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Punishing consumers

By unknown | Apr 11, 2008 | COMMENTS [ 0 ]

The cost of producing electricity has doubled because the government failed to fund new power stations 10 years ago.

The cost of producing electricity has doubled because the government failed to fund new power stations 10 years ago.

So South Africa must double its generating capacity by 2025 because Eskom has decided not to buy it from the Democratic Republic of Congo (DRC).

Damming the Zaire River will allow the DRC to generate all the power we would need. And it could be shipped to us at 2,5c a kilowatt-hour, about a tenth of what it costs to produce electricity from our cheapest coal-fired generating stations.

President Thabo Mbeki has apologised for the government's mistake, but Eskom wants consumers to pay the additional costs of producing 20percent of its power because of gambles it lost. That fifth of our power costs 10 times more to generate than conventional electricity.

Lest we forget the consequences of not pandering to its demands, the national power utility implements punitive "pre-emptive load shedding" while it takes its generators down for maintenance before winter. Blame this chaos on ill-conceived transformation.

Eskom produces and imports almost 40000 megawatts of power and distributes it to mines and other heavy industry, businesses big and small, municipalities and households.

All these sectors have thrived in the democratic dispensation and have placed demands on the national power grid that not even the most forward- thinking politicians, economists and technocrats anticipated. And with the benefit of hindsight, precious few of those stood up to raise a warning over the past 15 years.

Most of Eskom's power comes from cheap, but dirty coal-fired plants in Mpumalanga. The erratic Koeberg nuclear plant also pumps 1800 megawatts of power into the national grid when it is not down for repair.

We have this power thanks to the apartheid government. Blinded by a vision of industrial growth it could never achieve, it built far more generating stations than the country needed. That left the country with a surplus of cheap power. Many of the older, less-efficient plants were mothballed in the 1980s and these white elephants became symbols of the folly of over-investing billions in surplus capacity that a struggling economy could not use.

But it all changed when the ANC government took over in 1994. The economy burgeoned. The new government was so intent on transformation that it was loath to spend the taxes that came rolling in on the back of its economic successes for roads and power.

Eskom warned the government in the late 1990s that demand for electricity would exceed supply by 2008. But the inexperienced cash-flush bureaucrats preferred to spend the nation's wealth on social, rather than civil engineering.

They concocted a plan to privatise the energy industry, but no profit-hungry capitalist could be lured to invest in expensive new power plants. Why? The government's economic and social development plans required operators to continue providing power at the lowest prices in the world.

So as the economy bloomed, we used up the capital investment bequeathed by the apartheid regime and spent little on maintaining the systems that keep the economy afloat, such as road, rail and power networks.

Eskom lumbered on producing the cheapest electricity in the world while investing barely nothing for future needs. The government was warned again and again that the electricity that powered the boom was running out - but no one did anything about it.

Six years ago, the message started hitting home. Plans to privatise power generation and distribution were quietly shelved or cut back. Three of the old mothballed plants were called back into service at a cost of billions and years of heavy engineering. They are only now beginning to service the national grid and their refurbishment will be completed only in 2011 or 2012.

Two modern coal-fired plants being built in Limpopo and Mpumalanga will only come online between 2012 and 2016. Two small diesel-fired plants were built in the Cape to supplement demand at peak hours. But in the current crisis they have been running 12 hours a day. Problem is the power they produce costs at least R2,50 a kilowatt-hour, 10 times more than coal-fired plants. So every 1000 megawatts they produce costs as much as 10000 megawatts from coal, or a quarter of the national supply.

Eskom wants us to pick up these costs. So too with the additional costs of its short-term coal contracts, which are coming in at eight to 15 times the price of its long-term contracts.

Traditionally, coal-fired plants were tied to neighbouring collieries. Eskom signed contracts with the neighbouring mine to supply it with fuel for the life of the plant. In the past year these 30-to-40-year contracts ran at about R80-plus a ton.

But the price of coal is linked to the price of oil, which is skyrocketing. As India and China blossomed they scoured the world for coal to power their ever-expanding fleet of generating stations. That demand has in the past few months pushed coal prices to somewhere between R800 and R1100.

Eskom buys 20percent of its coal on the short-term, or spot, market - just as prices are going through the roof. So one-fifth of its supply now costs roughly 10 times more to produce than the rest. And it wants consumers to pick up that bill too. The tariff hike has little to do with the cost of financing Eskom's R1,3 trillion development project, but more about us picking up the bill for lousy planning.

And what about importing cheap power from DRC? That 40000 megawatts is equal to the capacity Eskom plans at a cost of R1,3 trillion by 2025. And the price is one tenth of what we used to pay. Won't happen, says Eskom, it's too risky relying on foreign suppliers. It wants its own plants and charge us through the nose.


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