Energy security will require reform, not tariff hikes and bailouts

6 July 2015

Just before the outbreak of the First World War, Winston Churchill – who was then First Lord of the Admiralty – took the bold decision to change the source of power of the British Navy’s ships from coal to oil.

His plan was to make British ships faster than the German ships, but this meant giving up the stable and secure supply of Welsh coal in exchange for risky oil from the Middle East. When asked how he intended to maintain energy security, given the huge risks, he said: “Safety and certainty lie in variety and variety alone.”

Today, when it comes to our own energy security, that same principle should apply. The best way to ensure that you remain energy secure is to obtain your energy from a diverse range of sources, because it mitigates against possible disruptions in these sources. This is good for consumers and it’s good for the economy.

However until now, our government has decided to do the exact opposite by keeping all their energy eggs in one basket called Eskom. And not only have they relied solely on Eskom, they have also entrusted the running of Eskom to people whose number one qualification is their loyalty to Number One.

Now I don’t need to tell you where this has got us today. Load-shedding and energy instability has cost our economy billions, and it has cost many South Africans their jobs. According to Stats SA, South Africa has lost 44 000 white-collar jobs in the first quarter of 2015.

In the first 100 days of the year, we had 33 days of load-shedding, and the impact is evident across all sectors of our economy. Mining and manufacturing, in particular, bore the full brunt of load-shedding, with the manufacturing sector having recorded a 28% decrease in turnover since the start of the year.

These stats are a bright red flag to domestic and foreign investors. If there’s one thing that inspires investor confidence, it is certainty – both in terms of the actual electricity supply and in terms of a strategy to deal with the energy crisis. Currently, we offer neither of these.

We can talk all we like about the history of our energy woes. We can point the finger at all the occasions where Eskom dropped the ball, and at all the strategic blunders made by our government, but this won’t do anything to solve our electricity crisis.

Right now, Eskom is sitting with a funding shortfall of R230 billion, which affects the completion of future power generation plants as well as their maintenance and operational costs.

What we need to talk about are short-term solutions to keep Eskom afloat and the lights on, and long-term solutions to ensure that our energy supply can diversify and meet the demands of what will hopefully soon be a growing economy.

Let me start by saying what these solutions are not.

Heaping the responsibility to keep Eskom afloat on the shoulders of the consumer is not a solution. Our electricity price has doubled in the last six years. Business, the public and civil society all agree that further burdening the consumer is not sustainable, and will be detrimental to our already fragile economy.

The decision by the National Energy Regulator of South Africa (NERSA) last Monday not to grant Eskom its requested 25.3% tariff hike was bold and independent, and it was a victory for every South African.

In denying this exorbitant increase, NERSA has, for now, prevented massive job losses and allowed many small businesses to keep their doors open. The DA will continue to oppose any such proposed hikes.

Yet another government bail-out is also not a solution. Eskom has become a massive black hole into which the government has poured billions of taxpayer Rands, with little to nothing to show for it. Throwing good money after bad, without any sign of improved performance by the state-owned enterprise, makes no financial sense.

Which leaves the only possible funding solution: the private sector. By selling off a substantial equity stake, to be listed on the Johannesburg Stock Exchange, Eskom can raise billions of Rands as well as introduce skilled members to its board.

These kinds of private-public partnerships and the strategic sale of assets are where the solution to not only Eskom’s woes, but those of all our struggling state-owned enterprises lie.

On Wednesday, the Treasury announced that government had sold its 13.9% stake in Vodacom to the (state-owned) Public Investment Corporation (PIC). The proceeds – in excess of R23 billion – will, we are told, be allocated to Eskom.

While we are cautiously optimistic about this approach, there are many questions around this sale that remain unanswered, and we will seek clarity and transparency from the Finance Minister.

But solving Eskom’s funding crisis is not the only immediate solution we should be looking at. There is plenty that individual consumers and the private sector can do to ease the pressure on our power generation capacity.

These include taking up the offer of rebates that incentivise responsible and sustainable energy consumption, such as the solar geyser rebate (which Eskom has since abandoned and handed over to the Department of Energy). While this rebate didn’t help Eskom’s bottom line, any intervention that relieves the pressure on the grid during peak hours must be welcomed and encouraged. It is vital that the Department gets this rebate programme up and running again without further delay.

Similarly, it is crucial that this incentivising of sustainable energy use is extended to all new corporate properties. Government must propose incentives – or even sanctions – that compel all new building projects to be energy wise.

In France, for example, new legislation stipulates that all new buildings in commercial zones must be partially covered in either solar panels or in plants – so-called “green roofs”. This not only insulates buildings better, but also offers better rainwater retention, acts as natural air filters and increases local access to green space.

While it is easy to complain about Eskom, we must remember that we all can, and must, do our bit to help.

Solving Eskom’s funding crisis and becoming energy wise are some of the immediate steps we can take, but in the long term we need a far more comprehensive solution to our energy challenges.

The timing – with NERSA rejecting the Eskom tariff hike and with government starting to sell off assets – presents the deal opportunity to look at real reform to the sector to take us well beyond this dark chapter.

And the first step is to dismantle the Eksom monopoly that is choking the life out of our economic growth.

Currently Eskom generates around 96% of our electricity. It owns and manages the transmission grid and it distributes electricity to almost half the households in the country.

Remember the Churchill quote about security through variety in supply? Applied to our energy sector, this would imply not only a far greater number of power producers, but also a greater diversity of energy sources.

Over a decade ago, our government made a commitment to source 30% of its power from independent producers, but today that number is still stuck in the low single figures.

It is crucial that we not only increase the number of independent producers dramatically, but also that we re-look our energy mix. And this includes a far bigger contribution from renewable resources such as solar, wind and, ultimately, wave energy.

We need to look at smaller, modular builds that can be up-scaled or down-scaled as our projected electricity demand may rise or drop. The last thing we need is to be locked into massive and unaffordable projects, only for the demand not to materialise.

Which brings me to the proposed nuclear deal. Apart from the fact that we simply cannot afford it (and consumers will be expected to pay for this trillion Rand build), it is precisely the type of energy project we don’t need. It will take the better part of a decade for the first units to come online, by which time there may be cheaper, faster solutions.

Our children’s children will still be paying off these white elephants.

We must walk away from the nuclear deal before we commit any of our precious resources. We must take the transmission grid out of Eskom’s hands. And we must break up the monopoly Eskom enjoys when it comes to electricity generation.

This is the kind of reform it will take to make us energy secure again, and to power a growing economy.

A DA government would introduce this reform right away, but we can’t even wait till then. We need our government to admit that Eskom is not working, and to do what it takes to fix it.

Statement issued by DA leader, Mmusi Maimane, July 6 2015