The end of Eskom’s 100-year monopoly

The signing of the Electricity Regulation Amendment Bill marks the end of Eskom’s 100-year monopoly in South Africa. Energy expert Chris Yelland says it is critical for the future of South Africa’s electricity sector.

Eskom was founded by Hendrik van der Bijl in 1923 with the backing of Prime Minister Jan Smuts. At the time, it was known as the Electricity Supply Commission (ESCOM).

Van der Bijl served as chairman at its inception, at which point it was a non-profit public utility.

He said the Electricity Supply Commission faces a great task and an enormous opportunity. “It will be our endeavour to play our part not as those who follow where others lead but as pioneers.”

“We will foresee the needs of a country fast developing and, by wise anticipation, be ever ready to provide power without profit, wherever it may be required.”

Van der Bijl and Smuts created the power utility to supply electricity throughout South Africa, particularly to mines, industry, and the electrification of the country’s railways.

ESCOM was a commercial success, paying back its state loan after ten years. Van der Bijl remained as ESCOM chairman until his passing in 1948.

Its success continued after Van der Bijl’s death. It became a world leader in electricity generation and transmission, providing South Africa with reliable, affordable electricity for 85 years.

It even won the Power Company of the Year at the Global Energy Awards in 2001, showing how great a power producer it once was.

However, through government mismanagement, Eskom’s workforce became bloated, corruption thrived, and it became known for mismanagement and malfeasance in the years that followed.

Over the last 15 years, Eskom has not always been able to meet electricity demand, and prices have increased rapidly. It has become a shadow of its former self.

Hendrik van der Bijl founded the Electricity Supply Commission (ESCOM) in March 1923.

Eskom has deteriorated to such an extent that the private sector had to take over its electricity generation responsibilities. This is what the Electricity Regulation Amendment Bill aims to achieve.

The National Council of Provinces (NCOP) passed the bill on Thursday, 16 May 2024, effectively ending Eskom’s 100-year monopoly.

Energy expert Chris Yelland said the bill is critical for the future of South Africa’s electricity sector.

“It’s not perfect, and it’s not what everybody would want, but that’s the nature of these things. I think it is certainly something that should be brought into law on a matter of great urgency, preferably before the election,” said Yelland in an interview with 702.

“Thereafter, things could become a little uncertain. It is something that is necessary to prepare the electricity sector for the future, and the future is one that is very different from the current monopoly,” he added.

If the bill becomes law, part of the process involves establishing an independent system operator to manage the transmission system and a market operator to introduce an open electricity market.

This is set out in the amendments to the Electricity Regulation Act, which provides guidelines for establishing a state-owned Transmission System Operator (TSO), which will, among other things, take over the responsibilities of Eskom’s System Operator.

“This is critical as we move away from a monopoly generator — Eskom — to a diversified and competitive generation sector,” said Yelland.

“This is necessary to attract new investment into the generation sector because Eskom doesn’t have the balance sheet or the money to do it.”

“It also establishes the transmission company as an independent company, free of the toxic debt burden of Eskom generation. That puts it in the position to raise capital.”

The TSO will be part of the National Transmission Company of South Africa, the unbundled entity tasked with managing electricity transmission. It will also manage contracts with electricity producers.

When the bill becomes law, the National Energy Regulator of South Africa (Nersa) will no longer be required to regulate pricing.

Instead, it will be responsible for setting and approving tariffs. These must allow licensees to recover their costs and earn a reasonable return.

Licensed energy providers may then compete with one another on end-user pricing, which Nersa will not set or approve.