Eskom produces less electricity now than in 2010, but it costs 3-times more to make

New research from the CSIR revealed that Eskom produced less electricity in 2020 than it did in 2010, but the cost to produce this electricity has tripled.

The Council for Scientific and Industrial Research (CSIR) recently released its annual statistics on power generation in South Africa for 2020.

These power generation statistics show Eskom produced 227TWh of electricity in 2020, a 4.8% year-on-year decline.

The research further revealed that Eskom produced 249TWh of electricity in 2010, which means there has been an 8.8% decline in electricity production over the last decade.

Annual electricity production in TWh
Annual electricity production in TWh

Eskom’s current installed capacity of 45,117MW is in line with around 44,000MW in 2010. The decline in energy production is therefore linked to unplanned breakdowns.

The Eskom fleet’s Energy Availability Factor (EAF) declined from 71.9% in 2018 to 65% last year – the lowest in history.

Unplanned outages accounted for 20.9% of generation capacity which was not available, much higher than planned maintenance at 11.2%.

The high percentage of unplanned outages last year has resulted in the worst load-shedding South Africa has ever seen.

In 2020, Eskom shed 1,798GWh of energy. This is much higher than last year (1,352GWh) and 2015 (1,325GWh).

This severe load-shedding last year occurred despite a 5.1% decline in electricity demand because of the COVID-19 lockdown and economic slowdown.

Load-shedding from 2007 to 2020
Load-shedding from 2007 to 2020

Of particular concern is that it cost Eskom far more to produce 227TWh of electricity in 2020 than what it cost to produce 249TWh in 2010.

In 2010 Eskom had 39,222 staff members which cost the company R14.7 billion in employee benefits. Primary energy costs came in at R29.1 billion.

Fast forward ten years and Eskom now has 44,772 employees which cost the company R33.0 billion in the last financial year. Primary energy costs have ballooned to R112 billion.

In its latest annual report, Eskom blamed an “unsustainable increase in the average purchase cost per ton of coal” for the rapidly primary energy costs.

The company added that it is trying to manage employee benefits costs through sub-inflation salary increases at the managerial level coupled with headcount reduction.

Even with these interventions, Eskom is woefully inefficient.

The company’s employee and primary energy costs to produce 1TWh of power in 2010 was R176 million. In 2020 this cost rocketed to R639 million.

The chart below shows Eskom’s employee benefit costs and primary energy costs to produce 1TWh of power from 2010 to 2020.

Employee benefit costs and primary energy costs to produce a TWh
Employee benefit costs and primary energy costs to produce 1TWh

Eskom’s inefficiency has a direct impact on South African consumers, businesses, and the economy as a whole.

Problems at Eskom have resulted in electricity prices increase from an average of 41.57c/kWh in 2010 to 110.93c/kWh in 2020.

The inefficiencies, coupled with corruption and mismanagement, has also seen the company’s debt balloon to nearly R500 billion.

The Goldman Sachs Group said in 2017 that debt and corruption scandals at Eskom mean it is the biggest risk to the South African economy.

Former Finance Minister Nhlanhla Nene repeated this view in 2018, saying Eskom was a threat to the nation’s investment strategy.

With rapidly increasing electricity prices, increased load-shedding, and crippling debt, Goldman Sachs’ warning in 2017 is truer today than ever before.

The chart below shows the nominal average price for electricity from 2010 to 2020.

Average Electricity Price
Average Electricity Price

Now read: Load-shedding is here to stay, and it is every man for himself

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Eskom produces less electricity now than in 2010, but it costs 3-times more to make