I recently listened to a podcast by economist and journalist Tim Harford that discussed how a captain’s inability to consider changing the direction of his ship resulted in the destruction of the 300m oil tanker, the Torey Canyon.
The narrator labelled the problem as ‘plan continuation bias’. This is defined as an unconscious cognitive bias to continue with the original plan in spite of changing conditions. In other words, people have a tendency to persist with a course of action that is no longer viable. In the Torey Canyon’s case, the captain persisted in following a route that resulted in his ship running on to the rocks.
South Africa’s Minister of Minerals and Energy, Gwede Mantashe, seems to have a severe case of plan continuation bias when it comes to energy supply. Any doubts that Eskom had severe operational challenges were banished during Phakamani Hadebe’s time as CEO of Eskom.
Hadebe arrived intending to financially stabilise Eskom. Instead, he found himself dealing with a massive maintenance backlog that has resulted in an increasingly unreliable fleet, the diversion of coal and maintenance contracts into expensive and unreliable suppliers and vastly expensive new power stations that had been poorly designed and built and had no hope of delivering their nameplate capacity to the grid.
While Mantashe has repeatedly declared support for private participation in electricity generation since December, he has yet to do anything to facilitate this. Instead of easing the constraints to private sector generation, he has persisted with the old plan that keeps South Africa dependent on Eskom supply.
Consequently, South Africa has a dirty, unstable, unpredictable, polluting fleet that provides so little security of electricity supply that no one can make any investment that relies on electricity. The result? Overall private sector investment remains tepid. The electricity constraint has become a major problem for growth. Eskom’s decline is the original sin, but the solution is the introduction of private-sector generation. This could spur an investment boom in South Africa.
In the meantime, his inertia is having profound effects on the economy. Every month that he delays the re-opening of the REIPP for bid window 5, means another month of load shedding.
Minister Mantashe’s boss, President Cyril Ramaphosa, and the ANC as an organisation, have also made statements supporting private sector power generation. The last ANC NEC statement supported these principles. As did Cyril Ramaphosa’s State of the Nation Address.
With help from electricity expert Professor Anton Eberhard I’ve made a list of moves that would result in a tangible improvement in electricity generation in South Africa in a relatively short period:
- Revert to the 2017 regulations, which allowed companies and individuals to self-generate unlimited amounts of power. Many do not realise that the licencing exemption for plants less than 1MW, which Mantashe is clinging on to, was only implemented in 2017. Please can we make it easier to do business in South Africa by removing any regulatory restrictions on those who wish to generate their own power?
- Provide for licence exemptions also for installations up to 10MW or 20MW that wish to feed their power back into the grid – and sell to other users. BMW has such an arrangement with a biomass plant, however BMW also has significantly more political clout than the average medium-sized company in South Africa. They are able to navigate the regulatory morass. Other businesses struggle.
- Hold an auction for current renewable producers to sell the few hundred MWs of extra power they are currently producing. This “extra” power is currently being curtailed as they are not allowed to sell non-contracted electricity to the grid. Wouldn’t it be much more sensible to hold an auction that allowed them to sell to the grid at cheap prices, thus alleviating some of the load shedding?
- Open the grid up for companies to wheel power across the grid with a licence. This would remove the constraint of companies building generation capacity at the mine or manufacturing plant or office building that requires the power. Instead, several companies could build a solar farm in an optimal location and use Eskom power lines to send power across the grid. This would result in the most economically efficient solutions. The Nersa licensing process needs to be much more efficient and an independent grid would guarantee non-discriminatory access to the grid.
- Open the next window of bids for independent power producers (IPPs) to sell power to the grid. The minister continually deflects from this option – when it should be a no-brainer! If the required generation capacity in the IRP electricity plan is to be realised, then the IPP Office has to commence with auctions for solar and wind energy, gas and utility-scale batteries immediately.
- Allowing municipalities “in good financial standing” to buy power directly from IPPs has the potential to change the entire economy.
None of these suggestions is surprising. None of it is difficult to implement. Some of it can be done through ministerial amendments to Schedule 2 of the Electricity Regulation Act. The minister can also issue a Section 34 determination authorising the IPP Office to proceed with new power procurements.
Demonstrating tangible progress on economic reform while simultaneously securing South Africa’s energy supply is one half of what is needed for Moody’s not to downgrade South Africa’s debt rating in its March 2020 assessment. (The other is progress on public sector wages in Finance Minister Tito Mboweni’s Budget next week.)
Most do not expect Mboweni to deliver on his half of the requirement. If he somehow positively surprises the market and takes the steps necessary, and Mantashe makes progress with two or three of the items I’ve listed, that would surely keep Moody’s at bay. More importantly, it would spur growth and create jobs – something South Africa desperately needs. It is very worrying that Mantashe’s plan continuation bias seems to blind him to this simple reality. BM