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INTEGRATED RESULTS PRESENTATION
KING III APPLICATION
 
   




Securing Eskom's future resource requirements

Eskom has to secure land, water, limestone, as well as its primary energy sources (coal, liquid fuels, gas and uranium) for its existing and new generating assets to operate. Primary energy needs to be of the required quality, and delivered on time and at an optimal cost. These resources must at all times be managed in a way that minimises the impact on the environment and ensures the safety of Eskom’s employees, contractors and the public

Securing coal is a growing challenge as Eskom’s coal-fired power stations require a continuous supply of acceptable quality coal at fair prices. Eskom has to compete with international buyers for South Africa’s coal reserves, which has a negative effect on the coal price. More detailed specifications for the acceptable quality of coal delivered to Eskom also influence supply.

Eskom secures these resources through national collaboration and effective engagement with relevant stakeholders. The following indicators are used:

Average coal stock days
Coal delivery (see “Implementing coal haulage and the road-to-rail migration plan” on page 141)
Coal quality, which is measured indirectly via a power plant’s UCLF and EAF measurements (see “Becoming a high-performance organisation” on page 91)
Specific water consumption (see “Reducing Eskom’s environmental footprint” on page 137)
Primary energy costs, including future fuel
Volume of coal burnt

Operating highlights

Significant progress made in the execution of the coal supply strategy
Four medium-term contracts have been signed for coal supply to Kusile power station during the commissioning phase
Fund advisors have been appointed to create a mine development fund to advance blackowned emerging miners’ coal and limestone mining projects
The Komati water scheme augmentation project was commissioned and declared operational on 5 June 2013
The Mokolo Crocodile water augmentation project phase 1 debottlenecking delivered water to Medupi for construction activities and for the commissioning of the first few units

Operating challenges

Even though overall coal quality was on target, negative impacts were experienced at Arnot, Matla and Tutuka power stations due to foreign material, mill constraints and stone contamination, resulting in poor quality coal
Production performance at some of the cost-plus mines continues to be a challenge
The Duvha coal conveyor was damaged by fire in December 2013, impacting coal stock days and coal cost negatively
During the last quarter of the year there was an increase in the number of community protests around coal trucks, and this impacted the coal supply to critical stations
The prolonged rainy weather in the last quarter of the year caused coal and live coal stock piles to become wet. Additional coarse coal had to be procured where low stockpiles or wet coal issues had impacted electricity production

Future focus areas

Improving the performance of the existing cost-plus mines as well as improving coal quality for certain power stations
Continuing with the roll-out of the coal supply strategy implementation plan
Conclusion of long-term coal and limestone supply agreements for Kusile power station
Developing and implementing a water quality strategy to protect water resources and reduce the impact of deteriorating water quality on power stations
Continuing to implement measures to improve coal quality for Arnot and Tutuka power stations

Securing Eskom’s coal requirements

Reliably procuring sufficient coal of the appropriate quality remains a challenge. Even though Eskom’s power stations are designed to use poor quality coal, in recent years some mines delivered fuel that did not meet Eskom’s coal quality standards, resulting in increased emissions, coal ash and wear on the plant.

Primary energy balances – coal and liquid fuel (R million)

Indicator and unit
Actual
2013/14
 
Actual
2012/13
 
Actual
2011/12
 
Coal and liquid fuel inventory balance 5 276   5 330   3 798  
Future fuel balance (coal portion) 7 763   7 098   5 020  

For further detail on primary energy costs for the year, refer to page 157.

Key performance indicators for securing Eskom’s coal requirements

Indicator and unit
Target
2013/14
  Actual
2013/14
 
Actual
2012/13
 
Actual
2011/12
 
Target
achieved?
 
Coal burnt, Mt   122.42   122.95   125.21    
Coal purchased, Mt   121.98   126.44   124.27    
Coal stock days, days 42   44   46   39    

Overall coal stock days exceeded the target of 42 days largely due to overproduction of coal at the mines attached to Lethabo, Matla and Kendal power stations. Since these are all cost-plus mines, there is no financial benefit in reducing their production. Production performance at the Arnot and New Denmark cost-plus mines continues to be a challenge.

In December 2013, a fire on the conveyor belt transporting coal to Duvha power station resulted in coal being transported by road, coal stock days at the station decreasing to 19 days (minimum stock level: 23 days). The recovery of the one conveyor stream was completed at the end of March 2014 and the second stream is due for completion by the end of May 2014.

Although overall coal standards improved in 2013/14, stone-contaminated coal and mill constraints resulting in poor-quality coal still affected performance at Arnot, Matla and Tutuka power stations. Technologies to screen coal for stones and metal have been installed at the Tutuka stockyard, Arnot power station and the Arnot colliery. These measures assist in detecting impurities in coal so that these can be removed or the coal sorted for quality before being fired, thus preventing coal-related plant damage.

Coal supply strategy implementation plan

Eskom started to implement a set of actions to give effect to the coal supply strategy. Some of the actions include the following:

Eskom is continuing to work closely with Transnet Freight Rail and the Department of Water Affairs (DWA) to develop funding models for the rail and water infrastructure required to access the Waterberg coalfield
Transnet Freight Rail delivered all the required coal from Exxaro in the Waterberg region to Majuba power station for the full scale combustion test. The test was successfully completed at Majuba power station on 21 February 2014, and the final report is anticipated to be completed within the 2014/15 financial year
The creation of a mine development fund to advance black-owned emerging miners’ coal and limestone mining projects

Eskom has contracted 80% of the coal it requires over the next five years.

Eskom made presentations before parliament’s minerals portfolio committee to debate the draft Mineral and Petroleum Resource Development Amendment bill, which aims to promote national energy security, including the possibility of declaring coal a strategic resource. Despite claims that the country has ample coal both for export and to supply Eskom, the company believes that given the importance of the resource to the country, state intervention is required to ensure that South Africa has enough coal to meet its growing energy needs. Parliament approved the bill on 27 March 2014.

Securing Eskom’s water requirements

Eskom has continued to work closely with the Department of Water Affairs to address the backlog of water-use licences for its power stations, capacity expansion programme and coal suppliers. Water performance is assessed in terms of water usage, measured in megalitres (ML), litres per kilowatt-hour sent out (L/kWhSO) and water costs.

Key performance indicators for securing Eskom’s water requirements

Indicator and unit
Target
2013/14
  Actual
2013/14
 
Actual
2012/13
 
Actual
2011/12
 
Target
achieved?
 
Water usage, ML   317 052   334 275   319 772    
Water usage, L/kWhSO1 1.39   1.35   1.42   1.34    
Water costs, R million 2 082   1 451   1 379   165    

1. The volume of water consumed per unit of generated power from commissioned power stations.

The Mokolo Crocodile water augmentation project phase 1 debottlenecking was completed and resulted in an increase in the water infrastructure capacity. The three months labour strike and heavy rains have delayed the full water delivery date to October 2014. Phase 2 of this water supply agreement negotiations with DWA are progressing well to ensure water security to the Lephalale area in the Limpopo province. The projected water delivery date has moved from December 2018 to December 2019. This is not expected to impact the retrofit of flue gas desulphurisation capability at Medupi power station, as the first two units can be retrofitted from the water available from the existing water resource.

Water resources are at healthy levels due to above average rainfalls, however, water-treatment works at some power stations are struggling to handle the levels of pollution at stations where the quality of water from catchments is deteriorating.

The Kilbarchan Colliery, a closed colliery owned by a subsidiary of Eskom, is decanting mine-affected water. To ensure that the colliery complies with the Mine Health and Safety Act (1996), Eskom has appointed service providers to develop a closure plan and remediation solutions in line with the required water-use and environmental authorisations.

The Komati water scheme augmentation project is dedicated to supply water to two of Eskom’s  power stations – Matla and Duvha in  Mpumalanga
The Komati water scheme augmentation project
is dedicated to supply water to two of Eskom’s
power stations – Matla and Duvha in
Mpumalanga
  Securing Eskom’s nuclear fuel requirements

The current uranium and enriched uranium contracts are sufficient for Koeberg until 2017, while the current fuel-fabrication contracts are sufficient to cover Koeberg’s demand until 2015/16.

Normal commercial processes will be followed to enter into appropriate contracts for the supply of nuclear fuel when the above contracts come to an end. The contracting and pricing strategy will depend on the market and policies applicable at that time.

Primary energy balances

R million
Actual
2013/14
 
Actual
2012/13
 
Actual
2011/12
 
Nuclear fuel (inventory balance) 1 456   856   1 217  
Future fuel balance (nuclear portion) 981   1 023   432