You would use a resource worth R1-trillion wisely, would you not? The replacement value of South Africa’s electrical power stations now tops R1-trillion. This is based on the latest cost estimates to construct Medupi, the country’s latest power station now being built in the Limpopo province.
At R120-billion for the 4 800MW facility, this is R25-million per megawatt installed. Extrapolate this cost to the 40 000MW of capacity the country has installed and the existing power stations are worth a combined R1-trillion.
How do we use this resource? Supplying electricity to meet the needs of a growing economy is only part of the energy challenge the country now faces.
We need liquid fuels to keep the economy moving. Energy policy is a mass of competing tensions. People who are not on the grid want to be on it. The emerging middle classes want the comforts that economic growth brings.
Government and business want power to grow manufacturing, exports and jobs. There are demands for more power while treasury’s purse faces greater demands for funding even while tax receipts fall in a contracting economy.
Meanwhile, there is pressure on South Africa, a world-class emitter of carbon, to play a leading role among emerging nations in supporting global cuts in carbon emissions. You may have expected the sharp electricity price hikes of recent years to have shaped more frugal energy use, but frankly there is little evidence of this to date.
The global economic meltdown brought us a temporary respite as demand for commodities (and energy) plummeted, but the world economy has started to move again. It is hardly even in first gear and already our electricity usage is back to where it was at January 2008’s crisis levels.
We got to where we are now through massive overinvestment in the past in electricity infrastructure while at the same time underinvesting in providing electricity to the majority of South Africans. We then sought to use excess capacity to attract energy-intensive industries.
But now the cost of providing new capacity plus the huge lead times it takes to build giant power stations means that a major re-think of energy policy is needed. This goes far deeper than providing subsidies for solar heating or handing out energy-saving light bulbs to poor households.
Our electricity usage is hopelessly skewed towards big industry. About 40% of electricity usage is by big users, some of which use as much power as the municipality of Johannesburg.
If manufacturing industry is added, the figure rises to 60%. This is not to say that we do not want manufacturing or large industry, our prosperity depends on it.
But at 40% of total demand big users alone are taking up about R400-billion in assets priced at their replacement value. Are we getting as big a bang for these bucks as we should? Are voracious users of electricity using the stuff as efficiently as they could? Do the economic benefits outweigh the costs?
In the meantime, both government and Eskom have run out of money. Eskom’s results were delayed and not available when this report went to press, but its capex shortfall was reportedly R160-billion, even after government committed R60-billion in loans.
The operating cost shortfall was reportedly heading for the order of R6-billion. Industry observers say that so cash-strapped is Eskom that it has been unable to run the gas turbine generators it uses to help meet peak demand. These supply about 1 400MW to the grid. Under these conditions everything will have to be looked at afresh.
Bet on higher, even much higher, electricity prices. Although there has been little or no evidence to date of consumers using less electricity in response to higher prices, presumably as users, both industrial and consumer, will in time reduce their electricity usage.
Bet too that users large and small will be looking both to diversify their energy inputs and to find new ways to increase the efficiency of their energy consumption.