eBusiness Weekly
Ending the power cuts has to begin with understanding Eskom’s precarious financial position.
Imagine the following domestic analogy: you have bought a car with a bank loan and it starts breaking down regularly. But the dealership you bought it from has closed so it cannot be returned. You ask someone for advice and they tell you that the obvious solution is to buy a new smart car that uses less fuel and is more environmentally friendly. But you are still paying off the current car. So unless you have lots of extra money, or can borrow more from the bank, this “solution” is unhelpful.
This is where Eskom finds itself. It borrowed hundreds of billions of rand to build power stations that are turning out to be unreliable. And people who argue that the solution is simply to commission new renewable energy projects are like the person who annoyingly says “just buy a new car”. Since Eskom is almost bankrupt and government’s finances are under huge pressure, “just buying new power” is not realistic.
But it is a vicious cycle: an unreliable car can harm a person’s employment and income prospects, making it harder for them to afford repairs or an alternative. Similarly, unreliable electricity harms economic activity and therefore reduces the electricity revenue to Eskom and the tax revenue to the state.
Eskom has tried to avoid – or reduce – power cuts caused by failures of its main power plants by using expensive options like gas turbines. This is is a bit like taking a taxi when you are paying interest on a bank-financed car that you aren’t using.
What about the idea that electricity users should be allowed to generate their own power? Well, that’s a bit like saying that to reduce the impact of your car breakdowns on your employer you let them hire and pay someone else to do part of your job. That’s great for your employer but not so great for you because it cuts your income – making it harder to service the vehicle debt or pay for repairs and alternatives.
Decentralised power supply will almost certainly be part of future energy systems. But without solving the systemic issues facing Eskom it could, in the short term, contribute to the power utility’s death spiral. Encouraging electricity users to move to alternatives may take pressure off Eskom’s operations, but it will have disastrous financial implications.
Big firms can afford to do this, and independent power companies will profit, but the resultant costs will fall on everyone else because Eskom has effectively borrowed on behalf of the country.
The car analogy should make it clear that “just procuring more power” could make Eskom’s financial crisis much worse. Wind and solar power have a role but also particular limitations that are often given inadequate attention. They cannot be relied on to produce electricity whenever it is needed.
If renewable energy producers cannot guarantee supply when it is needed, then the cost of measures to compensate for that must be recognised as a cost of renewable energy.
The renewables lobby, like the nuclear and coal lobbies in the past, offers apparently easy solutions to South Africa’s crisis. But it distracts attention from these basic principles – and many key questions that remain unanswered.
