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Managing SA's Electricity Supply

| Opinion by *Eustace Davie

- not a job for politicians and government officials


Yesterday, Eskom again begged its customers to stop using its product. Not the expected behaviour of a service provider, but we are threatened with possible catastrophic power blackouts and Eskom needs to protect the national grid.

Doesn’t this tell us all too clearly that it is time for SA’s politicians and government officials to apply their minds to changing the structure of the electricity supply system rather than continue trying to manage it?

The national grid is the largest machine in the country, which has to be constantly and delicately monitored to maintain the “quality” of the electricity on the grid and a balance between the power being withdrawn from and entering the grid. The process is one of the world’s engineering marvels.

Engineers will tell you that, to avert the kind of emergency that occurred yesterday, there has to be a comfortable reserve margin. This means that the generating capacity of the fully operational generating plants connected to the grid must at all times be greater by a safe margin than the peak load of electricity ever likely to be withdrawn from the grid.

Electricity generation is in most cases not an instant process. Giant electricity generating plants take some time to get going, so there have to be back-up generating plants such as hydro-electric or gas-fired plants that, in the case of an emergency, can readily be put into operation. An event such as yesterday’s tells us that all the emergency generating capacity was already being fully utilised and the only option left was to cut usage.

And if users did not respond voluntarily to calls to reduce power usage, supply to some users would have to be cut without their consent, which is called load-shedding.

It is common knowledge that Eskom is constantly asking their customers to use less electricity. The real reason behind this request, yesterday’s emergency, and the continued small reserve margin, actually has nothing to do with engineering and everything to do with economics and politics.

Back in the late 1990s, engineers prepared a timeline that showed that SA would need extra electricity generation capacity by 2007 and that this needed to be added timeously to avoid a supply deficit. The government took the warning seriously and even appeared to be considering emulating developed countries by dumping the archaic and inefficient vertically integrated government monopoly method of delivering electricity, which had been shown in most countries to be inefficient and costly.

In 1998, the Cabinet approved a White Paper containing some positive proposals for policy changes that would: (1) Give customers the right to choose their electricity supplier (2) Introduce competition into the industry, especially the generating sector (3) Permit open, non-discriminatory access to the transmission system (4) Encourage private sector participation in the industry.

Given government’s decision to rely on private generating companies to finance, build and operate the required new generating plants, Eskom did not plan to build additional generation capacity but prepared for the setting up of a trading system for the new energy market. Large foreign generating companies lined up to supply the new capacity. Then there was a hiatus in decision-making. Nothing happened and the potential foreign investors left. Even local investors who wanted to build generating plants could obtain no clarity on policy.

Eventually, Eskom was ordered by government to build the required plant. Unfortunately, instead of building smaller plants that could be put into operation sooner, a decision was made to build the giant Medupi and Kusile plants.

Politically motivated decisions imposed on the day-to-day functioning and long-term plans of Eskom and failure to allow independent power producers (IPPs) into the electricity market are the primary reasons why SA currently has an electricity supply deficit of at least 5000MW of generation capacity. That deficit does not include the electricity that would have been used by the new developments in mining, manufacturing, retailing, and housing that have not occurred or were still-born because of the electricity deficit.

Private companies could make a considerable difference in a competitive SA electricity market. The largest US electricity supply company, Duke Energy has 7.2 million electricity customers, 57,700 megawatts of generating capacity from a mix of coal, nuclear, natural gas, oil and renewable resources, and has 58,000 km of transmission lines. Eskom supplies electricity to more than 7.5 million customers, has 41,194 megawatts of generating capacity from a similar mix of resources, and has about 30,000 km of transmission lines.

Showing that a single private company is larger than Eskom is not intended to suggest that it would be good for SA to have such an entity in control of our entire electricity supply system; a large protected monopoly is undesirable in any guise. What is important to recognise is that, in the US, Duke Energy has many competitors and has to constantly improve its offerings to gain and retain customers.

SA consumers are missing out on a great deal of technological and other development benefits because of the current structure of the electricity supply system. Duke Energy is, for instance, currently installing smart grids, which will allow its customers to identify the appliances that are costing them the most in energy use and make it possible for them to remotely turn their appliances on and off. Where there are electricity markets, shortages can always be covered by purchases from wholesalers, other generating companies, or on the spot market, avoiding the inconvenience and cost suffered by SA electricity users who do not have that option.

If the 1998 White Paper decision had been followed, Eskom would not have the Medupi/Kusile headache, private generating plants would be operating and supplying the needed electricity, and the calamitous harm to the economy would have been avoided. And if SA’s electricity users were unhappy with their power supplier, they would have the option to switch to a supplier of their choice instead of having nowhere else to go.


* Eustace Davie is a director of the Free Market Foundation

Source: www.freemarketfoundation.com

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