Service functions: Group capital
MandateTo create a centre of excellence in the allocation and monitoring of all capital expenditure from a group level and in the planning, development, monitoring and execution of mega projects.
- Shareholder compact targets relating to Group Capital all exceeded in the 2011/12 financial year
- Commissioning of Komati units (Unit 4, 5 and 6), Grootvlei’s Unit 5 plus the capacity upgrades at both Camden, Unit 6 and, Arnot Unit 5. Grootvlei has now been completely re-commissioned. Altogether, Eskom added 535MW of power to the grid
- Power Delivery Projects, Medupi, Ingula and Kusile projects are ISO 14001: 2004 certified
- Significant progress has been made in the placing of contracts for the Kusile power station project
- High local content levels achieved in contracts awarded
- Positive economic impact on local communities through job creation and other spin-offs.
- Continue the focus on employee and contractor safety in the capacity expansion programme
- Maintaining the construction schedule in the capital expansion programme
- The completion of the transmission projects is constantly challenged by access problems, servitude acquisition and unavailability outages due to network constraints
- Adding power to the grid while minimising the carbon footprint
- Containing costs
- Fierce competition for technical skills for the capacity expansion programme, both internationally and locally.
Future focus areas
- Hydrostatic pressure test for Medupi Unit 6 planned for June 2012
- Complete Medupi’s boiler in Unit 6, the first new power-station unit that will be commissioned
- Repair Duvha power station’s Unit 4 on time
- Start refurbishing the last unit at Kriel and second unit at Matla
- Finalise the procurement strategy for Sere wind project
- Obtain servitudes for various Transmission projects
- Refine renewable-energy project methodology and continue pursuing existing renewable-energy projects.
Key financial statistics: Group Capital, as at and for the year ended 31 March 2012
|Capital expenditure (excluding capitalised interest)||39 730||30 436|
BenchmarkingIt is challenging to obtain consistent and accurate benchmarks for new power-plant capital costs due to the following factors:
- The numbers are commercially sensitive
- The assumptions behind the numbers vary greatly (technology, plant design, base year, exchange rate)
- The costs are constantly changing and have increased substantially over the past few years due to a rising demand for equipment and a movement in commodity prices
- The consideration of contextual issues such as localisation, supply chain, economic cycles/parameters and economies of scale.
- Owner’s development costs (ODC)
- Transmission costs.
Further, overnight cost calculations depend on a number of factors such as site location, the year of comparison, the technology used and the station size.
Another method of comparing the total capital and operating costs is the “levelised cost of electricity” (LCOE) method. This methodology calculates the present value cost in United States dollars per megawatt-hour (USD/MWh) of energy production. Financial factors such as interest rates, inflation, discount rate and taxation are taken into account and include the capital cost, as well as fuel and all fixed and variable operating and maintenance costs. In the LCOE method, comparisons are significantly more difficult to compare on a like-to-like basis, as a great number of cost components need to be evaluated to normalise costs being reported from different sources.
Although the overnight cost of a plant may be high, its LCOE may be low and vice versa. One reason is the variation in operational and/or maintenance costs for different technologies; some power plant technologies’ O&M costs may be more expensive than the O&M costs of other power plant technologies. Since the levelised cost of electricity includes the capital cost, as well as the O&M costs one can better evaluate the cost effectiveness of a plant by looking at the levelised cost of electricity.
The benchmarking information must be used with care as only high-level broad conclusions can be made, particularly if the underlying assumptions differ from the various information sources. The Eskom overnight and LCOE numbers have been compared with available benchmarks.
Summary of benchmark information from EPRI, Lazard, and IEA
|EPRI (May 2010)
Data for IRP2010
|7.4||Pulverised coal with FGD1||2 403 – 2 656||
||80 – 85||
|Pulverised coal without FGD1||2 091 – 2 281||71 – 75|
|Lazard (June 2009)||8.32||Super-critical with and without carbon capture||2 800 – 5 925||
||78 – 144||
|IEA (2010 Edition)||8.2||Super-critical from various countries||672 – 2 539||
||29 – 100||
|Pumped storage||2 703||73 – 149|
|2.||The Lazard study has not indicated the R/USD exchange and whether transmission costs were included. Assumed R/USD exchange of 8.3 (Eskom value corresponding with 2009 base year) and inclusion of Transmission costs.|
In order to compare cost more accurately, an attempt has been made to adjust the Eskom costs to the same base year and exchange rate and to match the cost components listed above in the EPRI, Lazard and IEA benchmarks. The outcome is presented in the table below. The comparison of overnight and LCOE costs with international benchmarks shows that Eskom’s plants are well within or below the international benchmark.
Eskom costs adjusted to similar cost components from EPRI, Lazard, and IEA
|Overnight cost (USD/kW)||LCOE (USD/MWh)*|
|EPRI||2 210||2 399||1 641||56||79||110|
|Lazard||2 786||3 269||2 045||53||72||103|
|IEA||2 048||2 325||1 540||51||71||99|
|*||Eskom changed its levelised cost model during the past financial year and therefore the levelised cost of electricity (LCOE) indicated in this table and paragraphs below should change. The changed LCOE was however not yet presented to board for approval, hence, the LCOE remains unchanged.|
While Medupi and Kusile are similar super-critical coal-fired power stations, the difference in their costs is due to Medupi costs not including flue-gas desulphurisation. The capital expenditure phasing is also different, resulting in Kusile attracting higher escalation and financing charges.Based on the current economic and financial parameters applied by Eskom, the average overnight cost (excluding borrowing costs but including owners, development costs, transmission and contingency) and LCOE calculations for capacity expansion projects are:
Medupi 2 300 USD/kW and 54 USD/MWh
Kusile 2 500 USD/kW and 73 USD/MWh
Ingula 1 700 USD/kW and 110 USD/MWh.
The Group Capital division focuses on Eskom’s capital-intensive projects, such as the capacity expansion programme and upgrades. The budget for the new capacity expansion programme from inception in 2005 until its completion in 2018/19 is approximately R340 billion.
The capacity expansion programme includes the 4 764MW Medupi and 4 800MW Kusile coal-fired stations; the Ingula pumped-storage scheme in the Drakensberg, which will deliver 1 332MW of hydro-electricity during peak demand periods; and the expansion and strengthening of the transmission network.In 2011/12 the capacity expansion programme delivered as follows:
in 2005 to
|Generation capacity||MW||385||535||5 756|
|Powerlines built||km||606||631||3 899|
|Substation capacity installed||MVA||500||2 525||20 195|
|Reasonable assurance provided by the independent assurance provider refer here.|
Capacity-expansion programme by project (excluding capitalised interest)
|Camden (return to service)||5.7||5.5||5.5|
|Grootvlei (return to service)||7.3||6.9||6.9|
|Komati (return to service)||12.2||10.5||9.0|
|Underground coal gasification||1.0||0.8||0.6|
|Ingula (excluding transmission integration)||20.4||11.1||7.6|
|Medupi (excluding transmission integration)||91.2||55.2||40.7|
|Kusile (excluding transmission integration)||118.7||39.3||24.7|
|Transmission projects (including transmission integration for Medupi, Kusile and Ingula)||32.0||16.9||12.3|
Ensuring electricity supply for the futureThe most significant risks to the capacity expansion programme relate to engineering, construction, procurement and economic fluctuations. These are some of the challenges the programme faces:
- Resource constraints
- Shortage of project staff (including project managers, planners and contract managers), suppliers and contractors
- Keeping a sustained focus on safety
- Upward pressure on capital cost on the back of high global demand for equipment
- Timely completion of environmental impact assessments and obtaining environmental authorisations, permits, rights and land servitudes
- Having the correct contract and procurement strategies
- Managing commodities and high exposure items correctly
- Inadequate and non-standardised processes and tools to manage and monitor progress.
Notwithstanding these and other challenges, Group Capital continues to meet the requirements of the capacity expansion programme. Formal project assurance is used to track project schedules, costs and safety risks to meet the expected quality standards and deadlines.
The three key projects – Medupi, Kusile and Ingula – are being closely monitored to ensure they meet the current schedule and capital expenditure. By the close of the 2011/12 period, Medupi was 39% complete (target 47%), Kusile 7% complete (target 11%), Ingula 41% complete (target 48%). The delay at Ingula is mainly due to the geological conditions related to the main turbine hall.
The placement of contracts is satisfactory across all generation programmes. At Medupi, 98% of contracts (by value) has been placed; 90% at Kusile; 100% at Ingula; 100% at Grootvlei; 100% at Komati; 100% at Kriel, Arnot and Matla; and 44% at Duvha. Local content from contracts awarded in the capacity expansion projects is indicated below.
Local suppliers and service providers in Eskom’s capital-expansion programme
(in R billion)
|Local content committed||Actual local-content
|R billion||%||R billion||%|
|Medupi power station||50.5||32.4||64||12.8||39|
|Kusile power station||50.9||32.3||63||12.0||37|
|Ingula pumped-storage scheme||10.4||3.8||36||3.6||94|
|Power delivery projects||8.3||6.6||80||1.9||28|
Capacity expansion project update
Medupi power station
|HP (high pressure) turbine installation at Medupi power station, November 2011|
|The first three units at Medupi power station are in different stages of progress|
|Technology||Coal, dry cooling, flue-gas desulphurisation|
|Output||4 764MW (six 794MW units)|
|Completion date||First unit in second half of 2013, all units complete in 2017/18, commissioning of flue-gas desulphurisation plant in 2018|
- Site-preparation activities started in May 2007
- The project experienced scheduling challenges in 2011/12. Eskom has since revised the contract strategy to ensure timely delivery of Units 1, 2, 3 and 4
- Progress on Unit 5: the turbine-area air-cooling suspended slab was poured, the main second-phase steel work was installed and the boiler area handed over to Hitachi so that boiler construction could start
- Progress on Unit 6: the HP turbine was lifted into position in November 2011 and the generator rotor lifted into position in December 2011.
Kusile power station
|Kusile boiler erection, November 2011|
|Technology||Coal, dry cooling, flue-gas desulphurisation|
|Output||4 800MW (six 800MW units)|
- Construction has started to move from mainly civil structures to include steel erection. The project suffered a 10-week delay in 2011/12 due to labour action. Since then both the contractors and the Kusile execution team have made progress to minimise the impact of the strike on the schedule.
- 47 of the 53 procurement packages have been placed. An additional 22 small packages have been identified as a result of the incomplete work left behind by a contractor after the labour action. These packages are receiving urgent attention since they are critical to staying on schedule.
- The access road connecting the site to the N4 highway to the north is complete. A main water-supply pipeline from Kendal power station is about 95% complete.
- About R16 billion of the budget will have been spent in the Nkangala district on items such as accommodation, training and training facilities, catering, laundry, fill material and other smaller contracts for goods and services by the end of the project.
- To date 208 local businesses within the region have attracted R929 million in revenue from the project.
- At least 5 500 locals will be employed during the construction phases of this project. 3 000 of these people are already employed.
- Social-development projects worth R75 million have been funded. These projects include building homes for child-run families.
- The project is in the process of identifying suitable applicants from the surrounding area for bursaries and skills training.
Ingula pumped-storage scheme
The Ingula pumped-storage scheme consists of an upper and lower dam, both containing about 22 million cubic metres of water. The dams, 6.6km apart, are connected by underground waterways through an underground powerhouse, which will house four 333MW pump turbines.
|Output||1 332MW (four 333MW units)|
- Milestones for the year all achieved according to schedule
- Project management tool, Primavera pilot commenced on 24 October 2011
- Both dams are complete and Braamhoek dam is full
- Construction on the main underground works is progressing well and excavation of all the tunnels has been completed
- All contracts for the project were placed and the mechanical contractor is starting with the installation of the mechanical component
- Completed 41% of the work for the project.
|All tunnels for the Ingula pumped storage scheme have been completed|
|Ingula: Low pressure headrace tunnel 3 and 4 full round shutter|
|The completed Bedford Dam at the Ingula pumped storage scheme|
Grootvlei power station
|Output||1 200MW1 (six 200MW units)|
- All units were in commercial operation by18 July 2011
- Project is 98% complete.
Komati power station
|Output||1 000MW (four 125MW units and five 100MW units)|
- Units 4, 5, 6, 7, 8 and 9 were in commercial operation at 31 March 2012
- Project is 74% complete.
Sere wind-farm pilot project
A 100MW greenfields pilot wind farm is planned for Sere, on the West Coast in the Western Cape. Commercial operation is planned for December 2013.
Concentrating solar power pilot
A 100MW concentrating solar power pilot plant project is planned for Upington, in the Northern Cape. Commercial operation is planned for December 2015.
Power delivery projects progress
Power delivery projects contributed 631km of lines and 2 525MVA of substation capacity to the national grid in 2011/12. In total, 3 899km of lines have been built of which 1 238km have been put into commercial operation and added to the grid since 2005.
Since the inception of Eskom’s capacity expansion programme, 1 342 jobs have been created within the power delivery projects.
Current completion dates
- 765kV transmission project: May 2015
- Northern grid: September 2017
- Central grid: May 2014
- Cape grid: March 2014.
Management has interpreted the health and safety requirements in a project environment to contextualise and simplify for implementation.
For detailed information about the overall safety strategy and initiative at an Eskom level please refer to the safety section.
|Grootvlei power station in the snow|
|Environmental performance indicators||Target
|Number of environmental legal contraventions (number)||0||8||8||15|
|Number of environmental legal contraventions reported in terms of Eskom’s operational health dashboard (number)1||0||2||1||0|
|Materials containing asbestos disposed of (tons)2||n/a||32.7||76.1||73.6|
|Materials containing polychlorinated biphenyls (PCBs) thermally destructed (tons)||n/a||0.4||0||1.2|
|Reasonable assurance provided by the independent assurance provider refer here.|
|1.||Under certain conditions, contraventions of environmental legislation are classified in terms of the Eskom operational health dashboard (OHD) index. These include instances where censure was received from authorities, non-reporting to authorities as may be legally required, non-reporting in Eskom, a repeat legal contravention, or when the contravention was not addressed adequately. Group or divisional executives can escalate any significant environmental legal contravention to the OHD.|
|2.||Quantities of waste disposed of at registered waste sites|