Power supply interruptions of the scale seen during the reporting year have been unprecedented in South Africa. Meeting an increasing national demand for electricity with a much-diminished reserve margin has undoubtedly been Eskom’s biggest challenge for this past financial year.

The convergence of a diminished reserve margin, increased unplanned generation plant outages as well as coal supply and quality constraints forced Eskom into an undesirable position of having to interrupt the supply of electricity nationally. Between October 2007 and February 2008, emergency load shedding was implemented. In order to avoid a potential overall nationwide blackout, a national electricity emergency was declared on 24 January 2008.

Load shedding activities undertaken during this period – and at any other period – have been a source of distress and discontent to most South Africans, causing major disruption to all sectors of the economy. As the national utility, we have used every available opportunity to explain the underlying reasons, improve how load shedding is managed, and minimise its impact on the nation. While the explanation would have resonated with some, the inconvenience is, however, deeply regretted.

While our current focus is understandably on responding to the demand for electricity we continue to ensure that overall good practices are in place and that we do not take our attention off our triple bottom line. We are determined to make a positive difference through our continued support for the United Nations Global Compact. As a signatory to the compact, the world’s largest voluntary corporate responsibility initiative, we commit to show leadership in the compact’s 10 principles around labour standards, the environment and anti-corruption.

Diminishing reserve margin

Since taking office as chief executive on 1 May 2007, my team and I have dedicated a significant amount of leadership time reflecting on the challenges at hand and aligning all the resources of the organisation towards a solution. The fundamental and underlying problem is that the power system has an inadequate reserve margin which is at an all time low of around 8%. This does not compare well to our aspiration of 15%.

Since 1994, the demand for electricity has grown by about 50% on the back of robust economic growth. This welcomed growth has all but exhausted Eskom’s surplus electricity generation capacity. To us at Eskom, this has been one indicator that we watched closely and with a sense of trepidation. Monitoring the diminishing reserve margin has been an integral part of Eskom’s operations, as it is a proxy for the long-term adequacy of the power system, including the short-term security of supply. In the absence of any investment in new generation capacity, misalignment between the demand and the available supply emerged and therefore the 2007 crunch was inevitable. The Cabinet decision of 2004 marked an important milestone where Eskom could start investing in new generation capacity.

Increasing Eskom’s reserve margin to adequate levels is central to the organisation’s ability to ensure that power supply is not impacted by technical events upstream in the supply chain. A healthy reserve margin is necessary to create a window for planned maintenance and a cushion to manage unplanned maintenance. In this way conventional and inevitable technical problems are absorbed within the system and do not degenerate to a national crisis. This margin is further required to optimise the cost of running the power system. With such an inadequate reserve, Eskom has very little choice but to run all the available power stations irrespective of the cost of running them.

Despite the low reserve margin, Eskom has commenced issuing quotations to potential customers who apply for new connections or upgrades above 100kVA. However, the period that it will take before a customer applying for a connection above 100kVA receives energy will depend on the rate at which space is created on the electrical system and the rate at which applications for new capacity are received.

The challenge of operating a power system that has a low reserve margin should not be underestimated. It is serious, deep, material and will take a few years to resolve. Our response to this challenge has to be comprehensive, with interventions on both the demand and the supply side.

Recovery

In response to this challenge Eskom, in partnership with the South African government and major stakeholders, has already made significant progress in rolling out the national recovery plan. We successfully stabilised the power system after the extreme events of January and February 2008, coal stockpiles have significantly increased with the target of an average of 20-system days reached, and undertaken the required maintenance in anticipation of the winter peak season.

With the contribution of our key industrial customers and the broader South African public, we are well on track to successfully implement a power conservation programme.