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A hitchhiker’s guide through the South African electricity system, PART FIVE

It's going to get ugly here, so we, as South Africans, need to have much better understanding of our country's electricity system, Eskom, our consumption patterns and pricing, the cost of load-shedding and how we can, if indeed we can, escape from the precarious situation in which we find ourselves these days. So we thought the best way to present it to you, dear traveller through the South African electrical space-time continuum, would be through this extensive hitchhiker's guide in six parts. Today, Part FIVE: The cost of load-shedding to our economy and how this is calculated. Entire series conceptualised and written by DIRK DE VOS.

The cost of load-shedding to our economy and how this is calculated

Getting electricity pricing right has to be what South Africa must do in the near term. A below cost of supply simply creates the kind of problems we now have. Our present predicament comes down to several years of load shedding. We have left making the necessary decisions to avoid this for too long now and we will have to suffer the consequences as best we can. There is little other choice.

But what are the consequences? That is an interesting question that could be reframed as follows: What is the economic cost of unserved electricity to the South African economy? It is a hard enough task to calculate the direct costs of lost production, but it is much harder to calculate other indirect costs that might include investments that may have happened – but now will certainly not happen.

This question was recently addressed by a paper published by the CSIR, which looked to calculate the financial benefits of renewables in South Africa over a period of a year in 2014. It is a fascinating study and worth a read. The vast majority of the renewable power plants that were in operation for the year were those from the first round of South Africa’s renewable energy independent power producer procurement programme (REIPPPP). These power plants supply power at the highest rates. Subsequent rounds, for power plants still to be completed, saw the renewables tariff falling dramatically by as much as 60% in the case of solar PV, onshore wind by as much as 50%.

Nevertheless, the CSIR study showed that even at those elevated tariffs, South Africa’s nett benefit amounted to R800 million. How this figure is derived is important. It consists of two elements: the savings on coal and diesel not burnt. This is calculated to be in the region of R3.7 billion on the basis of 2.2 terawatt hours having been delivered. A big part of this saving is from saving on diesel. Admittedly, Eskom is burning far too much diesel due to poor plant availability. The second element of the calculation is more interesting. The study calculated that the contribution of renewables avoided 120 hours of unserved electricity. Avoiding unserved energy amounted to a “benefit” (or a cost not incurred) of R1.6 billion. Adding the R3.7 billion from the first part of the calculation to the R1.6 billion from the second part gives R5.3 billion from which total payments to renewable energy providers of R4.5 billion is deducted to give the net benefit of R800 million.

Obviously, the above calculation will not go uncontested, but the interesting part is how 120 hours of unserved electricity costs the country R1.6 billion. How is this derived? The number comes from a worksheet for the current revised Integrated Resource Plan and available on the Department of Energy’s own website. It is a rather rough calculation based on surveys done by Eskom on its largest customers. Previous surveys suggested that the cost of unserved electricity was 150 times larger than the cost of supplying electricity. Using the average tariff at the time, the cost of unserved electricity was deemed to be R75/kwh. The CSIR updated this to R87/kwh. This cost estimate is traditionally used to determine what Eskom’s reserve margin ought to be, but it now has a wider application to determine the cost of load shedding to the wider economy.

Clearly, more work needs to be done – the economy is not only represented by a sample of Eskom’s largest customers. The services sector, which does not use much electricity, would have a far greater cost where electricity is a small but essential part of the services business concerned. Being unable to have a hot shower or eat a hot meal at home is a horrible inconvenience, but probably does not generate much of a cost to the economy.

Discussion points

  • It is very difficult to capture the full costs of load shedding to our economy. The costs include investor sentiment and confidence in the future of the country.

  • It is very important that we try to capture the costs of load shedding, as this helps focus minds on the true extent of the problem.

  • Perhaps it is worth conducting a per sector “cost of unserved energy” to provide a better guide to designing load-shedding schedules that have the least impact on the economy.

Photo: Customers eat their pizza in a popular bar using candlelight as another rolling blackout affects large parts of the country’s biggest city, Johannesburg, South Africa, 08 December 2014. EPA/KIM LUDBROOK

Read more:

  • A hitchhiker’s guide through the South African electricity system, PART ONE; in Daily Maverick.

  • A hitchhiker’s guide through the South African electricity system, PART TWO; in Daily Maverick .

  • A hitchhiker’s guide through the South African electricity system, PART THREE; in Daily Maverick.

  • A hitchhiker’s guide through the South African electricity system, PART FOUR; in Daily Maverick.

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