Eskom’s massive diesel conundrum

 ·12 Jan 2023

National power utility Eskom is hunting for diesel reserves to ease severe load shedding across the country, but energy regulator Nersa says the group is becoming too reliant on the fuel.

Since late last year, the cash-strapped company has been looking for more affordable diesel to power its open-cycle gas turbines (OCGTs) that kick in whenever the energy demand reaches a point unmanageable by the traditional coal stations.

Eskom has, however, reached a point where it is overly dependent on the open cycle gas turbines – and without diesel to fire them, widespread system failure is likely.

As part of its application for electricity price hikes in 2023, Eskom has also approached Nersa to allow it to buy more diesel to fuel its turbines.

Diesel has been a significant draw on the power utility’s balance sheet. The group went over its planned budget for diesel in the previous fiscal year, resulting in a cost of R14.7 billion, which was more than double the allocated amount of R7 billion.

This caused a lack of diesel supply in late 2022 and forced the utility to rely on an emergency lifeline supply of 50 million litres from PetroSA – expected to last for emergency situations only until March 2023, when the new financial year kicks in.

In a committee meeting this week, Nersa said that it is cognisant of Eskom’s problems but maintains that using diesel in the OCGTs is not a viable solution to the ongoing energy crisis.

Members said that the turbines are only supposed to be used for emergency situations and that Eskom has already become too reliant on using them to keep the lights on instead of addressing the core generation concerns.

“The OCGTs seem to be an intervention that is used way too frequently,” the committee said. “Clearly, this is not the ideal situation.”

“They are there for emergency purposes to ensure the security of supply – however, at the rate they are being used currently, we need a long-term plan, because they should not be used as a standard measure, only in exceptional circumstances.”

Other committee members noted that while the impact and cost of using diesel and the turbines are not ideal, the economic damage and knock-on risks of not allowing Eskom to use them more could be far greater.

“There’s a choice between an evil and a lesser evil – the bigger evil is the impact of load shedding on the economy, which is much higher cost than the cost of OCGTs,” it said.

It is anticipated that Nersa will allow Eskom to buy more diesel, but this would come with tighter conditions and require commitments from the group to resolve the energy crisis.

The committee also floated some possible long-term solutions, including introducing a cap, which would need to be based on studies, compared to other countries, etc.

“Something will have to be done in the long run,” it said.

The diesel problem

According to Professor Anton Eberhard, an energy expert and director of Power Future Labs at the University of Cape Town’s Graduate School of Business, without turbines being operated, Eskom cannot respond to any sort of emergency energy requirements.

Minister of Public Enterprises Pravin Gordhan said the company needs more money to buy additional diesel. He added that the recent “refusal” by the Department of Mineral Resources and Energy (DMRE) to give Eskom a wholesaler licence has driven the cost of diesel up further.

The DMRE noted that Eskom was not granted the wholesale diesel licence as it did not meet certain requirements. On 2 January, the DMRE, according to Eskom CEO Andre De Ruyter, said that it could appeal the decision to the minister of mineral resources and energy. Despite this, the appeal has not been received.

De Ruyter said that if the company could get the licence, it could save up to R6 a litre for diesel by making better diesel purchases or allowing the company to import fuel directly.

The DMRE said Eskom could take other avenues to deal with its diesel issues. It went on to say that Eskom could even cut costs by bypassing the fuel levy and road accident fund levy that is imposed on the fuel – by approaching the relevant authorities.

Eskom has approached energy regulator Nersa for a hike in electricity prices this year in an attempt to combat the rising operational costs and also give it more financial room to fund diesel.

The group wants to recover R351 billion through a tariff hike. In September last year, the group applied for a 32% increase in 2023, which could result in a hike of over 38% when court-ordered recoveries are included.

Nersa is expected to announce its decision on the hike on Thursday (12 January).

Eskom implemented stage 6 load shedding this week due to increased failures at its stations. Despite initial expectations that stage 6 load shedding would only occur during evenings, with stage 4 during the day, additional failures required that it be implemented all day.

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