Fixing the Eskom crisis: easier said than done

The Democratic Alliance (DA) issued a statement on Tuesday, 9 December 2014, in which it briefly outlined how it would deal with South Africa’s current energy crisis if it were in power.

Parliamentary leader for the party and the spokesperson quoted in the statement, Mmusi Maimane, also tweeted a social media-friendly image of the DA’s seemingly simple five-point plan to resolve South Africa’s energy crisis.

“Open the grid” is the second item in the DA’s plan, with the party advocating that independent power producers (IPPs) be allowed to contribute to the national electricity grid.

This might sound simple, and the DA made it sound as simple as President Jacob Zuma signing the Independent System and Market Operator (ISMO) Bill into law, but in reality opening the grid is a multi-year, technically, and politically challenging project.

To its credit, when challenged about this, a spokesperson for the DA conferred with their shadow minister for energy and provided a more detailed version of their plan to open South Africa’s grid to IPPs.

Open the grid: the bureaucratic challenges

“Absolutely this issue is far more complex than simply passing the ISMO Bill,” the DA said in response to MyBroadband’s questions.

It said that South Africa’s electricity sector sits with the challenge that Eskom has close on a vertically integrated monopoly in which it accounts for 95% of all generated energy, owns and operates the transmission grid, and accounts for about 42% of the distribution sector.

South Africa’s Energy Minister also has complete control over who gets to build future generating capacity, with decisions informed by the 20-year energy plan (IRP2010).

“These two factors combined mean that all competitive market forces are squashed and there is no real market for energy in South Africa,” the DA said. “In order to change this situation, a number of reforms will need to be instituted and the ISMO is only the first step.”

According to the DA, the ISMO Bill is needed to level the playing field for independent power producers, creating some of the conditions necessary to encourage them to invest.

“This is also vital because independent power producers who want to build a generating plant and contract with other companies to sell their energy are being charged exorbitant rates by Eskom to wheel that energy across the transmission grid,” the DA said.

However, the enactment of the ISMO Bill will not address the issues around the minister controlling who and what type of generating capacity is allowed to be built.

“So even if an IPP could get a fair price to wheel across the grid, they would still need to get a generating licence from Nersa [the National Energy Regulator of South Africa] that would depend on the Energy Minister giving a determination to that effect,” said the DA.

Opening the grid: matching rhetoric with a real plan

The way the DA said it would deal with the situation is to limit the reach of the minister and Department of Energy in terms of providing policy parameters.

Executing the energy plan would then become more of a technical function that rests with the Independent System and Market Operator, which would put out procurement for new energy generation technologies.

“Given the present controlled legislative environment, however, the DA would start the reform process which will take a number of years to fully institute based on an agreed upon end state for what we want a transformed electricity sector to ultimately look like,” the DA said.

While that process is going on, the DA would use the existing power given to the minister to launch a number of procurement processes for base load energy and cogeneration, and increase the funding allotment to the renewable energy programme.

The most competitive bidder with the lowest off-take prices would be awarded the licence(s) to build.

“We would also make it easier for IPPs to be licenced to build generating capacity, which it can then enter into contracts with energy-intensive companies to supply to,” the DA said.

Small-scale electricity generation

When it comes to households and companies that wish to install their own solar panels and feed their excess capacity back into the grid, a fresh set of challenges are presented.

“Municipalities own the distribution grids,” the DA said, adding that they fear the potential loss of revenue.

It went on to highlight that Cape Town, where the DA is in control of the local government, has introduced a feed-in scheme to allow residents to sell their excess energy from solar panels back into the grid.

“We would be looking at expanding this scheme into other municipalities, but to make it sustainable we will ultimately have to consider a different way of funding local government,” the DA said.

One more thing…

The other thing the DA said it would do is finally publish the Gas Utilisation Master Plan (GUMP) so that the government can give some certainty as to how it sees the future of gas in our economy.

“At the moment gas is given a very small share of new generation in the IRP2010, whereas the rest of the world seems to be rapidly moving in that direction,” the DA said.

It argued that investors are not going to put money into gas infrastructure unless they have certainty that the government sees it as a major potential energy source.

“That is why the GUMP urgently needs to be promulgated and the IRP2010 revised,” the DA said. “At the moment the minister is making decisions, like the nuclear programme, off an outdated energy plan which is supposed to be updated every 2 years.”

It has been 4 years since South Africa’s last 20-year energy plan was published.

“It is therefore clear that if we are bound by that plan, we will be making sub-optimal investments and those technologies that can provide quick solutions will be prevented from going ahead,” the DA said.

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