Eskom is a South African electricity public utility, established in 1923 as the Electricity Supply Commission (ESCOM) by the government of South Africa in terms of the Electricity Act (1922). It was also known by its Afrikaans name Elektrisiteitsvoorsieningskommissie (EVKOM). The two acronyms were combined in 1986 and the company is now known as Eskom. Eskom represents South Africa in the Southern African Power Pool.
The utility is the largest producer of electricity in Africa, is among the top seven utilities in the world in terms of generation capacity and among the top nine in terms of sales.
Eskom operates a number of notable power stations, including Kendal Power Station, and Koeberg nuclear power station in the Cape Province, the only nuclear power plant in Africa. The company is divided into Generation, Transmission and Distribution divisions and together Eskom generates approximately 95% of electricity used in South Africa.
Due to the South African government's attempted privatisation of Eskom in the late 1990s, Eskom's requests for budget to build new stations were denied. President Thabo Mbeki admitted in December 2007 that this was an error, and it is now adversely affecting the South African economy.[4]
In January 2008 Eskom introduced "load shedding", planned rolling blackouts based on a rotating schedule, in periods where short supply threatens the integrity of the grid. Demand-side management has focussed on encouraging consumers to conserve power during peak periods in order to reduce the incidence of load shedding.
In the later months of 2007 South Africa started experiencing widespread rolling blackouts as supply fell behind demand, threatening to destabilize the national grid. With a reserve margin estimated at 8% or below,[6] such "load shedding" is implemented whenever generating units are taken offline for maintenance, repairs or re-fueling (in the case of nuclear units).
Eskom and various parliamentarians attribute these rolling-blackouts to insufficient generation capacity.[7] According to their claims, the solution is the construction of additional power stations and generators.[8] These, they say, will take time to construct and commission. 2012 is frequently mentioned as the earliest possible end to the power shortages.[8][9][10]
Investigative television show Carte Blanche reported that part of the problem is related to the supply of coal to the coal-fired power plants.[11][12] Several other causes have been postulated, including skills shortages[8] and increasing demand for electricity around the country.[13]
It appears that the steps that Eskom took to maintain some of its plants, increase coal stock piles and improve plant performance has let to them suspending load shedding from May 2008 onwards.[14]
Effect on the Economy
In January and February 2008 global platinum and palladium prices hit record highs as mines were first shut down and subsequently restricted in their electricity use. South Africa supplies 85% of the world's platinum and 30% of palladium. Mining companies estimate that hundreds of thousands of ounces of both gold and platinum production will be lost every year until the crisis passes.[15] Estimates on the direct economic impact are not yet available but, given South Africa's reliance on precious metals exports to finance its current account deficit, traders have severely downgraded the currency.
Due primarily to the impact on mining companies, economists have downgraded GDP growth forecasts significantly. The current consensus hovers around 4% (well short of the 6% government target), with the caveat that growth could reduce by 20 basis points every month under certain circumstances.[16]
Banks and telecommunications companies have generally continued to operate as usual thanks to existing backup systems. Retailers initially reported large losses due to spoiled frozen and chilled foodstuffs, but are rapidly installing generating systems. Many large factories have reported it impossible to carry the capital expense required to keep operations uninterrupted. However, the largest (including aluminum smelters that can be effectively destroyed by outages of longer than four hours) have guaranteed service level agreements with Eskom and have been largely unaffected.
Big companies with international investors have also been affected by the electricity crisis and have had no choice but to announce these effects to the international community, bringing the situation to the attention of potential foreign investors.[17]
Crisis management
As of February 2008 blackouts were temporarily halted due to reduced demand and maintenance stabilization.[citation needed] This drop in demand was caused by many of the country's mines shutting down or slowing to help alleviate the burden. However, regularly scheduled mandatory load shedding started in April 2008, to allow maintenance periods of power generators, and recovery of coal stockpiles before the winter, when electricity usage is expected to surge.
Expanding generating capacity will see an estimated spend of R300 billion over the next five years,[citation needed] with around 20 000 megawatts of additional capacity due to be online by 2025.[citation needed] However, neither short nor long term funding has yet been secured and the downgrading of Eskom's credit rating has ignited speculation of a capital injection by the government.[18]
Controversy
This entire situation is surrounded by controversy. Decision makers and leaders both in Eskom and in the government predicted in the late 1990s that Eskom would run out of power reserves by 2007 unless action was taken to prevent it.[19]
There is also criticism that Eskom exports electricity to neighbouring African states when it doesn't have the capacity to meet South Africa's demand.[20]
Eskom, however, announced on January 20, 2008 that it had ceased to export power.[21][22]
The government claims that the shortage caught them by surprise since the South African economy grew faster than expected. However, their target growth rate of 6% per annum was not reached from 1996 to 2004. The average GDP growth rate during this period was 3.1%.[23]
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