Coal Eskom

Back to the future for Eskom as it seeks to plug 1.3bn ton coal hole
Back to the future for Eskom as it seeks to plug 1.3bn ton coal hole *Photo by* Dylan Slater Primary energy division GM Dan Mashigo
State-owned electricity producer Eskom is going back to the future as it seeks to close an estimated 1.3-billion ton coal shortfall that it calculates will arise over the remaining life of its coal-fired power station fleet.
The shortfall calculation takes account of the decommissioning of the power stations in line with the schedule outlined in the Integrated Resource Plan, which also assumes that the new Medupi and Kusile power stations will continue to be operational in 2050. ADVERTISEMENT <>
As part of the board-approved strategy the utility will progressively replace short-term coal supply agreements with long-term coal contracts in an effort to avoid a repeat of the shortages that are currently afflicting the utility, which every year burns some 116-million tons.
At one point, ten of Eskom’s 15 coal stations had depleted their coal stocks to below the 20-day minimum prescribed in South Africa’s grid code and five of those stations had less than ten-days of stock. ADVERTISEMENT <>
Primary energy division GM *Dan Mashigo* reports that, as of December 10, stocks have been restored to 28 days across the fleet as a result of accelerated procurement efforts and a lower-than-expected coal burn, owing to the underperformance of some generation units.
Unplanned outages and breakdowns at several units resulted in a sustained period of load-shedding in early December and warnings that the risks of rotational power cuts would remain in place until at least the end of March.
Mashigo says 35 new contracts have been concluded since January for the supply of 94-million tons of coal, 18.6-million tons of which would be supplied during the 2018/19 financial year.
Eskom has also made progress with its plan to buy four-million tons of emergency coal, which should increase overall stock levels to 37 days by March 31, 2019. Contracts for 2.7-million tons have already been concluded and negotiations are under way for the 1.3-million-ton balance.
“Currently, eight power stations are below the grid code requirement of 20 days and two have less than ten-days stock.”
The long-term strategy also prioritises investments at its five remaining cost-plus mines, reversing the controversial ‘bread versus bakery’ strategy that favoured arms-length supply agreements over investments in mines established with the specific purpose of supplying the nearby power station with coal using conveyor belts.
No capital expenditure estimate has been released for the cost-plus mines, but Eskom indicates that the investments will unlock 223-million tons of coal between 2020 and 2035 and reduce its overall shortfall to about one-billion tons.
The cost-plus mines are contracted to supply Eskom with 55-million tons yearly, but are only currently supplying at a yearly rate of about 40-million tons, owing to an underinvestment in the operations.
“The coal strategy has been revised to revert Eskom’s coal supply to dedicated long-term coal contracts for the life of the stations, with preference for conveyor-delivered coal,” Mashigo explains, revealing that Eskom is also optimistic that the closed Arnot colliery, which was built to supply the Arnot power station, could be revived in the not-too-distant future.
Where cost-plus investments and contract extensions are not feasible, however, the utility will seek to extend existing contracts that are aligned with the remaining operating lifespans of the stations.
Eskom believes there is potential to restore supply contracts from the three Tegeta-linked mines, including Optimum. The operations, which are contracted to supply 8.5-million tons yearly, went into business rescue in early 2018. Their failure to supply at contracted levels has been raised as a significant factor by Eskom in the depletion of coal stocks during 2018.
The balance of the uncontracted coal, Mashigo says, will be sourced through open tenders.
The utility is concerned, however, about an increase in competition for Eskom-quality coal from power stations in India, Pakistan, Sri Lanka and South Korea.
“Eskom is no longer always a customer of choice for our grade of coal, with some miners indicating to us that they have various seaborne opportunities.”
Where supply contracts involve the transport of coal, Eskom will actively encourage rail over road haulage. In fact, Mashigo reports that it is already working on various solutions with Transnet, premised on the State-owned freight logistics group providing new rail solutions developed on a build, operate and own basis.
Over the coming three to five years, Eskom has a goal of diverting half of the 40-million tons currently being transported by road to rail.
It is at an advanced stage in finalising a rail solution to redirect coal from Medupi, in Lephalale, to the Kendal power station, in Mpumalanga. Eskom expects to rail about 1.4-million tons of Medupi coal yearly to Kendal, where compatibility tests have already been completed. Similar tests using Medupi coal at the Majuba power station proved unsuccessful.
Owing to construction delays at Medupi, a coal surplus of around 15-million tons has arisen. To reduce the surplus, rail infrastructure at Exxaro’s Grootegeluk mine will be used to load one coal train a day for use at the Kendal power station.
Mashigo insists that the economics of railing coal from Limpopo to Mpumalanga have been considered. He adds that the cost of Medupi coal has been found to be competitive relative to Kendal’s next best alternatives, owing to the fact that the Medupi surplus is a “sunk cost”.
He insists, though, that Medupi coal is not seen as either a primary, or a long-term source of coal for Kendal.

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