In the darkening gloom over Eskom and South Africa’s electricity supply comes some rays of light. Eskom’s new CEO, Andre de Ruyter has got off to a good start. The Minister of Minerals and Energy, Gwede Mantashe, has allowed the mines to generate electricity for their own use. There are sensible proposals.

De Ruyter has probably stepped into the worst job in South Africa – and the most important. The ruin of Eskom, a once fine electricity utility, by the ANC is one of the most damaging events in our recent economic history, and unless Eskom is rescued our economy is doomed. De Ruyter’s opening remarks from his new office inspired confidence by their modesty. He’s not offering a magic pill to cure all Eskom’s illnesses. He’s not promising an end to load shedding. He’s not going to wave a wand and by magic solve all of Eskom’s problems by unbundling/privatisation/renewables or any other easy trick.

He said he is going to embark on a proper maintenance program (“maintenance philosophy”) for Eskom’s failing coal stations. This is an obvious remedy – but that doesn’t stop its being necessary and urgent. Because we didn’t build stations in the 1990s, when we were running out of electricity, the existing stations were run into the ground to “keep the lights on” and are now falling to pieces. It would have been better to turn the lights off on a regular, planned basis to allow proper maintenance. This is just what he proposes. So there will be years of load shedding but the stations will be fixed as far as it that is possible.

He announced he has no plans to bring in outside “management consultants” or “experts”. Hurray! Since coming to power in 1994, the ANC has wasted an enormous amount of our money by kicking out skilled in-house white engineers and managers, replacing them with unskilled blacks, and then hiring outside consultants at double the salary of the old whites to do their jobs. (This helps black managers get huge bonuses for meeting their equity targets but cripples their enterprises.) It is true that Eskom has lost many skills but it still has enough to solve its problems if they are allowed to do so.

Actually most of Eskom’s problems are not technical but political. Its once excellent coal supply consisted of big coal mines run by the mining majors (‘white monopoly capital!”) providing the power stations next to them with cheap, consistent coal delivered on a conveyor belt. The ANC changed the coal procurement to crony BEE coal suppliers, running small mines far away from the power stations, delivering expensive, inconsistent coal by road truck, wrecking the environment as well as wrecking Eskom. Has De Ruyter the political clout to end this abuse? We shall see. And we need new stations but these must be chosen on rational economic and environmental grounds and not according to the dreadful IRP (Integrated Resources Plan).

At this week’s mining indaba in Cape Town, Minister Mantashe announced that mines will be allowed to generate electricity for their own use. This announcement is rather strange, since paper mills, sugar mills and Sasol plants, already generate electricity for their own use, but it is welcome nonetheless. Any company should be allowed to generate its own electricity.

Mantashe should go further. He should allow any private generator to provide electricity to anybody he pleases, including any private consumer, any municipality and even the national grid, providing only that he meets electricity regulations and sells into a competitive market. At the moment, no such thing is happening. At the moment, Eskom is forced to buy very bad electricity from IPPs (Independent Power Producers) at extortionately high prices. “Renewable” energy (which here means wind and solar) is very expensive for grid electricity all over the world.

Socialists say the state runs the economy best. The facts show them wrong. Overwhelmingly socialism has failed, ruining economies such as the USSR, Mao’s China, North Korea, Venezuela and Cuba. Capitalists say the private sector is best. Since I believe in the free market, I agree with them – but only 90% of the time. A rare example of where the state can be more efficient that the private sector is electricity supply. This is because electricity supply is capital intensive and the cost of capital for the state is always lower than for the private sector. Moreover, the state is content with a small return and a long payback period. This is why Eskom provided the world’s cheapest electricity until about 1994.

Privatisation is not a magic pill for Eskom. Nor is “unbundling”, which I was happy to see De Ruyter acknowledge, although it could have benefits. Nor, heaven forbid, are renewables. All Eskom can do, as De Rutter seems to acknowledge, is to proceed sensibly and cautiously, bringing gradual improvements, using rational judgement, forsaking miracles.

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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3 COMMENTS

  1. Well stated Andrew Kenny.
    I fully agree that if private generators want to enter the market and generate their own electricity that is all well and good. There is a need for business companies and people to be able to operate in a free market and not to be held to ransom by a monopolistic entity, as Eskom clearly is. The IPP construct was clearly a part of a well organised and planned extortionist plan to fund private companies with tax payers funds. It was clearly a scam supported by corrupt politicians that saw an opportunity to support a “special interest group” where there would be an opportunity of self enrichment. This renewable electricity scam is one such special interest group.

    Who are the actors in the scam of renewables? The corrupt politicians with a vested interest (directly involved or by corruption), the investors, the developers, the providers/suppliers of the wind and solar industries and also the advertisers and publications who advertise the so-called solution.

    The wind and solar ‘industries’ were built on lies and run on subsidies and the PPA’s are an example of the scale of the extortion by forcing Eskom to purchase electricity even if it cannot be supplies as and when needed. They are forced to by the electricity as long as an agreed quota is supplied. On top of this the IPP with the PPA obligates Eskom to buy electricity, what does this mean, an example would be that if an IPP produces electricity at midnight, Eskom have to buy it whether it is needed or not. The delivered renewable product is also not suitable for “Grid Stability”in reality due to the intermittent and unreliable nature. So it is in fact unreliable electricity.
    The fact remains that Electricity that can’t be delivered as and when it’s needed has no commercial value; massive subsidies and guaranteed prices are the only ‘value’ that attracts investors to wind and solar.

    What is worse is that the price increase is linked to CPI and not just on demand but are guaranteed for 20 years with a guaranteed to rise for 20 years. (protectionism) And a guaranteed return on investment for 20 years. What a bargain deal.

    To have an electricity supply that is dependent on the weather is absolute stupidity. It is patently obvious that we cannot even forecast the weather, or wind speed or sun intensity let alone control it. The currently being implemented “stability solution” is battery storage based on the the mythical notion of storing electricity in battery farms at grid-scale. This solution doesn’t alter that equation, it simply makes wind power even more ridiculously expensive, than it already is. With other despatchable forms it can be controlled and supplied on demand with a reserve for peak (if properly implemented and maintained).

    There needs to be a rule or policy or obligation for private generators to supply to the grid. This obligation that should form part of any purchase power agreement. The obligation is this: if you wish to sell power into the grid, you will have to guarantee a minimum level of supply and guarantee that minimum level of supply 24/7, and critically, that minimum level can be no lower than 80 per cent of the maximum amount of energy you will be permitted to sell into the grid.

    What the consumer and tax payer must understand, Consumers pay for the costs of maintaining two parallel generation systems. One reliable stable despatchable coal and nuclear generated electricity with peaking generation currently, as well as another non-despatchable, unstable intermittent weather dependent system with a sharp increase in the number of emergency interventions and subsequent increased costs to accommodate the intermittency and unreliability. Why must the tax payer and consumer be expected to fund two systems. One Eskom Government system and one Private Enterprise System.

    Simple change the “Obligation” of the IPP’s.

  2. _”De Ruyter has probably stepped into the worst job in South Africa”_
    Actually, it’s quite easy. Stick to the basics in running Eskom and end the patronage/cadre/tenderpreneur practices or resign if not allowed to.

  3. You say “Renewable” energy (which here means wind and solar) is very expensive for grid electricity all over the world.” That is not true. Renewable energy continues to get cheaper and cheaper. At December Richards Bay coal spot prices of about $75/ton and 435 kg coal/MWh produced the COAL COST ALONE works out to R0.47 per kWh. In September 2019 the City of LA signed a 25 year contract with 8Minute Solar Energy for 400MW Solar together with 300 MW /1200 MWh battery storage at a cost of US cents 3.3 /kWh. At an exchange rate of R15.5/USD this works out to R0.495 per kWh – marginally higher than the coal cost alone. (Medupi depreciation will add at least another R 0.2 /kwh + operation and maintenance costs – I have heard actual final costs as high as R1.80 /kWh for Medupi) Additionally the solar plant is scheduled to come on stream in April 2023. Medupi started construction in 2007! If Eskom could get a similar solar plus battery storage deal we would get out of the hole much quicker, without having to carry the construction risk of another Medupi or Kusile.

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