Lower power tariffs are coming

Dr Ben Ngubane.
Dr Ben Ngubane.

Johannesburg - Once Eskom had completed its two new coal power stations and paid down its guaranteed debts, electricity tariffs in South Africa would fall again, Eskom chair Baldwin Ngubane told a session at this week’s World Economic Forum on Africa in Durban.

“When the last new build in the 1980s was completed, prices came down dramatically. The current new build leads to higher tariffs, but we are confident that afterwards … we’ll get lower prices,” he said.

Inflation-adjusted power tariffs in South Africa did fall by about a third between 1983, when the previous phase of building new power stations ended, and 2008, when the current phase started. Since then they have risen by a third.

The session, on electrifying the African continent, largely dealt with the rise of private power producers and smaller-scale generation, with Ngubane being the dissenting voice on the panel arguing for large-scale utilities.

Senegalese President Macky Sall described his country’s experiment with independent private power producers, which started in 1998, as a success.

“They allowed us to no longer invest in production of electricity, but rather the distribution.”

Since then the country had increased its generation capacity by 40% and introduced a mix of generation technologies including renewables, said Sall.

“Solar is good for isolated areas with micro-grids.”

“In the next five years we will be able to talk about universal access,” he said.

He also echoed Eskom’s major emerging beef with the South African private renewable energy sector.

“Lots of countries are suffering under take-or-pay contracts,” said Sall.

“You have to buy it regardless of what you buy in reality.”

Jay Ireland, president and CEO of GE Africa, said more private power in Africa would require “much more” private financing.

“The key is consistency. We and the financiers want that,” he said.

“The whole chain, from fuel to consumer, must be investable and provide a return,” said Ireland.

He also argued for off-grid power infrastructure.

“You need big plants for urban areas and off-grid for rural areas. It does not make financial sense to run grids out there.”

He noted that South Africa is not comparable to other “electricity-starved” parts of the continent.

Eskom’s Ngubane talked up the integration of the regional power grid and the virtues of sheer scale.

“Economies of scale is what will reduce costs,” he said.

Eskom’s future plans included a connection to the Grand Inga Dam in the Democratic Republic of Congo and the Economic Community of West African States’ grid, said Ngubane.

He suggested that South Africa, and by extension Eskom, would lead a larger regional power system.

“The Southern African Customs Union (Sacu) works very well for our neighbours, it contributes a large part of their budgets. We should use that as a model for power,” said Ngubane.

South Africa manages the customs of most of its neighbouring states through Sacu and pays over a share of total customs duties according to a formula.

It relieves these countries of the burden of maintaining separate customs bureaucracies, but also effectively means they have no ability to use their external tariff for policy purposes – a power South Africa has harnessed to build its auto manufacturing sector.

The African Union and development finance institutions needed to back the project of continental electrification, said Ngubane.

South African power exports have surged since 2008 as the new build programme coincided with a massive drop in power demand.

In 2008, South Africa exported about R1 billion worth of electricity.

In 2016 this was R10 billion.

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