“Keeping the lights on is bad for the SA economy”, said Doug Kuni, MD of SAIPPA at a media briefing at the FMF on June 05. “The real cost to the economy is staggering not least the cost of burning diesel at peak rate for four hours every day in gas turbine plants which should be considered as emergency back-up only, yet is being used just to keep SA in power. SA has an estimated shortage of 5000 MW per annum. Large industries are being paid by Eskom not to use their product. New developments are on hold. The distribution grid maintenance backlog is estimated at R 50 million and the margin between available supply and forecast demand is frighteningly low, on a daily basis. Unplanned outages frequently match planned outages for maintenance. Eskom’s solution is to implore users to use less; jack up prices to pay for future new capacity, frantically try to repair and maintain older power stations and try to urgently commission Medupi while blaming contractors for delays. It’s too little, too late and unnecessary. South Africa needs more power and no amount of slick advertising to turn off geysers and pool pumps is going to solve the crisis.
The country is currently anxiously waiting for Eskom’s large Medupi power station to start generating electricity, followed by Kusile, but the date for the first unit to fire up gets pushed steadily into the future. Public Enterprises Minister, Malusi Gigaba, continues to maintain that Medupi will start delivering electricity in December 2013. Kuni says that will not be possible, that Medupi will not be able to deliver electricity before the second quarter of 2014 and even then the supply deficit will remain critical. The sooner independent power producers (IPPs), other than renewables, are enabled to start producing the additional base-load electricity that SA so desperately needs, the sooner the country will be free of the constant fear of imminent black-outs.
FMF Director Eustace Davie told the audience that Eskom’s vertical monopoly in generation, transmission and distribution is a system that has been discarded by developed economies. The 1998 Energy White Paper, clearly states government’s belief in, and the need for, an open competitive electricity market, customers’ right to choose their own electricity supplier, competition in the generating sector, open non-discriminatory access to the transmission system and a significant role for the private sector in the industry.
“Neither the government or Eskom can afford to provide the capacity for the country’s immediate and future needs, but it does not have to. IPPs should finance, build and operate all future electricity generation, not Eskom.”
Davie said “When the UK broke up its electricity monopoly, the price took 20 years to double and the 27 members of the EU opened access to the grids, prices fell by up to 20%. For the nine year period 2009 to 2018 Eskom’s electricity price will have multiplied four times from 22.1 cents per kWh to 89.13 cents, an above inflation increase of 235%. In 1993/4, New Zealand opened up distribution and retailing to competition and now customers can choose from 9 suppliers in some areas and it takes just 24 hours for a consumer to switch suppliers. SA cannot afford to continue to ignore the international evidence; all aspects of the electricity business must be opened up to competition as soon as possible.
How to solve SA’s power crisis is straightforward: bring in IPPs, not just for renewable, but for base load supply. Let the private sector take the risk of investing and building new capacity and managing the massive and complex construction of new power stations. There are five steps which the government could take immediately which would start to ease the current crisis and prevent another looming. Introduce:
1. An independently owned and managed transmission grid
2. Independent distribution grids
3. Competing generating companies in an open electricity market
4. Electricity trading
5. A Futures market
The Independent System and Market Operator (ISMO) Bill, currently before Parliament, is not going to deliver what it sets out to, said Davie. “It will not transfer ownership of the transmission grid which is the critical factor. Without this the ISMO is unlikely to function properly and global experience tells us that transfer of the transmission grid is essential.” He continued. “What SA needs is an I”T”SMO (Independent transmission and systems market operator) Bill and what we have in the ISMO Bill will not work”, said Davie.
Statement issued by the FMF