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The Sunday Independent Business Report writes that Eskom has forecast a 9 percent increase in the per-ton price of coal in the 2018/19 financial year, compared with the 3.8 percent increase in 2017/18, according to the power utility’s integrated report for the year to March.
The coal price appears to be a major component of Eskom’s costs, as the power utility looks set to rely on short- and medium-term coal contracts amid reduced production from so-called cost-plus mines. Elevated coal costs would typically increase Eskom’s overall primary energy costs and lift the utility’s tariff requirements.
Since the 2015/16 financial year, coal price increases have been on a roller-coaster ride, as they dropped from 19.2 percent in 2015/16 to 3.5 percent in 2016/17. In the year ended March 31, coal prices increased by 3.8 percent. In its latest annual report, Eskom has forecast a 9 percent jump in the coal price.
An almost double-digit increase in the coal price would be inconsistent with Eskom’s focus on cost containment. Chief executive Phakamani Hadebe has flagged the risk of rising primary costs. “Eskom ... faces several operational and strategic risks going forward. Operational risks involve rising primary energy input costs at reducing quality,” Hadebe said in the integrated report.
Eskom said most of the costplus mines required significant investment in order to increase production. The utility said it expected reduced output from the coal collieries until they were recapitalised. Eskom said it would recapitalise these coal mines only “where long-term benefits can be demonstrated”.
Eskom said it planned to spend R10.7 billion on financing expansion at the collieries over the next five years. “However, a two-to-three-year delay can be expected before the capital investment will result in increased output and productivity levels,” Eskom said.
Meanwhile, Eskom has decided to stop production at expensive power stations Hendrina, Grootvlei and Komati in the 2019/20 financial year.
“The board has decided that these stations will be ramped down to zero production and placed in lean preservation in 2019/20 to minimise the operating surplus and optimise generation costs,” Eskom said.
Eskom said the move was subject to it hitting plant availability of 80 percent, as well as an assessment of the impact on employees and local communities. It said that if demand was higher than current assumptions, the stations would be “recalled” to meet demand.
In the year ended March 31, plant availability rose from 77.3 percent to 78 percent. Hadebe said Eskom was on course to achieve plant availability of 80 percent in the current financial year.
Eskom said the timing of new build beyond the Medupi and Kusile power stations, as well as the decommissioning of older power stations, would depend on the Department of Energy’s updated integrated resource plan.
The original of this report by Siseko Njobeni appeared on page 20 of The Sunday Independent Business Report of 29 July 2018
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