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It’s time to start thinking way outside the Eskom box when it comes to electricity generation

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Dr Roland Ngam is programme manager for climate justice and socioecological transformation at the Rosa Luxemburg Foundation Southern Africa. Views expressed are not necessarily those of the Rosa Luxemburg Foundation.

At present, Germany has 1,024 energy cooperatives with more than 180,000 members, which own 42% of the 100GW installed renewable energy production capacity in the country. Prosumers there have seen through grouping that it is easier to hire maintenance workers, buy parts and bargain at municipal, state and national levels.

In a few weeks’ time, we are going to discover the rule changes that have been made to let companies wheel privately generated electricity through Eskom’s grid. While these changes are being made, we have to start asking urgent questions about Eskom’s short- and long-term futures. Eskom’s centrality in the South African economy needs — no, scratch that — demands rigorous and thorough engagement by government and civil society organisations alike. 

The key questions that have to be answered as we litigate those futures include the following two: 1) Has the state surrendered Eskom’s monopoly control over power generation and distribution; and 2) If the answer to the first question is yes, which model is likely to replace the old monopolistic one? 

To the first question, debates have already kicked off in earnest with a number of political parties (notably the Congress of the People) and analysts positing that the amendments to Schedule 2 of the Electricity Regulation Act 4 of 2006 in fact constitute a de facto privatisation of Eskom, a surrender to the markets. 

These views are not necessarily right. We need to assess these changes in light of the country’s options and how much generation capacity is being released to third parties. 

To quote the National Energy Regulator of South Africa’s 11 June 2021 press release: “The exemption is aimed at achieving energy security and reducing the impact of load shedding on businesses and households across the country.”

The age of Eskom’s infrastructure means that it can no longer operate at full capacity at any given time. The parastatal’s generation capacity has fallen by 9% over the past decade. Factoring population growth, business development and so on, leaves a hole anywhere between five and 10GW of power that needs to be filled over the short term. Eskom itself cannot fill that gap as the CEO has made clear, for a number of obvious reasons including Eskom’s debt, its current wage bill and a constrained fiscus. 

The Council for Scientific and Industrial Research (CSIR) has suggested that South Africa loses about R700-million per stage of load shedding per day. They calculate that the total economic impact of load shedding could be as high as R338-billion over the previous 10 years. The total cost to the economy for 2019 alone was between R60-billion and R120-billion. Those who bear the brunt of these problems are the working class, women, children… people who are struggling and who have to fork out extra money that they do not have for candles, charcoal, coal, etc.

Think about all the people who are furloughed when there is no power, the small businesses that have to shut down, the food that has to be thrown away after power outages. How many jobs and livelihoods are destroyed due to these challenges?

A number of solutions have been mooted to improve Eskom’s position, including tapping into pension funds, transferring Eskom’s debt to the Sovereign or lobbying for complete debt cancellation. With debt to GDP currently sitting at 80% as well as struggles with some badly managed parastatals down the years, the government seems to be very reluctant to pursue these solutions. Unions do not seem to want to advocate these options with any conviction. 

This brings me to this point: setting up partnerships is not a bad thing in itself. What is important is to attract the kind of partners that will focus on providing uninterrupted, quality electricity and not just quality kilowatt-hours. The two concepts are very different: the one sees electricity as a right; the other sees electricity as just another commodity like any other.   

The gaps in supply have to be met. Quickly. Civil society organisations should have nudged the government towards more people-centred approaches, but they didn’t. Another thing that many people do not yet realise is that Eskom does not have the luxury of focusing only on managing its current generation capacity; the utility must start shedding its coal fleet now.

The US and the EU are busy finalising high-carbon border taxes to deter products developed in fossil-intensive areas from entering their markets. This would be an absolute disaster for South Africa. Many exasperated fans of fossils have long sneered at anyone who dares suggest more greener capacity at Eskom with the regular refrain of “what happens when the sun doesn’t shine?” and so on. Now, coal has become a major liability to the South African economy.

It will cost Eskom R144-billion to shut down some coal stations by 2040, according to CEO André de Ruyter. With a growing number of pension funds and capital markets and so on focusing more on green projects, Eskom should leverage those opportunities to pursue its green agenda. Richer nations must pay more for adaptation and mitigation projects in Africa, and this includes investments to help end energy poverty. That is the best counterargument to the “pollute now, decarbonise later” cohort: money for green projects today!

To the second question. What do the changes to Schedule 2 of the Electricity Regulation Act mean longer term? Businesses, mines and municipalities with deep pockets will probably set up their own power stations although it is also likely that many will not. I say probably because generating power privately can be a fairly expensive and difficult business. Minister Gwede Mantashe has complained, for example, that in 2017 Minister Mmamoloko Kubayi-Ngubane gave Sibanye-Stillwater authorisation to generate up to 50MW of electricity and they didn’t do it. They may have realised that it was still cheaper to buy from Eskom. AES Corporation and Global African Power’s struggles with the Kelvin Power Station also highlight the fact that running small power stations is not always necessarily a straightforward business. 

When richer entities do finally set up their own generation capacity, many rural municipalities are going to take a financial hit. That is very clear. The bigger metros have already launched a race to sign MOUs with private power companies. Some of them have both the institutional memory and capacity to manage power transactions/companies. Some decades ago, South Africa had a decentralised grid with cities producing their own power. The Kelvin and Orlando power stations, for example, belonged to the city of Johannesburg. 

Now, what happens in areas where there is still a lot of energy poverty or load shedding in the future? This could be the source of unrest if exasperated communities grow tired of seeing the lights on 24 hours a day only a short distance away. 

Eskom will still provide most of the electricity in the country. Elsewhere, we also need to look at people-centred models that have worked in many countries. 

The book Renewable Energy, the Facts by Dieter Seifried and Walter Witzel gives us a number of important lessons from Germany’s experience with liberalisation. Germany had hoped that liberalisation in 1998 would lead to more choices and better options for customers. However, after a period of fierce competition and falling prices, four companies (E.ON, EnBW, RWE and Vattenfall) acquired the smaller ones and then divided up the market among themselves. This taught Germany that the following accompanying measures were critical for good, affordable power: 

  1. A network agency to manage transmission prices; 
  2. Tough antitrust laws to quickly identify and combat price-fixing; 
  3. Changing laws to make it easier for consumers to switch power producers; 
  4. Municipalities should be protected by guaranteed quotas and cogeneration contracts; and
  5. Renewable energy sources and families require initial assistance from the state to set up.   

German citizens learnt another lesson: if you want electricity to be regarded as a right, you need to monitor what happens at government level very carefully. Following liberalisation, some local governments opted to sell their co-generation rights to private companies. A decade later, and fed up with skyrocketing prices, the city of Hamburg decided to lead the charge against privatisation. The citizens voted to buy back the electricity grid. Many cities and communities in Germany and around the world followed suit. 

Germany currently has 1,024 energy cooperatives with more than 180,000 members. These co-ops own 42% of the 100GW installed renewable energy production capacity in the country. Farmers, for example, own three-quarters of all installed biogas capacity in Germany. Prosumers there have realised that with grouping, it is easier to hire maintenance workers, buy parts and bargain at municipal, state and national level. There are similar stories in countries like Denmark, Sweden, Bolivia, Belgium, England and Australia. 

Will the government be tempted to privatise more after the latest amendment to Schedule 2 of the Electricity Regulation Act? Minister Mantashe gave a very informative interview to Chris Yelland in February 2021. He mentioned the Chinese and Dutch power markets as interesting models: 

“I took time over the last two months to look into a few models for transmission. I was attracted to the Dutch and the Chinese models, which are both quite similar. The Dutch model emphasises the central role of the transmission grid, which is the marketplace and wheeler of energy from the generator to the consumer. I discovered that the Chinese have totally liberalised generation and distribution, but tightened control over transmission. They generate all over the country, but everything goes through transmission, which is state-owned. As we move towards opening up generation, even beyond Eskom, we must begin to think about the role of transmission. This is where the state must have a tight grip in order to have its hands on the pulse of our energy supply.”

Eskom will continue to dominate power production in South Africa in the foreseeable future. However, we need to recognise where there is a need for others to do some heavy lifting when the utility is unable to fulfil its mandate in a proper way. In such situations, and for a proper just transition, we need to advocate more democratic, people-centred approaches. DM

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  • Excellent article, this is probably the most significant development in is getting real growth back in the economy.
    After Eskom itself, Municipalities are the main conduit in the electricity cycle.
    A) how many of them can provide the security for private companies to invest in projects when limited to 3yr contracts by the mfma?
    B) how many municipalities can raise the funds for their own projects directly?
    C) how will municipalities manage using electricity sales to cross subsidise other departments weekend other options can compete on a cost basis, currently they just use legislation to stifle the market.

    Government needs to show it is serious about this, or it is just window dressing. There is a lot of money at stake here, and since might not like a huge shift in status quo.

  • Our battle is not at Eskom level, it is going to be tough for sites connected at council level. Without the margin they make on electricity they are dead.

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