi Bravo MW Wind Cogen Energy efficiency IPPs? X 6

7 Reserve margin % Target With imports Reserve margins will fall dangerously if no IPPs, cogen or savings Eskom Year Eskom s new build programme has slipped Eskom s project development & contracting capacity? R350 billion?!"#""$%% With imports With 3000 MW cogen plus 3500 MW IPPs Reserve margin % Target 5 0 Eskom MW energy efficiency Vulnerable period Eskom investing as fast as it can, but now also needs imports, IPPs, Co-Gen and DSM 7

8 IPP and Cogen prospects Failure of DME to procure IPP peaker is major setback 1000MW less capacity available in vulnerable period through to 2011 Government/Eskom s distrust & belief in private sector further prejudiced Yet, striking fact: 40 IPPs throughout Africa in far more challenging investment climates Failure is not simply a reflection of market structure and dominance of Eskom We have to reflect on SA s inexperience and weaknesses in contracting public-private partnerships Same issue now in contracting Co-gen Interminable discussions/negotiations on avoided cost and fair, transparent power purchase agreements Simplify contracts, create certainty, fast-track investments Disclose avoided cost and hurdle prices Power conservation prospects Huge potential 8

9 South African energy intensity compared Germany Mexico United States Australia Brazil Poland Malaysia India Thailand China South Africa Russia kwh/gdp (constant US$) South African electricity intensity compared South Africa kwh/gdp (constant China Australia India Brazil Japan USA

10 SA electricity sales growth vs economic growth GDP Electricity Poly. (Electricity) Poly. (GDP) 6 Percent Power conservation prospects Huge potential But mixed signals and poor execution Load curtailment is disproportionately borne by mining and large industrials Load-shedding is least economically efficient mechanism for dealing with power scarcities Will market-based power rationing scheme be introduced? Will price increases induce necessary savings? Price elasticity of - 0.2? 10% price increase results in 2% demand reduction 30% price increase results in 6% demand reduction 10

11 $ # Real 3500 price level (right axis) 3000 Prices will rise to fund new investment MW added to system Capacity added each year (left axis) ` Need to develop consensus between stakeholders on desirable price path to fund Eskom investment, induce required demand response & minimise inflation impacts 21 % & # # Security of Supply Security of supply standard Integrated planning Investment allocation & approvals Contracting of IPPs & Cogen Central purchasing arrangements Distribution restructuring Hybrid electricity markets need policy, planning, regulatory and institutional support Regulatory & market reform Electricity pricing & funding Prices & demand Eskom funding (sell some power stations) Absence of felt leadership Need for greater alignment, co-ordination and purposeful management of crisis 11

12 Cost of power crisis is higher than generally acknowledged Lost output, reduced economic growth, less employment and income, reduced exports, increased fuel imports, increased pressure on balance of payments & current account deficit, currency depreciation, imported inflation, higher interest rates, reduced economic growth Cost of unserved energy (value of lost load) is MUCH higher than marginal cost of new generation Resort to back-up or own-generation hugely costly in duplicate investment and higher operating costs Power crisis will spawn liquid fuels crisis: insufficient local refining or port or pipeline capacity ' ( ()*++, 1. Restoring an acceptable reserve margin Price increases plus an effective market-based energy efficiency programme to reduce demand Timely & sufficient contracting of Cogen IPPs contracted effectively Eskom investments on time 2. Keeping Eskom s kit running More robust coal contracting 86% availability 9% planned maintenance 5% unplanned outages 3. Maintaining reliable networks Adequate investment in human & physical capital Certainty in distribution restructuring Need to fix systemic failures that led to crisis Peer review and support from private sector But also need independent review & policy reform Evidence-based inquiry will develop common understanding of challenges and provide basis for sound policy proposals and action plans 12

13 The Management Programme in Infrastructure Reform & Regulation (MIR) aims to deepen knowledge and capacity to manage the reform and regulation of the electricity, gas, telecommunications, water and transport industries in support of sustainable development. Prof Anton Eberhard University of Cape Town 13