By Glenn Ashton · 27 Jan 2010
The ongoing public debate about electricity price hikes raise questions about how our national energy policies are decided. Public interaction with the National Electricity Regulator of South Africa (NERSA) cannot yield expected results, as NERSA is little more than a messenger and not the framer of policy. The real problems revolve around the relationship between Eskom, the state and the ruling party and the degree of influence that our electrical generation behemoth wields.
The relationship between Eskom and the state runs deep. It was initiated when the Smuts Government created the Electricity Supply Commission (Escom) in 1923. Escom was directed to provide cheap, abundant and reliable power to government departments, railways, harbours, local authorities and industry. Escom operated efficiently for decades, but its policies and practice are now stultified and outdated.
Renamed Eskom in 1987, it remains a parastatal public utility. As such, it is indivisible from the state. As we shall see, this is a fundamental weakness. As a monopolistic industry it dictates the rules regarding competition, while also holding the whip hand in controlling and shaping national energy policy, such as the dismally failed PBMR that has cost it - and us all - dearly. Through its management and maintenance of the transmission infrastructure it is able to actively prevent open participation in the power market.
Given our recent history with power supply shortages, Eskom appears to be the natural place to seek solutions. Instead Eskom has perpetuated our problems. It has shown itself unable to devise creative solutions or to clearly analyse shortcomings in state energy generation policies. It has become a poorly run utility, lacking vision.
In crisis it has instead turned to solutions such as reducing demand through 'demand side management', long touted by civil society and public commentators as providing cost effective alternatives to building more expensive capacity. Eskom's panicked subsidisation of compact fluorescent light bulbs, gas stoves, solar water heaters, blankets and timers for geysers is palpably too little, too late.
The primary reason that Eskom never embarked on demand side management is because it is a utility whose primary objective is selling as much of its product as possible and which had, until recently, excess capacity it wished to utilise. It had no interest in reducing demand and consequently lacked strategic vision.
The cut-price contracts given to overseas aluminium corporations soaked up our excess capacity that clearly exposes Eskoms short-term planning and lack of vision. The reality that aluminium refineries now consume nearly 10% of Eskom's total generating capacity, while providing only a few thousand jobs and limited revenue to the national fiscus, illustrates how this one-sided deal primarily benefits aluminium producers at our expense.
Hocking our power generation capacity to corporate entities at utterly unrealistic prices, estimated (Eskom obdurately refuses to disclose contract prices) at a quarter of the price that domestic consumers now pay for electricity, underlines the extent to which this decision runs counter to the national interest. It is akin to enticement.
Eskom's pervasive influence on national energy policy, its monopoly over transmission and nearly all generation, emphasises how the quasi-corporatisation of Eskom has changed it from its initial role of a utility to that of a profit-driven monster operating against the national interest.
This is perfectly illustrated by Eskom's interference in the solar water heating industry. Through its demand side management policies it has, with state blessing, instituted a putative subsidy system to supposedly encourage the uptake of domestic solar water heating. While this appears good on the surface, examination of the real effects illustrate a more sinister reality.
The first year of this subsidy programme resulted in the installation of just over 1000 solar water heating systems, by all accounts a dismal failure. This number would probably have been exceeded had the 'subsidy' not been in place.
An examination of the numbers shows how the subsidy system has had a sharply inflationary effect on solar water heating systems in South Africa. Under the Eskom agreement, each complete system must be SABS tested, costing approximately R35,000. Given that at least 135 different systems have been tested, the direct cost of this testing alone has added at least R4.7 million to the cost borne by the solar water heating industry.
To this amount, add substantial administration costs, both by installers and Eskom, an insistence on expensive compliance with ISO checklist practices and many other additional costs. This programme therefore increased the price of each system installed in the first year by an average of at least R5,000 each. This conservative estimate could be easily double, and ongoing costs continue. It excludes Eskom's doubtless substantial administration costs, auditing programme, and advertising, not to mention the loss of electrical revenue.
Clearly this supposed solar subsidy system has cost all parties dearly. We have failed to examine how Australia, New Zealand, China, the US and the EU have all succeeded in solar heating rollout, while we have spectacularly failed. But this is not the end of it.
Many of the SABS tested solar systems use identical hot water cylinders made by local manufacturers, several of which have now been tested tens of times. The profit oriented focused SABS is smiling but the solar industry is not. The same applies to many of the solar heating collectors. Instead of establishing the efficiency of each cylinder and each solar collector individually, giving a rating to each and then providing a flat rate subsidy on that basis, as is best practice elsewhere, Eskom and the SABS have undermined the solar water heating industry at every step. 'Unsubsidised' (read 'not artificially inflated’) solar water heating remains significantly cheaper than subsidised systems.
The government is about to release its national solar water heating strategy and implementation plan, which will build on the Eskom solar water heating rollout. This strategy has been rushed through without adequate consultation. Its draft contains appalling misconceptions about our local solar water industry.
For instance, it repeats the baseless assertion that we have inadequate capacity to roll out solar water heating in South Africa. The fact is that we have plenty of capacity to supply local cylinders and collectors, if the government supported instead of undermined renewable power supplies through accepting Eskom’s negative assertions about renewable energy.
Eskom habitually rejects ‘renewables’ through the deceptive practice of externalising the true costs of conventional energy and failing to account for its inflationary fuel costs. The real costs of waste management, air and land pollution and health impacts from fossil and nuclear energy sources are always excluded when calculating power generation costs. The impacts of mercury on people, land and fish from coal power are externalised. The pollution of water sources by coal mining is ignored. Were all these costs included, renewable energy would be seen to be more than competitive yet the reality is hidden behind falsified statistics and incomplete accounting practices.
At the heart of the problem with our energy supply lies the relationship between Eskom and the state. The latter is indivisible from the government of the day, run by the ANC. It is, sadly, all profoundly reminiscent of the corrupt National Party, which also benefited from its incestuous affair with Eskom.
Party cadres are instrumental in deciding the energy procurement process, which has undermined transparent tendering. The relationship between the ANC, Chancellor House and Hitachi, the supplier of generation systems for the new coal fuelled stations, is unacceptably murky. And just why are these new power stations costed at three times the amount of similar plants elsewhere in the world? Who pays? Us, the people.
Behind this mess, lies the King Kong of party political funding and crony capitalism. Until such time as spotlights are focussed on this beast, and proper public scrutiny applied, we the public, rich and poor alike, will be endlessly shafted by the evil axis of power producers allied to those who hold the reins of political power.
The nightmare of our frayed energy policy must end. Eskom must be held to account, not through the lame duck of NERSA, but directly through the legal system and active application of the Public Access to Information and the Public Access to Justice Acts. Urgent public oversight is required through these legal mechanisms.
The ruling party must be interrogated as to exactly what is going on in Chancellor House, and how political cronyism threatens national energy policy and practice. The pathetic sideshow and internal squabbling around immature reactions to personal critique diverts attention from matters of governance.
The funding of all political parties must be opened to scrutiny. The cancer of party political funding, both within the ruling party and the official opposition must be excised. The arms scandal is small change compared to the potential costs of the looming energy scandal.
We have seen our electrical power go from the cheapest to in the world to where it will soon be the most expensive in less than a decade. Is this leadership? Is this visionary? Is this being interrogated by the opposition? No to all of the above.
At the heart of this lies Eskom. It is the problem and not the solution.