Finding the way forward for South Africa’s electricity sector

In the midst of a “new dawn” of optimism in South Africa, the country’s leaders must focus on turning the country’s fortunes around.  Priority must be given to raising the economic growth rate.  All other issues are secondary.  The National Development Plan (NDP) has set a GDP growth target of over 5% per annum for the country to be able to meet its economic, social and political objectives. Only in this way can unemployment, inequity and poverty be reduced on a maintainable basis.

Rob Jeffrey

One of the key sectors is the electricity generating sector.  Electricity is necessary for economic growth. The country must reindustrialise.  The mining and the industrial sector have been static and shown little growth for many years.  Since 1986, the mining sector share of GDP has fallen from about 13 to just 7%.  The industrial secondary sector’s share of GDP has fallen from 30 to 19%.  These sectors also supply over 60% of the country’s exports.

South Africa needs to maximise sustainable electricity supply growth to support higher economic growth rates, particularly in energy intensive sectors.  Electricity generation must offer investors long term security of supply at the lowest possible economic cost.

Secondly, it is necessary to assess the country’s assets. South Africa has a treasure chest of natural, mineral and human resources.  Its commodities are still considered to be among the richest in the world. It has poor hydro potential and at this stage little gas or oil.

The country is richly endowed with the two most efficient energy storage systems namely coal and uranium.  It is estimated that the country has more than a trillion rand of each of these assets buried in the ground ready for use at low cost using human skills and abilities that this country already has in abundance.

Thus, the fundamental issue is to provide a reliable and secure supply of electricity at the lowest price to the economy to support reindustrialisation, mining, development and economic growth.

Eskom has a legal and moral obligation in terms of its mandate to supply secure electricity at the lowest possible cost to business to foster economic development.  Eskom’s image and reputation is tarnished.  However, it remains a jewel in South Africa’s asset crown.  It needs to urgently review its governance, management and strategic structures.  It should however be recognised as a key resource.  The power utility’s professional human resources remain, without question, leaders in their respective fields. They are the ones who kept the lights burning while facing many difficulties and challenges.

Eskom cannot remain the sole generator and distributor of electricity going forward into perpetuity.  In the foreseeable future, it must remain a primary supplier with a focus to supply secure reliable electricity at the lowest economic cost to industry and business.

It needs to be restructured into two or three entities focusing on generation, transmission and distribution.  All units should be set up as public-private independent enterprises.  It is essential to build a restructured utility, which with its parts, can fully meet its original primary mandate.

Business and government should work together to achieve this objective.  Independent power producers have an important role to play.  It is necessary that they become major efficient suppliers of electricity to the country with a growing market share.

The final requirement is to evaluate carefully the long term economic impact of the available alternatives sources of energy for electricity generation.  This requires a hardnosed economic assessment of the economic impact of current plans. This assessment should be based on the envisaged plans to completion over a full thirty-year period rather than marginal incremental impacts which do not reflect the true ultimate situation.  This is a major separate exercise and will become a key guideline to any strategy and plans to restructure Eskom and the energy sector.

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