Written by Hayley Axford
With South Africa’s current electricity crisis, the country’s economy is constantly at risk as it is forced to rely on one power supplier, Eskom. Holding monopoly over power plants and transmission, Eskom is the sole generator and purchaser of electricity in South Africa. The utility has failed to meet electricity demands, with various problems plaguing its ability to do so.
Since the start of South Africa’s mass electrification programme in 1994, the country has continued to rely on coal as its primary energy resource. Today, with the export demand for our coal, it has put a strain on energy supply, pushing up the cost of electricity. Despite Eskom’s efforts to rectify the situation by building new coal plants, the projects have been inundated with construction and engineering problems as well as mismanagement, with the power utility receiving bailouts from government as well as a controversial $3-billion loan from the World Bank for its Medupi plant. Consumers now bear the brunt of the crisis with an increase in tariffs to compensate for Eskom’s bills and cost trajectories which are much higher than the original forecasts. According to Saliem Fakir, Head of WWF-SA’s Living Planet Unit, if Eskom defaults on loans or has any other financial crises; it will put the entire country’s economy at risk.
Leading up to the 2010 FIFA World Cup which was held in South Africa, there were doubts as to whether Eskom would be able to keep the lights on for the internationally renowned soccer event. Following rolling blackouts in South Africa, questions were asked as to why the power utility was still supplying electricity to neighbouring countries in Africa at a much cheaper cost, without load shedding being implemented there.
The Independent System and Market Operator Bill was designed in 2010 as a suggestion to reform the electricity system so that it can be managed by an independent systems operator. According to The South African Independent Power Producers Association’s managing director, Doug Kuni, an independent grid would create opportunities for independent producers to supply power, thus encouraging investment in electricity generation projects. Eskom would then just become a generator of power, doing this at its own cost and selling electricity to the system along with other suppliers.
The National Energy Regulator of South Africa (NERSA) awards licenses to Independent Power Producers (IPPs), allowing them provision for 30 percent of South Africa’s total electricity input, which is then sold to Eskom. IPPs therefore have to enter into a commercial agreement with Eskom, as the utility is the sole owner of the transmission lines that IPPs need to use to transmit power onto the system. With this, Eskom is the only purchaser of electricity, so the utility determines the price at which it will buy power from IPPs, regardless of the high cost of generation for independent producers. Eskom’s monopoly will therefore have to be dismantled due to its conflict of interests in generation and transmission of electricity that directly affects investment into the electricity market. Only a competitive market can guarantee the security of electricity supply to meet the demand for power in the country.
There are plenty of viable options to resolve South Africa’s electricity crisis. With pressure on Eskom to lower their carbon emissions, there is an urgent need to diversify energy resources. Instead of 90 percent of our electricity coming from coal, we can use renewable energy, gas and hydropower. Smaller generators can be utilized for ordinary citizens to generate power for themselves and their excess supply could be sold to the grid or others in their community. Municipalities have a problem with this because they generate revenue from the sale of electricity and if more wealthy people start self-generating, there would be no need to buy electricity and this would affect subsidies for the poor.
Instead of major industrial companies threatening to leave South Africa due to unreliable energy supply, private power utilities could build power stations where electricity is produced specifically for industrial energy and sold directly to companies without needing Eskom’s services at all. Other state utilities like Transnet should be allowed to generate their own power too, which would take so much pressure off of the current electricity grid.
Until laws are changed, Eskom’s mandate to provide basic services will continue to cut deep into the pockets of consumers as well as the tax base as electricity tariffs continue to soar. The utility’s monopoly over electricity supply in South Africa must be dismantled for our energy crisis to be resolved.