Study suggests ways power costs can be cut

Eskom should curtail the construction of Kusile and retire several of its old coal-fired power stations early to save itself billions and shield consumers from excessive energy costs, a new study suggests.

The study, by consultancy Meridian Economics, also says that if SA is to pursue a least-cost path for energy generation in the future, it does not need a gas, coal or nuclear procurement programme but should accelerate the installation of more renewable energy, the price of which is falling.

The release of the Meridian study at Wednesday’s Windaba conference in Cape Town came as internal Eskom documents on Monday revealed the extent of Eskom’s financial problems, and that by the end of January, the company will be R5bn in the red and unable to pay suppliers or salaries.

Eskom also faces an excess of supply – equal to at least the size of the entire Medupi plant – in the foreseeable future.

Meridian MD Grove Steyn said that Eskom’s tariffs, which are the highest in SA’s history, were a direct consequence of its large, expensive build programme in a context of stagnant electricity demand.

The study modelled scenarios for the least-cost operation of SA’s power system and calculated the cost to it of removing each one of the power stations. It also investigated the incremental costs associated with running a particular station for its remaining life.

This makes it possible to estimate the alternative cost of meeting demand if a station is decommissioned early, or if new plant construction is cancelled.

“If the system can meet demand over the same period by using alternative resources such as other existing coal stations, wind and solar – but at a lower cost than the cost of electricity from a particular coal-fired power station – it makes economic sense to decommission that station early, or not to complete it,” Steyn said.

The key findings were that the early decommissioning of the Grootvlei, Hendrina and Komati power stations would save R12.6bn in present-day values, and that avoiding the completion of Kusile units 5 and 6 could result in a net financial saving of R15bn to R17bn.

“The level of surplus capacity that Eskom now anticipates for the foreseeable future is at least equal to what an entire Medupi or Kusile power station provides, or more.

“The unavoidable conclusion is that Eskom is still spending vast amounts of capital on a power station construction programme that [the country] does not need and Eskom cannot afford,” said Steyn.

Eskom has not commented on the Meridian study, which had also been presented to the National Energy Regulator of SA (Nersa) hearings in Cape Town on the Eskom tariff application earlier in November. The utility has previously dismissed suggestions that its capital programme should be curtailed to save costs.

The Nersa hearings continue in Johannesburg on Thursday.

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