Eskom’s former CEO, Jacob Maroga, private sector energy expert and regular contributor to public debate on South Africa`s energy situation in conversation with civil nuclear engineer, Hugo Kruger. Jacob Maroga joined Eskom in 1995 in the distribution technology sector. His deployment was to lessen the cost of electricity connection to remote rural areas. He was made CEO of Eskom in 2007.
“Eskom has been a key pillar of the industrialization of South Africa”
Eskom is over 100 years old and back in 1910 and the Union of South Africa the thinking was: to drive an industrial base you need cheap energy, cheap transport, cheap steel. Eskom was created to power the success of mining.
The idea of privatizing the energy sector goes back to 1998
In 1998. the Energy White Paper was produced. This paper was along the lines of energy policies of Britain and Europe: separation (now called unbundling) of distribution, transmission and generation. In other words, privatization. This is when the first ideas started of private sector contribution to energy generation.
Editor`s note: 1990s start of global trend of neo- liberalism /privatization/globalism/increased corporate power
However, cheap electricity is not a motivation for investors.
At that time South Africa had excess capacity because the coal plants were already paid for that is how the electricity could be made cheap to customers. However, the future has to be paid for i.e. new power plants.Eskom could not get private sector investment at the time so it was instructed to go ahead and build the new plants: Medupi, Kusile and Ingula
[Medupi is a coal-fired power plant with a capacity of 4764MW, Kusile is a coal-fired power plant with a capacity of 4800MW, and Ingula is a pumped-storage hydroelectric power plant with a capacity of 1332MW.]
How Eskom collects payment from customers is via municipalities. Debt of municipalities is directly linked to Eskom`s debt i.e. municipalities have not been paying up.
In the past most municipalities had their own power stations ( for example Kelvin Power Station, Johannesburg, which is still owned by the municipality and not owned by Eskom). Eskom powered industry and municipalities powered residential and commercial.
There then arose the situation where Eskom had excess capacity and it then offered to supply the municipalities with cheaper electricity which resulted in the closure of most municipal power plants. Non-payment has now become a big issue for Eskom as municipalities struggle with debt.
Currently around 40% of Eskom`s customer base is from industry, 40% from municipalities and 20% from direct commercial customers such as farmers. After the end of apartheid in 1994, Eskom also took on as direct commercial customers (direct provision of electricity) some of the townships such as Soweto. Non payment from the unemployed and households who are severely struggling financially is a sensitive social issue. How can you demand payment from household with little or no income when the Constitution states everyone has a right to live in dignity.
In addition to the social issue of poverty there is a problem of management within many of the municipalities of which there are over 250 in South Africa.
As recently as 2002/2001 Eskom was not obliged to pay tax
Eskom Act of 1922 stated that Eskom will provide electricity to wherever it is needed not for profit, nor for loss.
It was designed to break-even but also put aside money for future new power plants. Eskom succeeded at this right up until 1985 and the De Villiers Commission.
1970s the economy was booming with gold, minerals, commodity prices up. 1980s global economy tanked.
The De Villiers Commission advised Eskom to stop its policy of incorporating into its budgeting, money for future power plants. De Villiers Commission advised Eskom to become a corporate entity like any corporate entity and not to budget for the long-term. This was advised so that Eskom could reduce the price charged to customers in order to adjust the economic slump.
So the issue of how to fund new power generation is the issue South Africans are still trying to solve! And it is because Eskom had to divert money to Kusile and Medupi that the maintenance and infrastructure budget suffered. In 2007, the funding model for the new generation power plants was not quantified, the budget had not been set aside and the government would not agree to funding from increasing tariffs. Big disagreements between Eskom and the regulatory authority NERSA ( National Energy Regulator of South Africa). Ultimate result harmful impact on foreign investment in South Africa.
NERSA was created as the regulatory body in 2003/2004. It assumed roles previously held by Eskom. At odds ever since. However, it is not NERSA`s fault. NERSA is a system designed for countries that have private sector players. Eskom, as the investor, should have been in the position to stipulate that it lacked a clear funding model for the new builds and therefore was not going ahead with them. Eskom was instead compelled to proceed by NERSA.
Going Forward: how to solve load shedding:
poor performance of the current Eskom fleet. Fix coal fleet, build nuclear . Keep coal for stable baseload . Increase renewables – way of using carbon credit and beneficial from a trade risk perspective. Balance in the mix.
Hugo: How affordable are renewables in areas where distance of transmission lines is vast. Who pays ?
European countries do not replace coal with renewables as South Africa is being told to do, they replace with natural gas.
Hugo: South African water crisis can be solved with de-salination by nuclear. Water companies have the SAME problem as Eskom : regulatory framework blocks development and investment.
Phase out coal with natural gas and then look at using the gas infrastructure for green hydrogen. However green hydrogen is not energy dense therefore inefficient and requires abundant water which South Africa does not have.
Hugo: A non-aligned energy strategy
Source: Hügo Krüger