Kathy Gibson reports – Eskom is attempting to pivot its business in line with global energy trends while simultaneously pulling itself back from the brink after years of poor management and maintenance – all while splitting into three operating entities.

That’s the mammoth task that Andre de Ruyter, group chief executive of Eskom, is attempting to pull off as the energy company approaches its 100th birthday.

“Like any major organisation reaching a milestone like that, there is an opportunity to reinvent,” he says. “For most of its existence, Eskom has been a monolithis, vertically-integrated utility and the supplier of all electricity in South Africa. It has been the backbone of all electricity generation, distribution and transmission.

“That is going to change, and change quite quickly.”

The global energy industry is experiencing something of a revolution, he says. This is driven by four trends:

* Decarbonisation: “As the effects of climate change become more apparent and it becomes accepted consensus that climate change is real and caused by human activity, the pressure on utilities to decarbonise is even greater,” De Ruyter says. “Fortunately this co-incides with technology that allows us to decarbonise and remove our carbon footprint from the atmosphere to a large extent, using solar and wind generation. For years these were very expensive, but if you look at the declining costs and advances in developing and mass-producing these technologies, they are phenomenal. This has resulted in decreasing costs to produce energy in a carbon-efficient manner. We now also have technology to dispatch electricity where and when required; and storage technologies are also coming down in cost rapidly.”

* Decentralisation: For many years the trend has been to build ever larger power plants, to gain economies of scale, De Ruyter explains. Medupi and Kusile are examples of this. “However, these economies of scale come with the project execution risk that is attendant on every mega project, and our own projects are subject to those risks. The advent of decentralization is quite an exciting trend, largely due to the fact that you can use solar panels and wind turbines, that can be mass produced and rolled out to where the electricity is needed.”

* Democratisation: This is driving more choice, giving users the option to go partially or completely off-grid. “In the future it is easy to contemplate a scenario where we have different generation activities going on, and users could choose to buy from a particular generator. There is also a lot of emphasis on choice at distribution level. This is a big change from monolithic utility we are used to.”

* Digitalisation: This has already started rolling out in the use of smart meters, which will soon be sufficiently intelligent to accommodate time of use tariffs, manage kit in the house or factory, and to ensure electricity consumption is tailored. “We are also looking towards a completely digitalised market,” De Ruyter says. “For instance in Germany, market clearing prices are set automatically and bids are awarded on a realtime basis. You can’t do this with an old style utility. In the future, there will be a dynamic computer-driven ability to match buyers and sellers on a realtime basis. Thus trend is alive and well in the developed world, and we have the benefit of being able to learn from them.”

However, Eskom still has a long road to travel in order to take advantage of these trends, De Ruyter says. “We are now at the point where we have to make the transition.”

The 2019 plan by the Department of Public Enterprises to restructure Eskom into three parts – generation, distribution and transmission – is well underway and will allow for a more dynamic future, he says.

The group has divisionalised into generation, distribution and transmission, each with its own board and MD.

The transmission business will be legally separate by the end of this year, with distribution and generation to follow in 2022.

De Ruyter shares Eskom’s priorities in its turnaround plan, starting with a drive to operational excellence.

“For a number of years, Eskom has been characterised by poor distribution,” he says. “All areas require capital investment, and we will have to grow the transmission grid, but generation is the entity most closely related to the phenomenon of loadshedding.”

The current fleet of power stations has an average age of 39 years, De Ruyter says. “They have lived a hard life, so their energy utilisation factor is significantly above international standards. That has contributed to a lack of reliability , exacerbated by a lack of maintenance, where we have not done the required mid-life refurbishments.”

The reliability maintenance programme, which kicked off in September 2020, aims to catch up the significant maintenance backlog. With units being taken off line for maintenance, the risk of loadshedding is increased. “But, once we complete the programme, we will significantly reduce the risk of loadshedding,” De Ruyter says.

However, even once all the units have been brought up to date on maintenance, there will still be a significant shortfall in electricity being produced, he adds. Although Medupi and Kusile are slowly coming online, with the final units operational during 2024, older plants are being decommissioned.

“This will create a capacity shortfall which we need to address.”

The utility’s second top priority is the oncome statement.

“This is under pressure,” De Ruyter says. “We were able to report a modest profit for the first part of the current financial year, but that can’t be sustained and we will report a loss for the second half.”

He warns that tariffs will increase, although negotiations are underway to phase increases in.

The coal supply situation drives a lot of cost, but De Ruyter says the buying programme has now been normalised, and stockpiles comply with requirements. “So we have more confidence in managing our coal supply contracts.”

Work is underway to ensure that coal quality is matched correctly to each boiler, he adds.

Fixed costs and staff costs have to come down, and so far the workforce has been reduced by 2 000 workers, via attrition and voluntary retrenchment. The headcount needs to come down by a further 6 000 to bring the optimum workforce to about 38 00 employees.

Other areas that Eskom is prioritizing are the cost of procurement, servicing of debt and working capital.

Underpinning the others, the last priority is to build a high-performance culture at Eskom, De Ruyter says.

“We think that, for a number of reasons after a decade of state capture and loadshedding, it is understandable that Eskom employees need a lift. We are building that corporate culture of pride and resilience, ensuing people are committed and focused.

“We have resuscitated our corporate values,” he adds. “One of these is integrity. But also a sense of agility so people can feel empowered to make decisions – and this comes with accountability.

“We are slowly building culture where Eskomites feel proud of wearing the Eskom overall. We want to engender trust and pride in the Eskom brand.”