Loadshedding could have been reduced by 96% if Government didn’t drop a catch in the slips

After the Comair drama, attention shifted to the role that Government is playing in the business world and how it is developing a growing reputation as a root cause of distress for many companies. At least there hasn’t been load shedding for two weeks now.

We saw that Mango airlines is now going to be receiving less than what was promised to them after the Department of Public Enterprises delivered a doosra to the beleaguered airline on a very sticky wicket, and the Department of Trade and Industry made a shocking about turn on the Hulamin deal which should have possibly been referred to the third umpire.

All of this could have been forgiven if South Africa was not facing deep structural economic challenges in an environment where the wheels of industry are one Load Shedding announcement away from being shifted from a tar road to a rural one.

We are facing the worst year of load shedding to date, and while load shedding has been suspended for the moment, the news about the future of this practice does not look good. We need to move one from this so that we can create an environment where we can build economically strong companies and create jobs.

This has been a source of anger and frustration for many South Africans.  And after reading a recent article from News24, can one be blamed? The article was written by News24 journalist Lameez Omarjee, subheadings were inserted by Turnaround Talk.

The article points out that if the Renewable Energy Independent Power Producer Programme (REIPPPP) had not stalled in 2016, load shedding may have been reduced by 96.5% in 2021. This would have also saved Eskom R2.5 billion, a study has shown.

Economics and energy advisory group Meridian Economics on Monday released a two-part report on South Africa’s load shedding challenges and ways to resolve it.

the article adds that Meridian assumes that if the REIPPPP had not stalled in 2016, then at least 5 GW of additional renewable generation capacity would have been procured through two bidding rounds.

Analysis shows that this would have reduced load shedding by three-quarters (76%).

Added relief from load shedding

The article points out that the additional renewable energy capacity would also have created relief for the peaking plants –  such as pumped storage assets that rely on having sufficient water reserves and Open Cycle Gas Turbines (OCGT) running on diesel. These plants have been relied upon frequently to plug the shortfall of supply from coal and other plants. The excessive running of these plants means they lose out on time to replenish reserves of water and diesel and that in turn necessitates load shedding.

“Nearly 20% of load shedding hours in 2021 were necessary in order to refill the pumped storage whilst running OCGTs,” the report reads.

But the additional generation capacity from renewables would have meant these plants would have been used optimally – to meet peak demand on occasion. This could have reduced load shedding by a further 20.5%. Overall additional renewables would have helped Eskom reduce load shedding by 96.5%.

The article adds that due to the additional renewable capacity, the reduced reliance on OCGTs and pumped storage would have resulted in diesel savings above 80%.

To deal with the remaining 3.5% of hours of load shedding, a combination of battery storage and expanding Eskom’s demand response programme would have helped eliminate it.

Demanding response contracts to mitigate the worst impacts of load shedding

The News24 article points out that Eskom has demand response contracts with mega customers like the aluminium smelters. These customers are offered special pricing for electricity, provided that they can be disconnected from the grid to rebalance supply and demand in the system if there is a drop in supply due to a unit trip or other reasons, explained Dr Grové Steyn of Meridian. This is one of Eskom’s measures to maintain system stability before considering load shedding the whole country.

Steyn said the idea is to expand this programme to more of Eskom’s “big” customers. Meridian proposes that Eskom incentivise more customers to do this to avoid load shedding further.

“By signing up another 1 000 MW of demand to a similar programme aggregated across large industrial customers, load shedding in 2021 could have been reduced to just 20 hours,” the report reads.

The News24 article adds that the report further unpacks the cost savings emanating from the 5GW additional capacity.

It assumes Eskom’s 2020/21 cost of OCGTs at R3.04/ kWh, coal at R0.42/kWh, and renewables prices of R0.68/kWh.

According to Meridian’s analysis, the cost of an additional 5 GW that would have generated 13.8 terawatt-hours (TWh) of power would have cost R9.4 billion. But given the reduced reliance on OCGTs, there would have been an R8.2 billion cost-saving on diesel. Renewable energy would have also reduced dependence on coal generation – by nearly 10 TWh – and this would have saved R4.2 billion on coal. “The net energy savings would have achieved a cost reduction for the year of R3 billion.”

Meridian estimates the cost of relying on 2GW of battery storage would have been just over R2 billion. But if Eskom avoided load shedding altogether it would have made more sales and raised R1.65 billion in revenue.

Taking all this into account, Eskom’s costs would have been reduced by R2.5 billion and reduction in tariffs for consumers by 2.2 c/kWh.

An intervention to end load shedding

The News24 article points out that, looking forward, Meridian suggests that this intervention could end load shedding and save Eskom above R10 billion per year (based on current fuel prices).

The report also highlights that the intervention would help Eskom cut its emissions due to reducing the burning of coal and diesel. Eskom’s emissions for 2021 were 206.8 Megatons, but it would have reduced this by 13.6 megatons or 6.6%.

Meridian Economics warns that declining plant reliability, along with delays in procuring and connecting new generation capacity means that South Africa could return to Stage 6 load shedding, or Stage 8 load shedding may have to be introduced.

The article concludes by pointing out that, last year government named 25 preferred bidders in round 5 of the REIPPPP, which would add 2 583 MW of capacity to the grid. They are expected to reach financial close later this year. Bid Window 6 has been launched and seeks to procure as much as 2 600 MW of new generation capacity. The deadline for proposals is in August.

More business for turnaround professionals

Companies – those in financial distress and those who are struggling to adapt to changing market conditions – are facing a number of challenges in the market. These include, but are not limited to, shifting consumer demands, shifting consumer spending habits, rising inflation, and the global supply chain crisis. Add load shedding to this and you have a potent mix for possible disaster.

We cannot pull our punches here, we need to talk candidly about the challenges we face. Are companies not under enough pressure without the actions of Government? No wonder Deloitte expects more companies to enter into business rescue in the future.

Is Government fully committed to turning this country around? What actions are they taking to indicate this?