Transition: Workers carry out repairs at the Tutuka coal-fired power station in Mpumalanga. South Africa has said a retreat from fossil fuel must take account of the effect on the economy and the people who depend on it for a living. Photo: Waldo Swiegers/Bloomberg
A new civil society campaign has provided a refreshing counter-narrative to the relentless private sector propaganda, which seeks to profit from South Africa’s energy crisis and the transition to renewable energy that could cost more than R1-trillion over the next decade.
At the end of July, representatives of trade unions and social movements — including the South African Federation of Trade Unions, the National Union of Mineworkers, and the Alternative Information Development Centre — agreed to form a united front to resist the privatisation of the power sector and propose alternative ways to address the immediate crisis and longer-term challenges.
They released a “work-in-progress” statement that called for an end to the R200-billion Renewable Energy Independent Power Producer Procurement Programme (REI4P) and the development of a public pathway that is led by a transformed Eskom, which will be reestablished as “a world-class public utility, fully resourced, transparent and accountable to democratic institutions”.
They condemned the $8.5-billion partnership between South Africa and developed countries that was announced at COP26 in Glasgow in November as an example of “green structural adjustment” that dangled concessional financing while endorsing privatisation. “This type of financing is deeply problematic on two levels. First, the amount is tiny when measured against the level of investment required. Second, the deal is contingent on South Africa’s willingness to comply with a reform agenda that is intended to lead to the full-on privatisation of the sector.”
The statement disagreed with government and private sector proposals to end load-shedding. “These proposals reflect the interests of the IPPs [independent power producers] and their desire to secure subsidies as a means of guaranteed returns on their investments at the expense of Eskom.”
To address the immediate crisis, the statement supported the “fix Eskom” approach to repair and maintain the existing fleet in the short term. Although there was a need to install new capacity over the next two to three decades, the statement said it was not clear why new generation capacity was needed to address load-shedding in the short term.
This is correct because Eskom’s incompetence has created a so-called shortage of capacity of 4 000 megawatts to 6 000MW caused by plant breakdowns that have reduced the energy availability factor from 78% during the 2017-18 financial year to 57% in April 2022. If Eskom fixes its plants and increases the energy availability factor to 75% there will be no shortage. The fifth bid window of the REI4P has collapsed. IPPs cannot deliver adequate new capacity in the short term. Therefore, fixing Eskom is the only way to end load-shedding in the short term.
The statement says Eskom should pivot towards direct public procurement of new generation capacity using a cost-plus model. “New capacity can be paid for through direct public financing. Revenues generated through the sale of electricity can recover the costs of installation over a 10- to 20-year period.” But the principle of full cost recovery is the reason Eskom has high debt, and many people must choose between paying for food or electricity. There was no plan of how to finance the company’s previous capital expenditure programme, which has cost about R700-billion since 2007.
The treasury will announce measures to reduce Eskom’s debt during the medium-term budget policy statement in October. But even after taking up to 75% of Eskom’s debt off its balance sheet, there will still be a need for direct public financing to support the installation of new capacity and to increase subsidies for unaffordable electricity bills. There must be financial modelling of the costs of installing new capacity and expanding free basic electricity that strikes a balance between public finance, affordable tariff increases, the accumulation of debt and the use of Eskom cash flows. The Alternative Information Development Centre has called for free basic electricity to be increased to 200 kilowatt hours from 50kWh.
Instead of providing endless subsidies to IPPs, the government must subsidise households.
South Africans must understand that the deregulation, liberalisation, and privatisation of the power sector will not deliver new capacity at the pace that is required. The Eskom Research Reference Group says the “enforced chaos” of the neoliberal “energy for profit” framework of competitive markets, unbundling and IPPs with power purchase agreements will not work because it will create a rival sector to Eskom.
Also, internationally, the for-profit model has not delivered on promises to increase investment in wind and solar. The withdrawal of public subsidies has resulted in a “three fall effect.” Falling prices resulted in falling profits, which resulted in falling levels of investment.
The “renewable energy for-profit model” has hit a brick wall with investment far below the levels required to keep the lights on let alone finance a transition.
In South Africa, the REI4P seems to have also hit a brick wall. The united front statement says: “The pro-privatisation propaganda conveniently ignores the fact that IPPs are struggling to get their projects funded. The recent Meridian report suggests a 30% across-the-board increase above winning bid levels of bid window 5. This would incur more costs that would need to be covered by Eskom.”
As has been the case internationally, South Africa could be heading towards what the Eskom Research Reference Group calls a “subsidies for all” situation where the state must subsidise the IPPs and Eskom, which is suffering because of deregulation, liberalisation and privatisation, as well as the need to incur significant costs to connect its competitors to the grid and pay for batteries to store their energy and power purchase agreements.
Electricity should be a public service, not a commodity. The “energy for profit” model with its climate finance schemes and restructuring has so many additional layers of cost the public sector must incur to enable profiteering that eliminates all risk for IPPs and results in soaring electricity prices.
Duma Gqubule is a financial journalist, analyst, researcher and adviser on issues of economic development and transformation.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.
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