Eskom to make way for new players

South Africa relies on coal-fired power for 90% of its electricity generation and this has by default, allowed Eskom to be the largest power producer (Reuters)

South Africa relies on coal-fired power for 90% of its electricity generation and this has by default, allowed Eskom to be the largest power producer (Reuters)

Power utility Eskom is at a tipping point where it needs to increase its sale of electricity and make way for more players to offer alternative forms of energy. 

At the opening of the energy summit hosted by the South African Local Government Association (Salga) in Sandton this week, councillor Nico de Jager admitted that the country needs to “make difficult decisions”. 

Energy experts from across the country gathered to chart a way forward on the future of energy in South Africa and to determine the role of municipalities in distributing electricity.

Eskom’s future as a monopoly electricity generator and distributor, as well as the looming debt issues for municipalities, featured amongst the most topical points of the three-day summit.

The general sentiment was that South Africa’s energy sector needs to be restructured to allow for new players to enter the market and offer alternative energy sources in order to provide consumers with cheaper options.

While there is a need for more players in the energy market to offer alternative energy sources, there is still concern that Eskom’s electricity sales have gone down significantly in recent years.

“The distribution industry is experiencing the delinking of economic growth and electricity demand,” said Salga president, Parks Tau.

Tau said that this was due to the growth in renewable energy technologies reshaping energy systems across the globe.

There was a shift away from centralised generation and distribution monopolies, Tau said, to a more distributed, user-engaged, digitally integrated energy systems. 

According to Tau, local governments needed to be ready for this change.

“Many people have come to municipalities to introduce independent power producers but local authorities do not have the authority to enter into those kinds of agreements without a license from the national electricity regulator,” he said.

These have had a negative implication on municipalities that are compelled to re-define their role in the electricity value chain and adapt their funding and operating models, he added.

However, Paul Vermeulen, the demand and supply side manager at City Power, believes that the current debt owed to Eskom by municipalities is related to the unaffordability of electricity and lack of adoption of alternative energy options which have impacted mostly on the cost of electricity for municipalities.

“What we are finding is that because the base price has increased so much over the years, it is really an unaffordability issue … poor households tend to use their free allocation of electricity and revert back to other sources like paraffin and candles.”

Appearing before Parliament’s Standing Committee on Public Accounts (Scopa) on Tuesday night, Eskom’s chief executive Phakamani Hadebe said that municipalities owed the power utility rates to the tune of R30-billion, with Soweto accounting for about R14-billion alone.

This was more than double from R5.5-billion in September 2015, he added.

With past efforts to retrieve the debts being unsuccessful, “It should be made compulsory for citizens to pay for their debt before renewing their driver’s license,” said Salga’s chief executive Xolile George in response to what the association is planning to do regarding high debts by municipalities.

Vermeulen recommends that government should move away from Eskom as the main source of power generation and distribution and rather use it as the last resort.

Former director general at department of energy and Eskom board member, Nelisiwe Magubane, however, cautions that although there may be other ways that municipalities can look to rely less on the country’s main electricity supplier - “whatever strategies we implement towards the development of our energy sources [must] encompass environmental sustainability and affordability,” she said.

She emphasised that the most important thing is to ensure the poorest of the poor are subsidized in order to have access to the product.

Adding to some of the challenges faced by municipalities, Magubane said: “The biggest challenge facing municipalities is the skills levels to be able to operate their own energy infrastructure.” Municipalities need to lobby the government to have their own alternative energy sources to make sure they diversify the mix of energy they have, she added.

South Africa relies on coal-fired power for 90% of its electricity generation and this has by default, allowed Eskom to be the largest power producer.

Salga says it welcomes the idea of bringing more players in the market.

However, Willie de Beer, a Utility Coach director, said that earlier attempts made by the government to reform the industry were not successful.

“In South Africa, we are dominated by a vertically integrated structure, where a large component of our generation and transmission is distributed by Eskom, and more importantly we need is to ask ourselves… how we can reduce cost. First, we need to manage our energy portfolio better in order for us to make electricity more affordable.”

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​Thulebona Mhlanga

​Thulebona Mhlanga

Thulebona Mhlanga is financial trainee journalist  at the Mail & Guardian, currently enrolled for a masters in politics at the University of Johannesburg. In addition to her fervent interest in business writing, reading and educating others around issues of financial literacy, she volunteers her time to projects assisting women and promoting social justice.  Read more from ​Thulebona Mhlanga

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