The effects of power cuts on the South African economy are well documented. Businesses are struggling to operate as the power supply is constantly interrupted across the country. US multinational investment bank Goldman Sachs once described Eskom, the country’s debt-ridden power company, as “the greatest threat to South Africa’s economy.” The surprise announcement allowing up to 100 MW of private electricity supply without a license was greeted with open arms. The unreliability of electric power can now be alleviated, thereby relieving the economy. Below, freelance journalist Ivo Vegter notes that he “can think of many other areas where many competing private companies could serve the public much better than staid, dysfunctional, corrupt and bankrupt government monopolies ever could. “. This morning, an announcement that 51% of SAA would be privately owned echoed what Vegter says, with a move to get the state-owned airline back up and running. Listen to a BizNews Power Hour interview with Neal Froneman, the CEO of Sibanye who hosts private news on power generation. – Jarryd Neves

Surprise! The ceiling for private unlicensed production raised to 100 MW

In a shocking announcement yesterday, President Cyril Ramaphosa said the cap on private unlicensed power generation would be raised from 1 MW to 100 MW. This is great news.

When I started writing this column, it would be a furious denunciation of the Minister of Energy, Gwede Mantashe, for cling stubbornly to the notion that the country is not prepared to raise the ceiling for private sector electricity producers connected to the grid (“on-board”) beyond 10 MW.

Until now, the limit has been a measly 1MW, so anyone wishing to operate a generation capacity of more than 1MW, such as industrial cogeneration plants, must obtain a permit as if they were building a new plant. 4,800MW nuclear or coal. plant.

A draft amendment The electricity regulation law published by Mantashe on April 23, 2021 plans to increase this limit to 10 MW.

Private sector companies, as well as the Western Cape government led by the Democratic Alliance, had demanded that the cap be raised to 50 MW, instead.

How long do we have to wait?

It has been 13 years since the first power cuts hit South Africa. Until 2008, electricity production was on the rise. Since 2008, it has been steadily declining.

There is a direct correlation between energy consumption and a country’s economic performance. Not only that, there is a one-way causal relationship between energy consumption and real GDP, which means that increasing the availability and use of energy has a positive impact on economic growth, although the reverse is not necessarily true.

If we want South Africa to resume economic growth and bring it closer to high single-digit percentage levels that will reduce unemployment and poverty, we must have abundant, reliable and affordable electricity. There is no alternative.

Yet South Africa’s electricity supply continues to decline, despite an increase of more than five times in electricity tariffs since 2008. Eskom says they remain at least 30% too low and accuses 300 billion Rand of debt (nearly two-thirds of its accumulated debt of Rand 480 billion) on tariff deficits since 2010.

So here we are 13 years later. Eskom has two unreliable new coal giants that are not delivering the power they are supposed to provide. Eskom is the scene of a saga of corruption of epic proportions. Eskom has increased its workforce by 50%, despite the drop in production, and pays some of the highest industrial wages in the whole country. Many of Eskom’s most skilled and experienced staff have long since abandoned ship. And again, a third of Eskom’s total capacity is down, most of it unplanned, and we have severe blackouts as winter sets in.

It is not known if Eskom will ever be able to be repaired. Even if it is possible, it will take many years to refloat the ship. What we do know is that South Africa cannot afford to wait years for a miracle.

Surprise!

This makes Mantashe’s reluctance to raise the self-generation ceiling beyond 10 MW all the more confusing.

As energy minister, his concern should not be for Eskom, which would face competition from private generation capacities, but for the country’s electricity consumers, whether agricultural, industrial, commercial or residential. As it stands, even Eskom has supported calls to raise the cap to 50 MW.

While I was writing to denounce the honorable minister for having hampered the country’s energy future, the power was cut. Well it’s time for tea and toast… no wait, I can’t boil the kettle or run the toaster. Time for bread and water, while I wait.

At that time, an email arrived from the presidency, giving a generous 45-minute notice that President Cyril Ramaphosa would address the nation “live on all platforms” at noon.

When he did, the power was still off and my mobile network provider was no longer able to stream any video to your humble columnist. I had to follow a live blog, like we did 15 years ago.

Then the surprise. The ceiling had been lifted, but not at 10MW, or even at 50MW, but at 100MW. Up to 100 MW can now be produced privately, without requiring a production license. Well, that made old Mantashe bleed! And that spoiled a perfectly good rant on my part, to boot.

To put this in perspective, a 100 MW power plant is equivalent to about 50 wind turbines on an industrial scale. Even more, if we consider that their efficiency factor is at most around 50%, and often closer to 30%. South Africa’s largest solar power plant at De Aar has a nominal capacity of 175 MW. The largest solar power plant in the country in terms of actual electricity production (thanks to integrated thermal storage), is the 100 MW Redstone plant, who has just started construction.

Companies that generate up to 100 MW of electricity will also be allowed to transmit electricity, for a fee, over the Eskom grid to customers, provided they do not charge those customers more than Eskom. would not have.

This restriction is the major flaw in the new rules. There is no reason to cap the prices of private power producers. Producers should have the right to charge whatever they want. If they want more than Eskom’s charge, they could add the sweetener that their super luxury electricity comes in without the risk of regular and frequent load shedding.

Either way, competition erodes high prices. The cure for high prices is high prices, not price controls.

Whether customers choose to buy reliable but expensive electricity or unreliable electricity at reduced prices is not the government’s business.

Ambitious and daring

Despite all the hot air our dear father figure emits when speaking to his children, it’s hard to argue with Ramaphosa’s statement that “[t]his intervention reflects our determination to take the necessary measures to achieve energy security and reduce the impact of power cuts on businesses and households across the country ”.

The President said: “This measure will be crucial in developing a sufficiently ambitious, bold and urgent response to the energy crisis.”

Only time will tell if that will be enough, but he is certainly bold and ambitious. This paves the way for the construction of a large reservoir of decentralized, distributed and private generation capacity, supplying industrial, commercial and agricultural users as well as municipalities.

A vibrant network of small private generators will go a long way in building what Nassim Nicholas Taleb calls an anti-fragile power system, more tolerant of localized breakdowns, breakdowns and maintenance. It should also give Eskom some breathing space to revitalize its own fleet of aging and struggling generators.

Despite all my cynicism about the icy pace of reforms promised by Ramaphosa and his enduring loyalty to the socialist cause, this is a big step in the right direction. It implicitly recognizes that the private sector can and should be allowed to come to the aid of long-suffering citizens burdened by the failures of public enterprises.

Hopefully this recognition is more than a one-off call from a desperate government in the face of a crisis of its own accord that it is unable to resolve on its own. I can think of many other areas where many competing private companies could serve the public much better than staid, dysfunctional, corrupt and bankrupt government monopolies could ever.

South Africa’s free enterprise and general prosperity will be all the better for it.

  • The writer’s opinions are not necessarily those of the Daily Friend or the IRR
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  • Ivo Vegter is a freelance journalist, columnist and speaker who enjoys debunking myths and misconceptions and approaching topics from the perspective of individual freedom and free markets. As an independent researcher, he is the author of the recent report of the Institute of Race Relations (IRR) – South Africa’s Minibus Taxi Industry, Resistance to Formalization and Innovation – which assesses the potential for innovation and modernization in this sector. vital transport.

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