Optimists look to the future of Eskom, South Africa’s electric utility, and see a glass half full. Pessimists see a glass nearly empty.
The optimists look to what they say is a rare opportunity for a national utility to fully embrace renewable energy resources. In so doing, the power provider could decarbonize its fleet of electric generating plants as well as Africa’s largest economy. Tens of thousands of green energy jobs could be created and gigawatts of renewable generating resources could be added each year for the next 10 or 20 years.
The pessimists—some might call them realists—point to a utility buckling under a massive debt load, singed by a legacy of government cronyism, disappointed by the performance problems of two of the world’s newest and biggest coal-fired power plants, and swamped beneath a backlog of deferred maintenance projects.
In particular, deferred maintenance across the utility’s 37,000 megawatts (MW) of installed capacity has led to forced outages and rolling blackouts in recent weeks during this, South Africa’s winter season.
In late July, the utility urged consumers to turn off lights after four of six generating units at the 3,600-MW Tutuka power station shut down following equipment failures. Only days earlier, the utility had restored power after four other power plants suffered unexpected outages.
Eskom’s problems have been decades in the making and are closely tied to the country’s transition away from Apartheid, the policy of racial segregation that ruled South Africa from the late 1940s until the early 1990s.
As a state-owned entity, Eskom made massive investment in coal-fired generating capacity during the 1970s and 1980s. That capacity led to low electricity tariffs driven still lower by policymakers’ decision not to set aside money for future investment.
But as economic growth and energy consumption accelerated during the 1990s, the government see-sawed over whether to pursue new generating capacity in a restructured energy sector, led by private-sector investment, or by government-led investment, through Eskom.
It ultimately opted for government investment, and in the early 2000s, accepted proposals to build two enormous coal-fired power stations, known as Medupi (meaning “a gentle rain”) and Kusile (meaning “the dawn has come”).
Those decisions to build came at a time when South African President Jacob Zuma was entering office, and utility oversight was weakened when Zuma installed senior managers who “ran amok,” says Mark Swilling, who directs the Sustainable Development Program at Stellenbosch University. Eskom then did “the worst possible thing,” says Swilling: It took on enormous debt loads at a time when fiscal and management oversight was being reduced.
At the same time, the utility took on the role of project manager for both power plants. One source familiar with the projects said that no engineering firm wanted the work because of “all the variables” around the government’s role. And, because few big infrastructure projects had been undertaken since the end of Apartheid, little insight existed into factors such as labor productivity.
The government anted up billions of dollars in guarantees to support construction of both power plants. But engineering flaws, coupled with inexperienced project managers led to delays and cost overruns at both sites.
What’s more, in 2015, a U.S. District Court fined equipment supplier Hitachi $19 million for improper payments it made to secure contracts to provide boilers for the power plants. The Japanese-based industrial conglomerate—which fell under the reach of U.S. securities law because the company did business in the U.S.—agreed to pay the fine but did not admit guilt.
Hitachi has since become part of Mitsubishi. Mitsubishi Hitachi Power Systems-Africa (MHPS-A) did not reply to requests for an interview.
Earlier this year, a South African government probe questioned fees Eskom paid to U.S.-based engineering group Black & Veatch as far back as 2005. The probe questioned alleged price escalations along with supposedly no-bid contracts for work related to the Kusile power plant and other energy infrastructure projects.
In an email response to a request for comment about the inquiry, Black & Veatch spokesperson Patrick MacElroy said, “We were selected by Eskom in an open and transparent process to provide engineering, project management, and construction management support services for the Kusile power station by the Eskom board, the Tender Committee, and by National Treasury. This initial project award was extended, and the scope increased through the addition of approved annual Task Orders including the current agreement governing our operations on the project.”
MacElroy said that over time, the engineering firm’s role expanded, “which required additional resources compared to the initial project plan.” Using boldface, underlined type in his email, MacElroy said that “at no point was Black & Veatch responsible for the design of the boilers or coal ash systems often highlighted as a source of cost overruns and technical issues.”
One source calls the power plants “an albatross around the country’s neck.”
Medupi Power Station is a dry-cooled coal-fired power station with an installed capacity of 4,764 MW, placing it among the largest coal-fired power stations in the world. When work first began on the plant in 2007, Eskom said it could be built for around $4.7 billion. By last year, that estimate had grown to nearly $14 billion.
The first 794 MW unit was commissioned and handed over to Eskom Generation in August 2015. Another five units—each also approaching 800 MW in capacity—were completed and delivered at roughly nine-month intervals. The final unit is expected to achieve commercial status later this year.
A series of technical problems have plagued the plant, including steam piping pressure, boiler weld defects, ash system blockage and damage to mill crushers used to prepare coal for burning.
Most troubling, however, may be design defects with the power plant’s boilers, which were supplied by Hitachi prior to its joining Mitsubishi Hitachi Power Systems-Africa.
“There are fundamental problems” with the boilers, says Mark Swilling. In particular, design engineers “got the boilers wrong” for the type of coal that was to be burned. A May 2020 system status briefing given by two senior Eskom executives reported that technical solutions had been agreed to between Eskom and MHPS-A for boiler defects at both the Medupi and Kusile power stations.
The repairs were first made to Medupi Unit 3 during a 75-day shutdown earlier this year. Medupi unit 6 was next for a 75-day repair outage. Three additional units are slated to be modified during the remainder of the year.
The World Bank, which provided some of the financing for the two power plants, issued a report this past February and said the boiler’s defects were impacting two key plant performance metrics: energy availability factor (EAF) and unplanned capability loss factor (UCLF). These measures, 92% and 2%, respectively, were “far from ideal values,” the report said.
The World Bank report said that Eskom’s EAF target for Medupi was 75%. That was a full 17 points below where it should have been. Even with the reduced target, some of the plant’s generating units were still operating at a substandard level.
Meanwhile, the target for UCLF, which represents unplanned availability and power capacity losses, stood at 18%, nine times as high as the optimal value. As of February, all units except one were operating above this target, the World Bank report said.
The report blamed the poor performance on “major plant defects” along with what it said was an inadequate maintenance and operating regime and difficulty managing spare parts.
The bottom line, says Swilling, is that the Medupi plant will “never, ever” achieve the performance targets that were specified before the generating units were built.
Further substantiating his outlook is another setback: It may not be until the early 2030s before flue gas desulfurization equipment is installed on each unit. A July oversight report by the African Development Bank said that retrofits to add those environmental controls, which were specified back in 2007, could cost another $2.5 billion.
Amid the turmoil, Andre de Ruyter took over as Eskom CEO in early January. Appointed by South African President Cyril Ramaphosa, de Ruyter is tasked with overseeing a plan to split Eskom into three units: for generation, transmission, and distribution, in an attempt to achieve efficiencies and attract investment. The executive has also undertaken a series of initiatives that some say are particularly bold.
First, de Ruyter committed to a schedule of power plant maintenance work “no matter the consequences,” as Swilling puts it. The result has been razor-thin reserve margins that have led to frequent electric service disruptions as some generating units are repaired while still others suffer forced outages.
Second, de Ruyter has said that Eskom will never build another coal-fired power plant. And third, he has called for the utility to lead an energy transformation in South Africa to decarbonize the grid and the economy.
The utility may have no other choice but to move away from fossil fuels. The average age of its coal-dominated power generating fleet is approaching 40 years. The legacy of deferred maintenance has not been kind. As a result, the price tag to repair the existing assets could exceed the cost of shutting them down and replacing the capacity with renewable energy resources.
That’s a tall order. After all, the utility has around 37 gigawatts of installed generating capacity, much of it coal-fired. By comparison, the country’s nascent, largely private renewable energy sector has installed around 5 GW of capacity over the past half-decade. An unprecedented boom in utility-scale wind and solar projects would need to ramp up rapidly just to keep pace with an expected surge of coal plant retirements.
But here, too, politics may get in the way. The country’s Minister of Public Enterprises supports a shift to renewable energy while the Minster of Mineral Resources and Energy does not.
“There is a lot of political uncertainty,” Swilling observes.
Whether or not Eskom—and, by extension, South Africa—shoulders this effort to shift from coal to renewables remains unclear. For now, at least, the utility’s glass appears to be nearly empty, drained by decades of bad management, meddlesome politicians, and mishandled infrastructure investments.
However, if Eskom in particular, and South Africans in general, embrace a plan to decarbonize the grid and build massive amounts of renewable energy, then the country may be able to fill its glass to overflowing as it shows the world how to restructure an economy in a way that fully embraces renewable energy.