The intensity of blackouts increased this week. Robbers apparently are finding “load-shedding” schedules most useful in planning their activities. This happened in 2008 so it is rather unpleasant to have to be reminded of this phenomenon of blackouts.
When government and Eskom officials previously commented on the country’s electricity calamity they talked down privatisation but have grudgingly started to admit that there is a role for the private sector in finding solutions to the crisis. To bring in private power producers is the key to making up the power deficit as rapidly as possible.
The first objective should be to stop using, except at peak load times, diesel fired generation plants that cost ten times more than electricity produced by the lowest cost Eskom generating plants. It appears that for ideological, rather than business reasons, relying on such high-cost electricity has been preferred to buying electricity from private companies. If Eskom had been functioning according to sound business principles, it would have put out a call for electricity supplies from private electricity generators, large and small, including the co-generation that is now being discussed. Co-generation is the simultaneous production of heat and electricity, both of which are used. In the European Union, co-generation supplies more than 10% of electricity used.
In setting up the so-called “technical war room”, the government has mentioned several options that will be considered in reducing the electricity shortage. Most of these options the FMF has been urging government to implement for several years.
Any electricity generators who can generate electricity at a price that is lower than the cost of electricity produced by the diesel fired plants, should, without delay, become a supplier to Eskom until those plants are used only for supplying what is called “peaking” power. A chief executive of one of the sugar companies once suggested that the sugar industry could produce 1,000 MW of electricity, which is a considerable quantity of power. This power could surely be supplied at a lower price to Eskom than the cost of the power produced by the diesel generators. It is a good idea to change the diesel guzzlers to LNG (liquefied natural gas) but they should remain back-up and not mainline power producer. And they should definitely not be run until they crack up.
As the price of LNG has declined considerably, there is a strong case for using this energy form to convert into electricity. It should be possible to arrange for privately owned floating LNG-fired generating plants to anchor in South Africa’s harbours and start producing and selling electricity into the grid.
The most important change that needs to take place is to have private electricity companies build and operate all new energy plants that are built in South Africa. For that to happen efficiently, the high voltage transmission grid must be separated from Eskom and independently managed, even if it remains 100% government owned. The grid will be technically managed by the same people who are doing it now but they would be under separate overall management. The reason for this would be to change the dynamics. Currently Eskom does not want competition from other producers and has an incentive to keep them off the grid. Under separate management, the incentive would be to increase revenue by providing a service to an increasing number of grid-using customers.
Private energy suppliers should be brought into the mix, financing, owning, and operating new energy plants. This would take the pressure off the government and taxpayers. Why shoulder the burden when you can have private investors providing the capital and skills and bearing all the risk?
Governments that attempt to run businesses have the odds stacked against them. They are on a hiding to nothing, not only as Eskom and SAA have shown, but also revealed elsewhere. Running a business requires the taking of continuous hard-headed business decisions, a process that is impossible for politicians to manage due to the fact that political considerations constantly outweigh business demands. Britain was going downhill fast until such government-owned businesses were transferred into competing private hands. This led to a remarkable resurgence in the businesses and the economy generally. The entire Soviet Union collapsed because of lack of competitive innovation, something that can be provided only through private ownership.
The “technical war room” needs to take a good hard look at the realities. If they do, the lights need not go out!
Author Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.