Should Eskom be restructured and if so how and when?



An open public debate, attended by approximately 250 people in Midrand recently, discussed various options on the future of Eskom. A vote at the end of the debate showed that 70% of those present voted in favour of a deep and decisive restructuring of Eskom, while 14% voted that the power utility should continue in its present form and structure.

Chris Forlee

The event was held at Axiz’s auditorium in Midrand. It had been organised and hosted by EE Publishers with the South African Institute of Electrical Engineers (SAIEE), Business Day and Axiz as co-hosts and sponsors.

Three energy experts, under the chairmanship of Chris Forlee, the CEO and full-time regulator member of the National Energy Regulator of South Africa (NERSA), offered the audience three different options regarding the future of the state-owned power utility, Eskom.

In his introduction, Chris Yelland, the MD of EE Publishers, said that the purpose of the debate was to consider the wide a range of options for the future of Eskom; to listen, discuss and participate openly on a key issue facing South Africa, and to air the issues through open discussion and debate.

He said the objective of the debate was to enable attendees to make up their own minds on the subject and to encourage constructive engagement without being seen as an attack on Eskom.

Chris Yelland

Yelland said that the presenters spoke in their personal capacities, and did not necessarily agree with the generic motions. The debate was an exercise in open, transparent, participatory democracy on a subject of deep interest and concern within Government, the DoE, DPE, Eskom, the financial and business communities, the energy sector, the electricity supply industry, commerce, industry, civil society and the general public, he said.

Motion 1: No restructuring/status quo, i.e. to retain the vertically integrated monopoly as is

This motion was presented by Frans Baleni, the deputy chairman of the Development Bank of Southern Africa, and former secretary-general at the National Union of Mineworkers (NUM).

Baleni said that Eskom, as a vertically integrated, state-own entity, has served South Africa well, provided electricity at competitive rates for many years and aided in the country’s economic development.

The utility, which sells electricity to municipalities for distribution to users, even supplies those users directly which municipalities cannot, or do not want to serve.

Frans Baleni

The utility, Baleni said, has been a major player in the rollout of increased electrification – especially for low-income communities, and is a sought-after employer.

It has a reliable fleet of generating assets, he said, a far-reaching transmission and distribution network and offers significant skills development opportunities to the local industry.

According to Baleni, Eskom, despite recent challenges – including poor financial performance resulting in part from poor debt recovery and ill-advised management decisions – ranks among the top seven utilities in the world.

Instead of restructuring the power utility, Baleni said, the organisation should be stabilised to improve investor confidence.

This, he said, will be a far cheaper and quicker solution to Eskom’s problems. He suggested the following steps be taken to stabilise Eskom:

  • Deal with governance issues: Appoint a CEO and high competent executives who have a strong sense of ethics and integrity
  • Deal with corruption issues: Introduce a transparent and reliable procurement system.
  • Focus on business performance: Address primary energy supply and tariff increases.
  • Investment: Focus on building investor confidence.
  • Customer service: Play a bigger role in areas where municipalities are unable to provide adequate services.

Motion 2: Shallow restructuring/status quo but with increased public participation

Nelisiwe Magubane

Nelisiwe Magubane, a non-executive director of Eskom and former director-general at the Department of Energy, said that to obtain the desired result of any action, one must keep the end-point in view. She said the country must identify its priorities for socio-economic success, seek the most appropriate model for it to meet those objectives and understand how the electricity sector can ensure long-term socio-economic success.

She said that a transformed electricity sector must resolve issues of inequality, making electricity affordable for all. Energy-sector evolution, Magubane said, must involve public participation and innovation in an enabling environment with sustainable skills, drive and financial astuteness.

It is vital, Magubane said, that Eskom and municipalities work together to improve efficiencies, use modern technologies such as smart grids; seek financial assistance to make cheap, reliable electricity available to everyone – which could include localised electricity plans; and address legislative roadblocks which delay or impede progress. This, she said, can only happen under strong and decisive leadership.

Magubane added that the impact on communities which mine or transport coal must be considered when newer generation technologies are introduced. The long-term solution to this is a reskilling programme, she said.

Motion 3: Deep restructuring of both Eskom and the electricity supply industry

Dr Grové Steyn

In his presentation, Dr Grové Steyn, an infrastructure and regulatory economist, and a director at Meridian Economics, said that Eskom’s institutional structure, which was initially established 95 years ago, has outlived its usefulness. He said that for South Africa to address the environmental imperatives in the power sector and embrace technological disruptors, the country must accept institution change including the restructuring of Eskom and the opening of the power supply market.

Dr Steyn said that when Eskom was established, the burning of coal was the best and most efficient way of generating the heat needed to produce steam to drive turbines for electricity generation. This is no longer so, he said. Furthermore, economies of scale meant that large, centralised power stations with electricity transported at high voltage over transmission lines was the best solution. Again, he said, this is no longer true.

The sheer size and scale of these centralised coal-fired power stations made them expensive to build and operate. This, together with the economic need for power to be available nationally, made a state-owned power utility a logical option.

However, according to Dr Steyn, by the 1970s the concept of electricity generation being a state-owned monopoly was beginning to show problems. Large power stations, some of which were built according to inaccurate demand data, were being built at far higher than budgeted costs, and taking longer too. This lead to surplus capacity and stranded assets. The power utility “mothballed” some of its power stations to curtail costs, but then, being unable to meet demand, reduced maintenance to keep the power stations running, which resulted in equipment failures resulting in extended outages and scheduled load-shedding.

Using graphs, Dr Steyn showed how, in 1978, Eskom’s cost of generating electricity peaked by over 60%. It slowly reduced again but has increased dramatically every year since 2008 to almost three times its 2002 level. The current new-build power stations, Medupi and Kusile, are both seriously over budget – both will cost twice the budgeted amount – and are years overdue.

According to Dr Steyn, ensuring minimal air pollution makes coal-fired power expensive in terms of human lives. Without sophisticated and expensive cleaning equipment, the high levels of CO2 and particulates which are expelled into the air from power station chimneys is responsible for the premature deaths of about 2200 people each year. Further to this is the ever-increasing number of cases of asthma and bronchitis in adults and children who live near these power stations.

Modern alternatives to coal-fired power are less harmful to the environment, offer cheaper electricity and can be erected near to the load, reducing transmission losses and costs. These modern generating technologies also offer greater opportunities for public investment, relieving the state of the economic burden and risk.

Modern, renewable-energy technologies, combined with new energy storage techniques, make complementary dispatchable mid-merit resources available, Dr Steyn said. For these new developments to be embraced, a new structure for the power system will be needed.

The power system should be redesigned with a separation between generation and transmission of electricity. The ideal solution, Dr Steyn said, is to establish an independent transmission system and market operator (ITSMO) which will, among other things, resolve the inherent conflict of interest arising from Eskom as both generator and distributor of electricity.

Dr Steyn said that Eskom’s transmission group should be set up as an independent, state-owned, ITSMO. In the meantime, the group could become a subsidiary of Eskom with an independent board. He said that municipalities and large users should be free to choose their energy supplier; that generation projects below 10 MW should be deregulated and the Department of Energy’s integrated resource plan (IRP) should be updated regularly offering non-binding policy guidance.

Conclusion

Following the presentations, a vote was taken which revealed the following results:

  • Motion 1: Status quo:  14% of the audience voted in favour of Motion 1
  • Motion 2: Shallow restructuring: 16% of the audience voted in favour of Motion 2
  • Motion 3: Deep restructuring: 70% of the audience voted in favour of Motion 3

With 70% of those present voting in favour of the third motion – a deep and decisive restructuring of Eskom – it seems clear that the future of the country’s state-owned power utility will come under more serious review if the proposals made at this debate are taken to heart by the authorities.

While we are not suggesting that the voting outcome after the debate in any way represents the views of the broader citizenry of South Africa, we do believe it fairly represents the mood and views of the overwhelming majority of the audience present, who attended the debate and heard a wide range of argument for and against the various motions.

The audience comprised a broad range of participants in the public and private sectors, including government, Eskom, municipal distributors, the financial and business communities, the energy sector, the electricity supply industry, commerce, industry, civil society and the general public.

As such, we truly hope that the powers that be within the Eskom Board, DPE, DoE and Cabinet have listened closely to the arguments presented at the debate, as well as the outcome and overwhelming consensus on the need for deep restructuring, not only of Eskom, but of the whole electricity supply industry.

Send your comments to energize@ee.co.za

 

 

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Source: EE plublishers

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