1. Update: State of the Power System
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Update: State of the Power System
Spring 2011
Mr Brian Dames
Chief Executive
25 August 2011

2. Table of contents Introduction Review of Year To Date performance
Winter events and issues
Outlook for next few months
Partnering to keep the lights on

3. Overview
This is the third quarterly briefing, delivering on our promise to keep stakeholders informed and to update you regularly on the state of South Africa’s power system
We are managing a tight power system. We are on alert and will be for the next five and especially the next two years, while we build new capacity.
Eskom has managed to keep the lights on during a tough winter, thanks to lower than expected demand, and initiatives put in place to manage a tight system . But the risks to the system in summer require even more careful management.
Local supply interruptions, due to overloading caused by illegal connections, as well as to severe weather conditions in some areas, were challenges during this winter
Summer is maintenance season: while demand is lower, units must be taken out of service for maintenance; space must be created to adequate maintenance.
Eskom is resolved to keep the lights on. But our resolve will be tested and we cannot do it alone. Energy efficiency is essential to ensure enough capacity to meet demand and to address the maintenance backlog and provide a reserve to protect the system.
Our build programme is making good progress and will deliver a more robust power system for SA in future.

4. Eskom’s net capacity mix – 31 March 2011
Eskom at a glance
Eskom electricity sales by customer for the year ended 31 March 2011 (31 March 2010)
Strategic 100% state-owned electricity utility, strongly supported by the government
Supplies approximately 95% of South Africa’s electricity and more than 40% of Africa’s electricity
employees as at 31 March 2011
Serves industrial, mining, commercial, agricultural and more than 4.5 million residential customers
27 (including 1 nuclear) operational power stations with a net maximum capacity of MW as at 31 March 2011
Total electricity sales of GWh and gross electricity revenues of R90.38bn for the year ended 31 March (R69.83bn for the year ended 31 March 2010)
Infrastructure includes km of power lines and cables (all voltages) as at 31 March 2011
Committed to build 17.1GW new generation capacity expected by 31 March This includes 5.2GW already commissioned as at 31 March 2011
Baa2 (Stable)/ BBB+ (Stable) rating by Moody’s and S&P
Eskom’s net capacity mix – 31 March 2011
In support of

5. Table of contents Introduction Review of year to date performance
Winter events and issues
Outlook for next few months
Partnering to keep the lights on

6. We took action to address the challenges we identified at the beginning of the year
What we said
What we did
Demand would be back at 2007 levels and would increase by 2% in 2011
Demand is up 1.4% compared to 2010
We would improve coal handling and coal quality to reduce load losses
Coal-related production losses were reduced by 26% for the first 5 months of the year compared to 2010; coal stockpiles being rebuilt after coal industry strike.
We targeted to improve generation output by 1%-2% over three years
Although the plant availability improved over the last four months, year to date deteriorated compared to the previous year from 91.9% to 90.6%. The Duvha unit 4 incident contributed to this deteriorating performance. A sustainable availability improvement requires execution of more planned maintenance: every opportunity for maintenance is utilised
We would sign up about 400 MW of co-generation and own generation by April
891MW contracted of which 376 MW from IPP’s and about 515 MW of municipal generation
We needed to undertake significant maintenance during summer
Critical maintenance has been prioritised , with lower than expected winter demand enabling some maintenance to be done during winter
We would execute the demand side programme
Reduced demand by 113 GWh during the first quarter
We would communicate with our stakeholders on the state of the system
Extensive programme of engagement with stakeholders

7. Winter demand has been below expectations
The peak demand and total energy sent out for 2010 was almost back to levels seen in 2007, before the recession
The summer demand in 2011 was generally higher than that previously experienced. However there has been a drop in the winter load compared to that expected.
The peak demand for 2011 to date was MW at the end of May, including non Eskom generation. This is marginally higher than the MW in peak 2010 but lower than our forecast of MW for this winter
Year to date energy growth of about 1.4% compared to this time last year, lower than forecast of 2%
Weekly Energy Production

8. Weather, strikes, pricing impacted on demand
Demand has been below our forecasts throughout most of winter, with peak demand of MW at the end of May, below the MW at which demand was expected to peak during July
Strikes in the metals and mining sectors took significant load off the system during some of the coldest winter weeks
Demand from large power users was significantly below expectations: large power users reduced load in response to winter tariffs (winter peak tariffs are 3.5 times higher than summer peak tariffs while average winter average tariff is 2.5 times higher than average summer tariff)
Winter cold snaps were relatively brief
Demand patterns also reflect weaker than expected economic activity

9. Coal strike impact managed
Strike at coal mining members of the Chamber of Mines from 24 July to 1 August, with mines back to normal operations on 4 August 2011
Prior to the strike, Eskom increased coal deliveries to build stock.
An integrated team was set up to manage the risk during the strike.
Opportunities to source coal from non Chamber of Mines operations were maximised
During the strike the road and rail conditions for coal deliveries, control room operation, and reclaim capability were tracked, monitored closely with risk mitigations in place.
1.8 days of total system stock was lost during the strike period
Post strike plans are in place to recover lost deliveries

10. Coal stocks being rebuilt after the strike
Coal stockpiles are around 36 days and are projected to build to 40 days by the third quarter.
To maintain stock days at projected levels a process has been implemented to source an additional 4 Mt of coal during this financial year. Due to the strike impact this has increased to 5 Mt.
Coal stockyard operating procedures are being reviewed to reduce coal handling challenges during the wet season.
There will be a continued focus on optimising processes for coal handling and coal quality management
Actual Stock days 2008 – 2011 vs Projection 2012
(Actuals :April – Jul ) (Proj: Aug- Mar) 10

11. Success in reducing production losses
Full and Partial Load Losses: 01 April 2011 – 14 August 2011
Eskom provides a 3,600 MW allowance for unplanned outages and production losses in its generation fleet, to cushion the system
There was an improvement in generation performance during winter period, but some of this was eroded by the Duvha Unit 4 outage. There was an increase in production loss at the end of July and beginning of August
Eskom continues to work to improve performance of generation plant.

12. Independent Power Producers
In total about 600 MW of non-Eskom generation was in production through winter.
Eskom supporting two municipalities to operate their generation plant – 515 MW signed up and about 300 MW operational in the last month.
Final Medium Term Power Purchase agreement signed, bringing total to 376 MW (agreements with Sasol (240 MW), Sappi (35 MW), Ipsa (13 MW), Tangent (85 MW) and TSB Sugar (2.9 MW))
Average cost of 76c/kwh for non-Eskom generation (53c for Eskom) indicates real price of generating electricity
Government’s Integrated Resource Plan creates framework for introducing further IPPs; Renewable Energy IPP programme has taken a major step forward with the issuing of Request for Proposals
Kelvin
power
station

13. Table of contents Introduction Review of year to date performance
Winter events and issues
Outlook for next few months
Partnering to keep the lights on

14. Local outages a winter challenge
Ingula in the snow
No national load shedding, but local distribution interruptions to supply in certain regions
Severe weather – snow storms, heavy winds - caused short supply interruptions in parts of KwaZulu Natal, Eastern Cape
Majuba power station cut off by snowfall
Local outages caused mainly by overloading and illegal connections in densely urbanised areas
Protest sparked by tamper-proof “split” electricity meters and perceived high tariffs
We are strengthening network infrastructure, investing about R10 billion a year in Eskom’s distribution network
Working with stakeholders in Gauteng: Joint task team with local government under the leadership of DPE
Strategy to combat illegal connections and electricity theft showing results

15. Tariff structure
Electricity tariffs moving up towards cost reflective levels, but NUS survey indicates South African tariffs remain competitive
After almost two decades of below inflation tariff increases, this winter highlighting issues around the structure of tariffs for large power users and for low income households
Time of use tariffs for large power users, intended to provide a signal to reduce load during peak hours, reduced total demand by large power users during the winter tariff months
Inclining Block Tariff (IBT), which was intended to provide relief for low income households was experienced as causing higher cost for many poor households during the high-consumption winter months
We will look at the lessons learned
2011 Rank
2010 Rank
Country
Cost in US¢ per kWh
One Year % change 1
Italy
19.70
9.4% 2
Germany
18.56
24.8% 3 5
Spain
15.37
16.4% 4
Belgium
15.23
14.9% 7
United Kingdom
15.10
24.5% 6
Austria
14.58
7.5%
Netherlands
14.37
13.2% 8
Portugal
13.51
14.5% 9 11
Finland
12.11 10
Sweden
11.94
17.1%
Poland
11.87
21.0% 12 14
Australia
10.02
15.7% 13
France
9.61
10.0%
United States
9.48
2.2% 15 16
South Africa
8.55
27.8%
Canada
7.98
3.1%

16. Inclining Block tariff (IBT) - Residential Customers
Inclining Block Tariff (IBT) was introduced by NERSA in 2010 for residential customers
Designed to protect poor households from the impact of electricity price increases
Unintended consequences:
Consumers experienced high electricity cost compared to previous financial year;
Inadequate education drive on IBT and its impact on customers
Multiple dwellings per stand mean households do not benefit from lowest tariff.
Monthly level consumption
Including VAT
c/kWh
2010/11
2011/12
2012/13
Block 1
<= 50 kWh
62.4
65.7
69.3
Block 2
51 – 350 kWh
66.7
75.4
85.6
Block 3
351 – 600 kWh
87.0
109.5
137.9
Block 4
> 600 kWh
95.5
120.1
151.2
2018/09/20

17. Update on Duvha Unit 4 incident
On 9 February 2011 Unit 4 at Duvha Power station was damaged extensively during a statutory turbine overspeed protection test.
The process for dealing with the incident runs in phases: a technical investigation, the recovery of the unit to return it to service, then concluding the insurance process and then taking follow up action based on the technical investigation report.
A recovery project has been initiated to expedite the return to service of Unit 4. Progress has been substantial and the project is projected for completion by winter 2012 subject to engineering challenges. Timely return of the Unit as planned will reduce system constraints.
Once the process is concluded, Eskom will be in a position to share the cause of the incident and any further remedial measures we are taking as a result.

18. Table of contents Introduction Review of year to date performance
Winter events and issues
Outlook for next few months
Partnering to keep the lights on

19. Summer is maintenance season
We do planned maintenance in summer, when demand is lower, so that maximum capacity available in winter. The maintenance season usually starts in September and ends in about mid-May, but this year some maintenance was done during winter
A colder-than-expected winter puts added pressure on the system: for every 1 degree Centigrade decrease in winter temperature, electricity demand increases by MW during the evening peak
Typical winter and summer load profiles
Peak demand at 37,000MW,  compared to this year’s summer peak of MW (and last year’s winter peak of 36,970 MW)
Peak demand (MW)
Winter load profile is very ‘peaky’. Peak demand exists for only a few hours per day – but we have to have enough capacity in the system to meet it

20. Summer is maintenance season
Planned outage requirements exceed the capacity available for maintenance
As a result, liquid-fuel Open Cycle Gas Turbine (OCGT) usage and demand side management become critical
Planned outages are ranked on scope and risk, to enable prioritisation of outages within the available capacity
Lower risk outages (inspections and interim repairs) have had to make way for high risk high pressure pipe-work replacements, low pressure turbine blade inspections and major refurbishment outages
All outages that are “deferred” are monitored for increasing risk until they can be accommodated
Capacity available for maintenance including Liquid-fuel Open Cycle Gas Turbines (OCGTs)
Capacity available for maintenance excluding Liquid-fuel Open Cycle Gas Turbines (OCGTs) MW

21. Expected system status
A green week indicates that demand and all reserve requirements can be met with all installed capacity (including the Open Cycle Gas Turbines).
A yellow week indicates that there is up to 1,000 MW shortage of meeting the demand and reserves. There is an increased probability of requiring some emergency reserves to meet the peak demand
A orange week indicates that there is between 1000 and 2000 MW shortage of meeting the demand and reserves. There is a high probability of requiring substantial emergency reserves to meet the peak demand
Demand reduction or additional supply options will improve the situation for the tighter weeks as indicated in the various columns above.
The status indicated above may change if there is a change in the demand or supply from that forecast, which is dependant predominantly on weather and large customer behaviour.

22. This is Medupi

23. Our build projects are powering ahead
With more than a year to the planned first power from Medupi, we are doing a detailed assessment of the schedule ensuring that contractors meet timelines
We are focusing systematically on supplier performance, so we can pick up and mitigate any risk factors early on; also understanding impact of labour situation on the project
Medupi
Bothaville line
Kusile
Ingula dam wall
Significant milestones reached: first generator at Medupi, dams at Ingula, Grootvlei completed, Komati three units operational
These are big projects with big risks: we are on alert

24. Table of contents Introduction Review of year to date performance
Winter events and issues
Outlook for next few months
Partnering to keep the lights on

25. Reserve margin since 1999
The reserve margin is simply a snapshot of the amount of installed capacity at the time of system peak
All installed capacity is included, including peaking plant which is not intended to run for long periods of time.
On its own, the reserve margin does not give any indication of the amount of capacity available for maintenance.
Percentage Reserve Margin *
* In particular this year’s peak occurred before the traditional winter period. 25

26. Keeping the lights on: The next seven years
Energy Supply Gap assuming the Base Case assumptions 1 2 3 6 9

27. 6
A number of levers have been identified and explored to help close the gap
Supply side levers to help close gap
Demand side levers to help close gap
Increase generation capacity in existing fleet
Improve Eskom generation performance
Bring in additional co-generation and own generation
Sign up municipal and other backup generators
Work with government to bring in renewable energy producers
Increase Eskom’s internal energy efficiency
Deliver on demand side management programme
Roll out of government’s 1 million solar water heating by 2014
Implement demand response programme
Implement smart systems and load limiting technologies for residential customers * * * *
* Subject to government approval

28. A “safety net” is required as a last resort in case further risks materialise*
Open cycle gas turbine use
The OCGTs in South Africa will have to be run at higher load factors incurring significant cost
Demand response initiatives
Incentive-based demand response programme in place already for our largest customers; achieves about 500 MW
Imminent placement of contract with aggregator to obtain nearly 500 MW from the larger commercial and smaller industrial customers. This can be ramped up to 2,000 MW in the next 3 to 6 years
Investigation into technologies for residential demand response completed
Energy Conservation Scheme
A voluntary Energy Conservation Scheme involving the 500 largest electricity users is the preferred route. Already, 134 large customers are participating in a voluntary scheme and have saved 5% against the baseline
An ECS would provide certainty of demand (for at least 7 years from those customers that consume between 50% and 60% of the electricity)
Eskom has proposed that a mandatory scheme may be necessary as a last resort to prevent disruptive load shedding, but this would be a government decision
* Subject to government approval 28

29. Achieving the Energy savings target for 2011/12 could power a city for a year
either of or
Buffalo City (1,305 GWh consumed )
1,280 Gigawatt hours
Sol Plaatjie (514 GWh consumed )
Mangaung (1,397 GWh consumed )
for 2½ years
for ~1 year
uMsunduzi = Pietermaritzburg
Sol Plaatjie = Kimberley
Mangaung = Bloemfontein
Nelson Mandela Bay = Port Elizabeth
Buffalo City = East London
Source: Annual electricity consumption/sales as reported in the State of Cities 2006, City Energy Support Unit, Sustainable Energy Africa, 2006

30. Mass Roll-Out and Rebate Programmes
Initiative
Year to Date MW
GWh
CFL’s
473,000 bulbs installed
14.6
36.4
LED’s
20,685 bulbs installed
0.3
1.9
SWH – Low Pressure
40,694 units installed
7.3
10.2
SWH – High Pressure
2,493 units installed
1.5
2.2
Heat Pumps – Residential
75 units installed
0.1
Commercial and Industrial projects
11 projects 7 64
Total 30
113