ELECTRICITY GENERATION: INDEPENDENT TECHNICAL AUDITS CONDUCTED ON TWELVE

SOUTH AFRICAN POWER STATIONS

EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY

CCOONNSSOOLLIIDDAATTEEDD AAUUDDIITT RREEPPOORRTT

December 2009

Page 2 of 12

© COPYRIGHT

The contents of this Document are both privileged and confidential and may not be disclosed or reproduced without NERSA’s express authorisation. In this regard the attention of every reader or recipient of this document is drawn to the provisions of the paragraph which follows, the contents of which shall be binding on such reader and/or recipient. For purposes of this paragraph a Doer/Transgressor shall be deemed to mean any person including without limitation any reader and/or recipient of this Document who acts in breach of the provisions of this paragraph. Copyright subsists in this Document and all attachments hereto, which shall include all and/or any ideas, plans, models and/or intellectual property contained in this Document. Any unauthorised reproduction, adaptation, alteration, translation, publication, distribution or dissemination (including, but not limited to, performances in public, broadcasting and causing the work to be transmitted in a diffusion service) of the whole or any part of this Document in any manner, form or medium (including, but not limited to, electronic, oral, aural, visual and tactile media) whatsoever will constitute an act of copyright infringement in terms of the Copyright Act 98 of 1978 and will make the Doer/Transgressor liable to civil action and may in certain circumstances make the Doer/Transgressor liable to criminal prosecution.

DISCLAIMER

This report, based on information received from the electricity generators audited, does not present an exhaustive or comprehensive list of all findings, recommendations and compliance items requiring improvement with regards to the NERSA license conditions. The Consultants cannot accept responsibility should the information from the generators be incomplete and/or incorrect. While information presented in this report comes mainly from the generators audited, Africon, EirGrid, Shanahan and Enzani have independently exercised our own sound professional and engineering judgment in arriving at the observations, conclusions and assessments presented, which represent our best professional opinion, based on the information made available and feedback from the audited distributors on the draft reports. While we have attempted to validate information and data provided to us, the scope of the assignment and time constraints did not permit an in-depth analysis or validation of all the data.

Page 3 of 12

TABLE OF CONTENTS

1. Introduction 5

2. Background 6

3. Methodology 7

4. Findings 8

4.1. Business assessment 8 4.2. Power Station Assessment 8

5. Recommendations 10

6. Conclusion 11

APPENDIX A: location of eskom power stations 12

Current Eskom Power Stations in South Africa 12

Page 4 of 12

GGLLOOSSSSAARRYY OOFF AACCRROONNYYMMSS

AMi Eskom Asset Management Improvement Project

GPE Generation Primary Energy

KPI Key Performance Indicator

NER National Energy Regulator

NERSA National Energy Regulator of South Africa

OEM Original Equipment Manufacturer

PCLF Planned Capability Loss Factor

RTS Return To Service

SAGC South African Grid Code

SO System Operator

UNIPEDE Association of the European Electricity Industry and world-wide

affiliates and associates that operates as a centre of strategic expertise and acts as a liaison with other International associations and Organisations to identify common interests.

UCLF Unplanned Capability Loss Factor

Page 5 of 12

11.. IINNTTRROODDUUCCTTIIOONN The National Energy Regulator of South Africa (NERSA) commissioned an independent technical audit on licensed electricity generators in South Africa in 2008. Aurecon (Pty) Ltd [formerly known as Africon (Pty) Ltd], in association with EirGrid PLC, Shanahan Engineering International and Enzani Technologies were appointed to carry out this assignment. As part of the scope of the audit, the consultants were tasked with developing and applying the Compliance Monitoring Framework. This framework will be used by NERSA even in future when carrying out audits. Its principal aim is to assess the adequacy of licensees’ internal policies and procedures for managing and monitoring compliance with their generation licence conditions, the SAGC and other regulatory standards in place such as the quality of supply standards etc. Over and above the aforementioned principal aim of the framework, it will have to enable NERSA to meet the following regulatory objectives:

• Efficiency on electricity generation • Reliability of generators • Security of supply in the generation of electricity • Economical and sustainable generation systems • Compliance with Health, Safety and Environmental requirements • Communication channels within Stakeholders and the Energy Regulator

The main objectives of the audit were as follows:

• To assess generally the level of compliance of Eskom and IPP to the Generation licence conditions and Grid Code.

• To determine the status and effectiveness of generation’s maintenance strategy, new capacity and philosophies.

• To determine the availability, execution and success of generation’s maintenance plan.

• To determine the effectiveness of generation’s refurbishment and new capacity development and execution.

• To determine the effectiveness and efficiency of the outage management program.

The audit covered various generation technologies, and the list of stations audited was specified by NERSA as 11 Eskom Power Stations and an Independent Power Producer (IPP). The stations audited were:

• Acacia Power Station(gas turbine)

• Arnot Power Station (coal- fired)

Page 6 of 12

• Camden Power Station (coal-fired)

• Drakensberg Pump Station (pumped storage)

• Duvha Power Station (coal-fired)

• Gariep Hydro-electric Power Station (hydro)

• Hendrina Power Station (coal-fired)

• Kendal Power Station (coal-fired)

• Koeberg Power Station (nuclear)

• Majuba Power Station (coal-fired)

• Tutuka Power Station (coal-fired)

• Kelvin Power Station - IPP (coal-fired) The locations of the 11 Eskom power stations are indicated on a map of South Africa in Appendix A: Location of Eskom Power Stations.

22.. BBAACCKKGGRROOUUNNDD South Africa’s electricity generation sector is dominated by the State-owned utility Eskom, which produces electricity from 26 power stations which are primarily coal-fired, although it also has a nuclear power station, gas turbine facilities, small-scale conventional hydroelectric plants, and hydroelectric pumped-storage schemes. Eskom is the source of about 95% of the electricity used in the country, and about 60% of the electricity consumed on the African continent. Some municipalities have electricity generation facilities such as Bethlehem Hydro, which is installing 7MW of hydropower capacity, in the Free State. However, the private sector is set to play an increasingly important role in the generation of electricity in South Africa in the coming years, with IPPs expected to generate 30% of the additional power capacity required by the country going forward. South Africa already has several licensed IPPs, the most substantial of which is Gauteng’s Kelvin power station, which has a 600-MW capacity. Other licensed IPPs include the Darling Independent Power Producer (Darlipp), which is in the process of establishing a commercial wind farm, which will ultimately have a capacity of 13MW. South Africa exports electricity to a number of Southern African countries, and also imports electricity, largely from the Cahora Bassa hydroelectric scheme in Mozambique. For years, South Africa’s electricity production capacity was in excess of the country’s requirements, owing to a period of over investment by Eskom, which eliminated the need to build new power plants, and also saw the company achieving the position of being the world’s lowest-cost electricity producer. However, the situation of excess generating capacity has now ended, and South Africa is in urgent need of additional power generating capacity.

Page 7 of 12

33.. MMEETTHHOODDOOLLOOGGYY A series of workshops were held to facilitate the information gathering process and to afford an opportunity to the licensees to participate in the development of the compliance monitoring framework. Subsequent to the workshops with stakeholders, a submission to the Energy Regulator was made to obtain approval of the framework. On September 2009 the Energy Regulator approved the framework. The compliance monitoring framework was used together with a compliance assessment questionnaire and a Grid Code supplementary questionnaire as tools to assess the level of compliance of the licensees. The Compliance assessment questionnaire was aimed at facilitating the auditor’s assessment regarding compliance to mostly the communication sections of the SAGC and generation licence, while the purpose of the Grid Code supplementary questionnaire was to determine the station specific grid code compliance in a more detailed manner than the compliance monitoring framework, its main focus being the Network Code of the SAGC. The audit was performed in two folds, namely:

• Business assessment

• Power station assessment

During business assessment, the compliance monitoring framework was applied and in addition to it, the following areas were explored through workshops conducted:

• New capacity planning

• Maintenance strategy and refurbishment

• Generation maintenance planning

• Outage management

Some of the compliance items within the compliance monitoring framework were further addressed during power station assessment and in addition, the following areas were also assessed:

• The status and effectiveness of generation’s maintenance strategy, new capacity and philosophy.

• The availability, execution and success of generation’s maintenance plan.

• The effectiveness of generation’s refurbishment and new capacity development and execution.

Page 8 of 12

• The effectiveness and efficiency of the outage management program.

44.. FFIINNDDIINNGGSS

4.1. BUSINESS ASSESSMENT

Some challenging areas were identified in Eskom’s business which, although being addressed, will require continuous attention at station level, in future. These are coal quality, coal stockpiles, coal handling, outage management, aging plant equipment and erosion of reserve margin. Boiler tube failure was found to be the biggest contributor to UCLF in the coal fired stations and some of these failures could be attributed to poor coal quality. Most of the Eskom’s stations’ key Maintenance performance indicators are tracked on the maintenance two pager report generated by head office. The tracked KPIs relate to the timeous completion of scheduled maintenance, the number of scheduled maintenance activities completed, resource utilisation, emergency work carried out, statutory work order violations and others. The outage management method utilised to achieve maintenance objectives is dependent on the fleet technology and other considerations such as maintenance intervals, availability requirements, and the erosion of reserve margin. Eskom has a number of new build programs in the pipeline, some being investigated, others under construction and those who were mothballed in the past are being returned to service. Imports from the neighbouring countries are also envisaged. In addition, some of the stations are being upgraded to increase the installed capacity i.e. all six units of Arnot Power Station have been upgraded from 350MW to 370MW and in a process of a further upgrade to 400MW.

4.2. POWER STATION ASSESSMENT

The licensees audited were found to be generally compliant with the South African Grid Code. In many cases compliance is achieved through company internal systems and procedures, rather than specific mechanisms mentioned in the code. The stations audited were constructed before the introduction of the South African Grid Code, and are at various stages regarding the approval of exemptions due to compliance items relating to compliance with the network code requirements and other generator connection conditions.

Page 9 of 12

While preventative maintenance might have been adopted sometime ago, the practice was that most of the maintenance was undertaken as a reactive type process. Eskom is currently undergoing a change towards more pro-active maintenance planning to enhance the availability of their power stations. The recently established AMi project serves as a tool to address the maintenance strategies and implementation, the main driver being enhancement of availability. Eskom indicated that it was targeting a ratio of 80:20% preventative and reactive maintenance for all the stations. It was noted though that the RTS might take longer to accomplish the targeted ratio as it is facing various challenges towards returning the plant and ensuring its optimum availability. Eskom’s technical plan was found to be a good tool used to address issues of aging plant equipment. Refurbishment and replacement projects such as generator rewinds, generator transformer replacements, scada and instrumentation system replacements are part of this plan, which spans five years. In addition, a life of plant plan addresses projects envisaged in a longer term considering the age of the existing plant equipment, the life expectancy of the plant equipment as recommended by the OEM, and the condition as detected by the condition monitoring tools and other systems in place to measure the performance the equipment. The stations were being refurbished continuously, including overhauling and replacing major equipment such as the generator transformers, generators, scada and, control and instrumentation. Coal has degraded in quality (lower CV, more abrasive and higher ash content) on most stations in the past few years and this has implications with respect to additional erosion, possible clinkering leading to loss of output and higher risk of component failure which includes boiler tube failures. Coal quality has a detrimental impact on UCLF. While the short term concern might be for the available on site stockpile from which the stations can draw for power generation, the long term prognosis would suggest that burning coal of lower quality might shorten the projected life of the stations and have an adverse effect on maintenance and refurbishment planning. Eskom’s head office has a centralised coal procurement section called the Generation Primary Energy (GPE) which liaises with the stations and mines regarding the coal supply in the stations. There seems to be a considerable global demand for the better quality coal from the mines (and hence a better price obtainable) and therefore the local power stations receive the lesser quality output. This function is one of the more challenging sections of the business and faces particular pressure with regard to coal quality. As part of the management of the business processes, each station has a dedicated section which addresses both the supply and quality of coal and, depending on the stockpiling and feeding infrastructure at the station, are responsible for the strategic management of fuel and support of generation. The management of daily stockpiles by station based teams has ensured that there appears to be sufficient to meet daily demand and they are coping with these challenges.

Page 10 of 12

The only independent power producer audited faces a different set of challenges, the most crucial of these being that many critical spare parts are missing, and there is major refurbishment required to return the plant to its maximum continuous rated availability. Many of the station’s drawings are missing and of the drawings that are available, their accuracy is questionable i.e. they may not have been revised for “as-built” condition. This means that the operator effectively does not know “what they have” on the plant, and will only determine what is there during the refurbishment and maintenance interventions. The station has started the process of pro-active maintenance planning but due to the aforementioned inherent issues, much of the resources are tied up with reactive maintenance due to forced shutdowns and unexpected component failure. At the time of audit, four units had been on an outage for at least close to a year. Kelvin Power Station does not communicate directly with the System Operator (currently residing with Eskom) as its generated power is dispatched by City Power who is the off taker of all the power generated by the station.

55.. RREECCOOMMMMEENNDDAATTIIOONNSS It is recommended that the generators exercise care that System Operator demands for availability do not result in prolonged deferment of planned outages, thereby resulting in outage backlogs, as this can seriously affect the maintenance schedules and cause availability issues for the entire pool of generators. The effectiveness of outages needs to be quantified and information utilised to plan subsequent outages. The audited stations indicated that they open a project file to keep records of every outage; this was found to be a good process of handling outages as the stations will learn from the outages held and identify areas of improvement which would be addressed in the following outage. The review of spares policy currently being conducted by Kelvin Power Station should include a spares handling policy to cover strategic spares, general overhaul spares and maintenance spares. The current ESKOM strategic spares list based on assigning MWh loss impact should be reported to NERSA on completion to ensure national priorities are communicated with the Regulator. It is recommended that the IPP should investigate the enhancement of the technical key performance indicators to ensure entire coverage of performance measurement. In the light of the recently promulgated New Generation Capacity Regulations where an independent System Operator is envisaged and the renewable energy purchase agency will be established, as new participants (IPPs) join the generation mix, it will become imperative to prepare a more complex outage coordination and risk management process to ensure efficient national outage coordination.

Page 11 of 12

There exists a need to clarify the scope of application of the SAGC to an IPP such as Kelvin especially in the light of the possibilities of an increased number of IPPs expected in the near future. Improving communications between the System Operator and the Licensees with regard to generation capacity and availability, specifically in the case of embedded or distribution-connected generation licensees would benefit the overall electricity generation industry. The communication section of the SAGC could be enhanced to address this aspect. Eskom’s GPE department is encouraged to continue to investigate coal related issues so as to find solutions and/or mitigating strategies towards ensuring the security of supply and reliability of electricity generation.

66.. CCOONNCCLLUUSSIIOONN The Compliance Monitoring Framework assisted favorably as a tool for verification of compliance against the South African Grid Code and generation license. Some aspects for enhancement were recommended in the audit report and they will be addressed by NERSA. Upon approval of the audit report by the Energy Regulator, the power stations audited are expected to develop and submit their corrective action plan to address the findings and recommendations of the report. NERSA will monitor the implementation of these corrective action plans and progress reports will be compiled for approval by the Energy Regulator. An audit for those stations that were not part of this audit is envisaged to ensure a comprehensive profile for the entire generation in South Africa. NERSA in conjunction with Africon hereby pass our sincere gratitude for the positive participation of the licensees experienced during the audit.

AAPPPPEENNDDIIXX AA:: LLOOCCAATTIIOONN OOFF EESSKKOOMM PPOOWWEERR SSTTAATTIIOONNSS

CCUURRRREENNTT EESSKKOOMM PPOOWWEERR SSTTAATTIIOONNSS IINN SSOOUUTTHH AAFFRRIICCAA11

1 Source: www.eskom.co.za