Energy experts say Eskom must go

Buckling under the weight of debt, Eskom – as a national generator and distributor of electricity – is the biggest stumbling block to developing affordable, clean power in South Africa, and it should be unbundled.

This was a broadly consensus view among financiers, business owners and energy experts at the African Utility Week conference in Cape Town this week.

Professor Anton Eberhard, the head of the infrastructure reform and regulation management programme at the University of Cape Town’s Graduate School of Business, said: “Take transmission away from Eskom and put it into an independent transmission and market operator. This could be a subsidiary of Eskom initially, as a first step.”

Under disgraced former Eskom CEO Brian Molefe, the power utility for more than two years delayed its mandate to sign off on 27 renewable energy initiatives worth R56 billion, arguing that it didn’t want to buy electricity it was able to generate more cheaply with coal.

This argument, however, has been criticised as not taking into account the cost of power station builds, or, argue environmentalists, the costs of pollution from coal. Furthermore, technological advances have seen the price of wind and solar power drop by 50% and 80%, respectively, in South Africa since 2011, while Eskom currently seeks a 35% increase in power prices to allow for cost recoveries of R6.6 billion.

Energy Minister Jeff Radebe this week said: “The Independent Power Producer (IPP) programme provides much needed competition in power generation with the view of providing lower prices to the economy, but, most importantly, to indigent households.”

But as the main generator of power, as well as the owner of the transmission grid that it has to pay IPPs to feed into, Eskom remains the player and the referee in the power sector.

Soumya Bannerjee, principal infrastructure investment officer at the International Finance Corporation, said that it was “absolutely criminal” to deny the private sector access to the only well-connected grid in sub-Saharan Africa.

“Use it and pay your charges,” said Bannerjee. “You have to free up generation, you have to let the private sector in.”

He said that if the right environment for the private sector to invest in IPP projects was created, “there would be a deluge”.

Gqi Raoleka, the managing director of Pele Green Energy, said that, despite the signing of the latest round of IPP agreements this year, Eskom remained one of the risks investors faced.

“After experiencing three years of no movement, can we rely on knowing Eskom, which is the single buyer, won’t find another way to stop the buying programme?” he asked.

Raoleka said the risk surrounding Eskom made raising the R2 billion to R3 billion capital finance for an IPP project more difficult, particularly for black-owned IPPs such as Pele, which were at a disadvantage when it came to raising debt. In this way, Eskom was also responsible for stymying transformation in the renewable energy sector. “This is also why there are not more black-owned IPPs,” he said.

Eberhard said: “There’s a definite shift to smaller projects,” with “significant activity” in Uganda, Ghana, Kenya, Namibia and Senegal, as well as the success of the IPP programme in South Africa.

In many countries, renewable energy was now the cheapest source of grid-connected power, he said, and this “will have profound impacts on how utility systems grow in the future. We’re on the brink of revolution around this in South Africa.”

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