Ramaphosa’s energy plan does not mean cheaper electricity

Tembisa, east of Johannesburg, was gripped by violence this week when service delivery protests turned deadly. The main cause of the upheaval was the township’s inadequate access to electricity — the cost of which has climbed over the years.

The recent tariff hike, which came into effect last month, could not have come at a worse time. South Africans are already feeling the pinch of high food and fuel prices, which have threatened to turn simmering discontent into scalding ire.

The protests in Tembisa come just a week after President Cyril Ramaphosa announced his long-awaited plan to end load-shedding, which, for the past 15 years or so, has choked an economy that has been drained of jobs. The plan was lauded by some, who welcomed the president’s decision to unleash private sector investment in the energy system and to accelerate the procurement of new capacity from renewable energy.

Support the journalism that helps you navigate your world

Subscribe to the M&G today for just R30 for the first three months* to gain access to this story and all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Looking for another offer?

But the plan is not a cure-all. Although there may at last be a future without load-shedding, experts agree that there are more electricity price hikes on the horizon, if the people in charge fail to adapt amid the transition.

What are we paying for?

New renewable capacity ought to reduce electricity generation costs. A study by the International Renewable Energy Agency, released last month, showed that the global weighted average cost of electricity from newly commissioned solar and wind power projects fell by 13% and 15% respectively in 2021. 

Globally, the new renewable capacity added in 2021 could reduce electricity generation costs in 2022 by at least $55-billion, the study noted.

But even if more renewable energy comes onto South Africa’s grid, the cost of electricity won’t fall anytime soon, energy economist Lungile Mashele said. “Any megawatt that you add onto the system, it doesn’t matter whether it is from Eskom or from IPPs [independent power producers], is going to cost money and will signal an increase in tariffs … So there are new entrants into the system and our tariffs are increasing incredibly, but we are still having load-shedding. So the question becomes, what are we paying for?”

According to Mashele, consumers are not paying for energy but for capacity. “There are 100 megawatts installed, but what we’re actually getting is 20 megawatts of energy. So we’re still paying for that additional 80 megawatts, even though we don’t truly experience it.”

The energy system relies on the grid being balanced; the electricity supplied cannot exceed the demand. 

But renewable projects, which have the potential to supply energy at the cheapest cost, typically do so at a surplus. That surplus power cannot be wheeled through the grid without risking it shutting down, and so it needs to be stored.

Last week, Eskom announced the winning bidders for the first battery energy storage project. Installing battery storage is one additional cost that makes renewable energy more expensive, Mashele said. 

In South Africa, capacity from renewables is used to supplement supply from Eskom’s ageing coal fleet. This means customers will pay the full price to keep the coal-fired stations going — which operate inflexibly but are touted by some as the most immediately available source of large amounts of continuous power — they are also paying for new capacity.

Inefficiencies

Energy expert Clyde Mallinson said even though new power producers may be brought into the fold, taking on the associated overhead costs, Eskom has remained set on operating at its full capacity.

“Envisage a situation where you have 70% Eskom and 30% IPPs. The output of that whole thing is still the same. There is not more electricity. You are now renting a fleet of 30%, so you can’t still have 100% of the people at Eskom. It just doesn’t make sense … Eskom hasn’t quite come to terms with that,” he said.

“You can’t be producing less with the same overhead … So Eskom, in my opinion, hasn’t really come to terms with how managing buying from IPPs in a packaged form — where all of the maintenance and hassle is taken on by the IPPs — is covered … Then surely we have to pare down?”

Eskom may be reluctant to reduce its workforce, considering its need for maintenance and know-how. Last week, Ramaphosa announced Eskom will increase its critical maintenance budget for the next 12 months to increase the reliability of its generation capacity. The utility is also recruiting personnel to carry out its maintenance plans.

But, Mallinson said, when new capacity is brought in, that need for maintenance diminishes.

As is often the case with administered prices such as electricity tariffs, customers pay an extra cost for inefficiencies in the system. South Africa’s transition to renewable energy poses dilemmas to an unwieldy Eskom-dominated power system.

“When you are transitioning from one energy paradigm to a completely different one, you can expect a bumpy ride,” Mallinson said. “So that’s what is happening at the moment and it’s playing out as having to have price increases.”

The risk mitigation programme, designed to procure emergency energy to plug Eskom’s supply deficit, is one example of how when inefficiencies are introduced, they can come at a cost to customers.

Last week, the National Energy Regulator of South Africa published a consultation paper outlining Eskom’s most recent application for tariff hikes for the 2023-24 financial year. If everything works out in the utility’s favour, South Africans can expect a 38% increase in the price of electricity next year.

The steep hike, laid out in Eskom’s fifth multiyear price determination application for the 2022-23, 2023-24 and 2024-25 financial years, shows  the main driver of the utility’s costs over that period is the contracts for risk-mitigation power projects. 

Although the risk-mitigation power projects are not a part of Ramaphosa’s new plan, Mallinson pointed out that the programme is indicative of the government’s willingness to greenlight over­inflated energy procurement. He said the renewable projects procured through the programme came in at double the cost that they ought to have.

“They were committing to buy a huge slug of energy at an outrageously high price. It is costing the taxpayer and the electricity customer R8-billion more a year than it needs to cost them — R8-billion more,” Mallinson said.

Painted into a corner

He said the high cost of the programme gives a distorted impression of the cost of procuring cheaper renewable energy. 

“They have painted themselves into a corner because of poor procurement policy. And now, to cap it all, the private sector is going to go frantic to build big renewable projects and get them cheaper than Eskom. And now Eskom’s overhead is going to be even more distorted,” he added.

“And so the poor, in Tembisa and wherever else, are going to see ever increasing electricity prices and they are going to conflate that with the switch from coal to renewables.”

The state of affairs has created the perception that the energy transition comes at a high cost, Mallinson said. “The real secret is that it is going to save us money and the fight will be about how to distribute that. The longer we stay in the present situation, the longer we keep the money related to the energy supply industry locked in the hands of a restricted group of people.”

A move away from the present situation — in which the profits made through sometimes skewed energy production is kept in the hands of a few — is what South Africa’s environmental activists are calling for.

Bobby Peek, the director of the environmental justice service and developmental organisation groundWork, said: “The issue about generating more energy is making sure that you are creating a space where you don’t only have big industry creating this energy and profiting … But rather that you do it so that you can see the energy cost for people on the ground come down.”

Mashele said that if energy costs don’t come down, the state risks more upheaval, as high tariffs hit households and businesses. “Electricity is what caused the Tembisa issue. Whenever the electricity is off in Diepkloof for a couple of days, people stone cars on the N1.”

“Electricity is such a volatile subject. It will trigger the happiest person to become violent. So if you look at increasing tariffs and what they will do to society as a whole, I can’t even begin to imagine.”

[/MEMBERSHIP]

We make it make sense

If this story helped you navigate your world, subscribe to the M&G today for just R30 for the first three months

Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.

Related stories

WELCOME TO YOUR M&G

Already a subscriber? Sign in here

Advertising

Latest stories

Mkhwebane would not hear of Gupta links to Estina: witness

The suspended public protector told him she would pleased if the probe into the scam delivered no adverse findings, Reginald Ndou tells inquiry

Editorial: The ANC won’t listen to its own conscience, the...

The party’s top officials seem to have no real inclination to follow through with the integrity commission’s recommendations on corruption

Nxesi: The changing definition of work demands a review of...

The labour minister noted many informal workers had been excluded from the country’s Covid-19 relief scheme

Tazné van Wyk murder accused admits to absconding parole

Moyhdian Pangkaeker evaded the justice system for about four years during which time he twice absconded while on parole. He faces 27 charges, 24 of which he allegedly committed while on parole.
Advertising

press releases

Loading latest Press Releases…
×