Free Market Foundation proposes immediate reforms to stop rolling blackouts
Johannesburg – The Stage 4 loadshedding (better understood as Stage 4 de-industrialisation) announced on 9 June 2021 is the inevitable consequence of government’s policy choices. The state maintains its monopoly on electricity generation and distribution to the ultimate cost of South African citizens’ businesses and lives. 20-year-long deals with power ships are not the answer. The Free Market Foundation (FMF) proposes market- and consumer-prioritising measures that must be implemented without delay.
Such reforms include a simple legislative change that can take place within less than two months, to allow ordinary people and firms to generate, distribute, and transmit electricity, subject to safety and efficiency safeguards.
Eskom motivates the reintroduction of rolling blackouts at Stage 4 by referring to unit breakdowns at Medupi Power Station, and the breakdown of two units at Duvha Power Station. The government must allow other companies to enter the market, to both allow Eskom more time for proper maintenance, as well as giving consumers more choice as to their electricity needs.
To invest and grow, both local and foreign investors and businesses require certainty that if they choose to put down roots in South Africa, they will have reliable electricity. “At present it appears that the state is unwilling to let go of its electricity monopoly,” argues FMF Deputy Director Chris Hattingh. “Traffic jams and accidents, the dangers from being exposed to cold weather, and the closure of business and the concomitant increase in joblessness are the result.”
“Over the last few years there has been much talk of the structural reform South Africa needs to adopt, to arrest its alarming decline – in no area is radical reform needed more, than in electricity generation and distribution,” says Hattingh. He continues, “Citizens will not be able to recover from the economic devastation of 2020 while held hostage by the country’s state-enforced monopoly in electricity. First quarter 2021 numbers indicate that the economy expanded by 4.6% on a quarter-on-quarter seasonally adjusted basis – a positive sign, absolutely, but it will be merely a blip over the rest of the year if economic activity is cut off at the knees with every blackout blow.”
Citing poor service delivery by the local municipality, on 8 June the dairy group Clover announced that it was closing South Africa’s biggest cheese production plant in Lichtenburg, in the North West. “How many more will see the current bout of blackouts as reason to invest elsewhere in Africa, or indeed other parts of the world?” asks Hattingh.
To provide immediate relief, and set South Africa on a more stable path, the FMF proposes that government implement the following two steps without delay:
- Implement the licence-exemption threshold for distributed-generation plants to 50 MW with immediate effect (not only 10 MW, as government has indicated previously). Exemptions must include the allowance to sell excess electricity to others.
- Change one word in the 2006 Electricity Regulation Act: From “No person may, without a license, … operate any generation, transmission or distribution facility” to “Any person may…” This simple legislative change will make loadshedding a thing of the past.
FMF Board member and engineer Terry Markman says, “Mining companies, farming communities and others must be allowed to generate their own electricity. But most important, they must also be allowed to distribute this off grid to nearby communities and businesses. Within a few years there will be a surplus of electricity and blackouts will be a thing of the past”.
South Africa’s unemployment rate – currently sitting at 43.2% – will only increase if businesses do not have access to cheap, reliable electricity. By allowing competitors to enter the market, better services and cheaper options will be the result, without endangering the poor’s access to Eskom-provided power. Only companies that meet consumer demands will succeed.
Click here to learn more about the FMF’s position on solving the electricity crisis.