ANALYSIS | Eskom will run out of diesel in two weeks – and there are no quick fixes

Eskom looks into an abyss. The second batch of diesel is scheduled to expire at the end of January 2023 Mariam Isa and Chris Yelland of EE Business Intelligence.


Eskom is living hand-to-mouth in its efforts to procure the diesel needed to keep its open-cycle gas turbines (OCGTs) running, which is the only way the utility can avert serious consequences in the face of prolonged power generation outages and the ongoing limitation of South Africa’s power supply.

Over the past two years, a steadily increasing number of outages in its aging coal-fired power plant fleet has forced Eskom to increasingly rely on OCGTs, which were intended only for emergency or peak-load use. In recent months, OCGTs have become indispensable amid the loss of 4,500MW of generation capacity due to problems at Medupi and Kusile, Eskom’s two newest coal-fired power plants, and a life-prolonging refurbishment at Koeberg, its nuclear power plant.

Jan Oberholzer, Eskom’s chief operating officer, says this combined outage equates to about five stages of load shedding. Kusile units 1, 2, 3 and 5 – which make up almost 3,000 MW of the lot – will not be available by the end of this year, he told EE Business Intelligence. The complex lifetime extension of units 1 and 2 in Koeberg will not be completed until March 2024 if all goes well. Medupi Unit 4 is not scheduled to return to service until September 2024 after a hydrogen explosion in August 2021.

When you add this large, combined outage to the country’s existing power generation gap of 4,000MW to 6,000MW, which Eskom declared more than three years ago – and which has still not been addressed – it becomes clear that South Africa is on the brink of a crisis stands emergency power.

The diesel emergency

Eskom’s management team drew the ire of the government in November 2022 when it stated that the utility had run out of diesel and could not afford to buy more after forecasting for the fiscal year ending March 31, 2023 approximately that Double the diesel budget of 6 billion

With no further funding from the Treasury, Calib Cassim, Eskom’s chief financial officer, managed to scrape together R1.5 billion from his budget for the remainder of the year for other uses to immediately buy 50 million liters of diesel from PetroSA. That provided enough diesel to keep the OCGTs running on demand through December 2022. When the fuel ran out, Cassim used a further R1.5 billion from Eskom’s coffers to pay for a further 50.4 million liters of diesel. According to Oberholzer, this should last until the end of January 2023.

“From an operational point of view, I can tell you that we need diesel,” he told EE Business Intelligence. “We need – and this is based on certain assumptions – by the end of March 2023 at least an additional 200 million liters of diesel. It can be less and maybe even more, it all depends on what will happen in terms of unplanned outages. This is the best assumption we have based on the future outlook,” he said.

Cassim says this would cost Eskom an additional R6 billion. Combined with the R3bn it has just spent and previous diesel spending of around R12bn, the utility’s diesel spend for the full 2022/23 financial year will total around R21bn. That’s more than double what it was in fiscal 2021/22, when Eskom spent R8 billion on diesel. It’s easy to see that the government is very upset about the financial and political fallout, as Finance Minister Enoch Godongwana declared in Davos on January 16, 2023: “I don’t think Eskom has a diesel problem, I think it has a management problem “.

The cost impact of load shedding

But despite the prohibitive cost of diesel, there is broad agreement that the burden of heavy load shedding on the economy is much greater.

Estimates vary widely. Based on 11,797 GWh (gigawatt hours) of unused electricity in calendar year 2022 calculated from EskomSePush load shedding data and a very low assumption of R10/kWh for unused energy proposed by Eskom, the total cost to the economy during the year would be R115 amount to billions. This very conservative estimate does not take into account the longer-term impact of lost opportunities caused by prolonged load shedding on business, industry, agriculture and investment in general – and the money that households, business and industry spend on backup power systems.

With that in mind, the cost of unprovided electricity is likely to be much higher. At 50 R/kWh or even 85 R/kWh (if a study by CSIR is to be believed), the cost to the economy in 2022 would be closer to R590 billion and R1,000 billion respectively.

Worst-case scenarios began to emerge when, on January 11, 2023, Eskom was forced to implement Level 6 load shedding after 11 generating units unexpectedly failed, bringing the total amount of generating capacity to more than half of the installed capacity of about 100% went offline 46 000 MW. The load factor of Eskom’s OCGTs at the time shot up to 48% – which meant they were running at full capacity for about 12 hours a day – and this is what allowed South Africa to avert a crippling Stage 8 load shedding for the first time.

There is growing evidence within the ANC that Eskom is deliberately introducing load shedding to hurt the ruling party’s chances in the 2024 national election.

This is backed up by statements by Minister for Minerals and Energy, Gwede Mantashe, who has claimed that Eskom is “idling” more than 20,000 MW of installed generation capacity.

In reality, Eskom’s grid operator implements load shedding to balance supply and demand on the grid to avert a nationwide blackout. The risk of this catastrophe is still considered to be low – provided Eskom has enough diesel available for the OCGTs and other emergency levers for the network operator. Eskom’s own OCGT power plants – Ankerlig and Gourikwa – can generate up to 2,067 MW of electricity, mitigating two stages of load shedding. There are also two other OCGT power plants – Dedisa and Avon – owned and operated by Independent Power Producers (IPPs) that can generate 1,005 MW to avoid another level of load shedding.

The IPP OCGTs are not part of Eskom’s diesel problems as they buy their own fuel. One look at the load factor trend for Eskom’s OCGT usage over the past year tells the whole story. According to Cassim, it averaged 7% in the 2021/2022 financial year and 14% in the year to date. This compares to an OCGT workload factor of just 6% reflected in Eskom’s latest electricity tariff approved by Nersa for the 2023/24 financial year from 1 April 2023.

The diesel outlook ahead

Now Eskom is looking into the abyss again. The second batch of diesel is expected to run out by the end of January 2023, and Eskom’s board is looking at ways to raise the money to keep the OCGTs running through the start of the new fiscal year on April 1, 2023. We need to find some cash now, and as soon as possible. We have received some actions that we are actively and urgently pursuing to see how we can obtain funds to deal with this challenge of not being able to operate the OCGTs,” Oberholzer said.

But none of the options on the table look like quick fixes. One option would be to retain part of the more than R50 billion in arrears that Eskom currently owes from local governments. Another would be receiving a hefty diesel tax refund demanded by the South African Revenue Service (SARS), which put Eskom’s financials at just over R3 billion for the year ended March 31, 2022.

Regarding an amendment of Section 75 of the Customs and Excise Law, from August 3, 2022, Eskom is entitled to receive rebates from the fuel and road accident tax totaling 4.04 R/liter of diesel fuel used for power generation. Based on estimates of the diesel fuel burned in Eskom’s OCGTs, that R3 billion could easily have increased significantly.

However, the diesel fuel rebates expected by Eskom have been disputed by SARS for more than a year and the clock is ticking.

Oberholzer claims Eskom has no problem sourcing diesel, although it is mostly imported and South Africa has no official strategic reserves. The country as a whole uses between 12 and 14 billion liters of diesel per year, and at 15% utilization the diesel consumption of the OCGTs operated by Eskom and the IPPs would be around 1.13 billion liters – less than 10% of the total.

Chris Yelland Duck Mariam Isa is there EE Business Intelligence. news24 encourages freedom of expression and the expression of different views. The views of columnists published on News24 are therefore their own and do not necessarily reflect the views of News24.

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