Could electric cars save Eskom from the utility death spiral?


According to recent media reports, Eskom may be in a worse state financially than was previously thought. The energy regulator, NERSA, blocked the above-inflation tariff increases the power utility had applied for last year, and it is now applying for an even larger increase. But a new technology could come to the rescue.

Roger Lilley

Following an appeal by the utility, the Supreme Court of Appeal overturned an earlier ruling which limited Eskom’s tariff increase to 2,2% and the repayment of a portion of the 9,6% tariff increase it had imposed last year. This means that the utility can increase its tariffs above 2,2% and will not be required to repay what it charged.

Despite this, the utility is apparently now requesting a 20% tariff increase from direct customers and 27,3% from municipalities.

The problem Eskom faces is its inability to sell all of the electricity it can generate. There has been a significant fall-off in demand and demand predictions for the years ahead only serve to aggravate the situation.

There is a technical term which economists use for power utilities which face the dilemma of producing more than they can sell: the utility death spiral. This occurs when the utility increases its tariffs to compensate for lower sales, only to find that customers seek other forms of energy, resulting in still fewer sales. This situation continues, with ever increasing tariffs and ever-decreasing sales until the utility ends up filing for bankruptcy.

But there might yet be light at the end of the tunnel for Eskom.

The South African government, in December 2015, made a commitment to reduce the amount of pollutants the country emits into the atmosphere each year. Besides coal-fired power stations, petrol- and diesel-powered motor vehicles emit enormous quantities of toxic gases into the atmosphere.

Interestingly, liquid fuels for transportation is presently a larger energy carrier than electricity.

Electric cars might be able to resolve two problems at once. Electric cars emit no dangerous gases, and need electricity to charge their batteries. Hence, electric vehicles would supply the demand the power utility needs to keep it sustainable while removing at least some of the pollutants in the air – especially in highly populated areas where poor air quality results in all sorts of ailments in people and animals.

A growing number of car companies already produce electric cars, which are more expensive to buy than a petrol or diesel equivalent at present. However, the government could assist in changing this by reducing the import duty on electric cars in order to promote the sales of these vehicles.

The equation is simple: the power utility will only survive if it can sell the electricity it generates and electric vehicles provide an additional demand for electricity. Tariffs could be adjusted again to reflect a more cost-related figure in the knowledge that demand would match supply.

Furthermore, the additional charging stations which would have to be built for these electric vehicles all over the country would be a stimulus for the economy, create employment opportunities and enable South Africa to achieve at least some of its environmental goals.

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Source: EE plublishers

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