Public involvement and a different perspective on Eskom can help fix energy problems
With renewable energy an increasingly viable and profitable business, people and communities need the opportunity to invest in independent power producers
In the latter years of her life my grandmother had to have frequent visits to the doctor. While we lived in Cape Town, she lived in Johannesburg — an overnight bus trip to visit us. And so many of her visits were health or doctor’s visits.
There was only one doctor who could make her better, one Dr Coetzee. No other doctor. If we arrived at his rooms and there was another doctor in his place, with that doctor’s best science Makhulu would not get better. Not even with an injection, which was also an important health ingredient. The only way Makhulu would get better was if she was seen by Dr Coetzee.
I’ve been reminded of this because it was Makhulu’s birthday recently. Also, because of our government’s fixation on Eskom when thinking about energy. Like Makhulu’s insistence on Dr Coetzee, the government’s commitment to Eskom, rather than the many other ways we can effectively and developmentally meet our energy needs, fascinates me.
A look at the troubles Eskom is faced with should convince us that our perspectives about and obsession with Eskom need to change. Eskom’s debt now stands at nearly half-a-trillion rand. The question of whether Eskom will ever be in a position to pay this back without the government’s intervention cannot be avoided.
First, households and companies are increasingly coming off the grid. This means fewer customers will depend on Eskom in future. And customers tend to find alternative sources if companies prove to be unreliable. Further, the consistent price increases over time have made substitution compelling, including expected price increases, which Eskom cannot do without. And it is not only price increases Eskom needs to keep going, but sales.
In its financial results presentation Eskom revealed ambitions to grow ebitda – its sales and profitability – from R37.5bn to R45.4bn. In this vein, it showed that it had already secured additional revenue of R2.9bn in deals to sell an additional 3.5 terawatt-hours. As far as plans go, this is encouraging. However, one must at the same time consider lost revenues over this period. Load-shedding is not just a loss to SA’s productivity, but also sales at Eskom. Eskom cannot sell what it doesn’t produce. Disruptions in electricity production are disruptions in sales revenue. And we have been assured these disruptions will continue for some time.
Further, high-energy users are reducing their operations and thus their demand for electricity. For example, BHP, one of the world’s largest mining concerns and a major consumer of electricity, sold Billiton Energy Coal SA, the Hillside and Mozal aluminium smelters and its entire stake in Samancor, the biggest producer of manganese in SA.
Households are starting to find alternative sources of energy, and solar has become highly sought after. News of solar panel shortages was hard to miss as consumers scrambled to find other sources of energy. What this is telling us is that the rich are already switching, or at least supplementing their need for energy. What this also tells us is that renewable energy is an increasingly viable and profitable business.
Electricity generation contributes some 2% to SA’s GDP. There is an opportunity to reimagine and grow the sector to include people in a meaningful way. The first avenue is to give people the opportunity to invest in the production of their own energy. Through independent power producers, which the government has committed to support strongly, there should be a clear intention to include communities through stokvels (which sit on billions of idle cash) and other groupings to invest in these ventures. Previously, people have been led to invest their savings in BEE share schemes that have either failed or returned too little. Here there is a real investment opportunity.
This also means we can begin to include ordinary people when we think about investors in our economy, because they now have the capacity. Until now, risk has been a major inhibitor of investment of these group or communal savings. A guarantee structure by the government changes the game.
Second, as an economist I’m often asked how, in the tough times, people can tighten their belts. Renewable energy has the great advantage of stable and predictable prices. This will be a great reprieve for the many low-earning workers of our country.
Third, one immediately sees an opportunity to direct some of the people who may be displaced through the restructuring of Eskom towards retraining them to be technicians or administrators, or to have other skills in this new industry. The industry they will own. The Germans have achieved great success in building a competitive energy sector that delivers on economic inclusion, low-cost energy and environmental sustainability.
If we look at it this way, “privatisation” does not need to be such a swear word anymore. It will be ordinary people who own the reformed Eskom and not “white monopoly capital”. The devil will no doubt be in the detail of how the government plays its most important role, facilitating the process of allowing people to participate and prosper. There are already existing models, we need to rethink them and make them our own.
The department of trade & industry could and should be developing a strategy for how it will help communities and small businesses participate in energy generation, whether renewables or biofuels. This could be in the manufacturing of parts for solar panels, for example. In collaboration with the department of agriculture, as we begin to talk about land reform, the department of trade & industry should work on ways to support biofuels.
Lastly, there is another compelling reason why we should rethink the ownership of electricity production. Statistics from the Treasury tell us that municipalities are owed R21.5bn by consumers (as at December 31 2018), and they in turn owe Eskom some R17bn as at September 2018. It is not far-fetched to believe that if Soweto residents owned the electricity enterprise that supplies their energy, their payment profile would look very different.
We need to be less sentimental about Eskom. This is not an argument for privatising all state-owned enterprises. It is merely to say that if we are serious about economic inclusion, our ways of thinking must change.
• Payi is economist and founding director at Nascence Advisory and Research.