South Africa’s severe shortage of electricity is threatening our economy and way of life. This is not an exaggeration. We must save our electricity system or South Africa will get stuck at our current level of development, no matter what else we try.
Here are the seven urgent steps needed to save the system, according Corporate Finance Consultant Dirk de Vos:
1. Electricity must get more expensive
Cheap electricity is over. Forever. We must pay at least what it costs to generate it on a sustainable basis.
2. Realise that Eskom’s problems started a long time ago
Eskom’s problems are not a recent phenomenon; it has always been inefficient. The cheap and abundant electricity of the past has always been funded by the taxpayer.
Even before 1990, South Africans consumed Eskom’s capital base through the lowest tariffs in the world and an unfunded electricity rollout programme.
Today Eskom is severely under-capitalised and over-indebted.
3. We must know exactly what’s going on at Eskom
Is Eskom being honest about the extent of its problems? Are they drip-feeding us little bits of bad news, because we supposedly can’t handle the whole truth?
We must know how much it will cost to get electricity generation back to acceptable levels. We must know and understand gridlock on coal supply agreements after 2016 and we must know the exact reasons for the massive cost over-runs and delays at Medupi and Kusile.
4. Make subsidies and developmental objectives explicit
Eskom should not have to fund things such as providing limited, free electricity; government must plan for this in its social welfare budget.
Municipalities must stop utilising enormous margins over Eskom’s electricity to fund various unrelated expenses. Energy efficiency won’t improve if local governments depend on consuming electricity for revenue.
Highly energy intensive industries such as aluminium smelting will have to close down.
5. Do no more harm
South Africa must become far less energy intensive.
Also, we simply must avoid any mega-projects such as a fanciful and unaffordable nuclear programme. We should rather incrementally build our generating capacity and get the private sector to participate so that they can shoulder the risk of delays and cost over-runs.
6. We need to solve this problem with the rest of Africa
Cheap South African electricity has inhibited generation in the rest of the continent, but this should start changing soon. Our neighbours might soon, for the first time, sell us something we actually need.
7. A last word
Our future prosperity is at stake. We should accept that we have adopted and invested heavily in the wrong energy generation model. Providing stop-gap funding to Eskom without addressing the root causes will not solve anything.
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This article first appeared on 702 : 7 steps to save our electricity system