Eskom ‘load-limiting’ misdiagnoses energy crisis, is an attack on individual freedom – FMF

2 October 2023

The Free Market Foundation (FMF) will publish a research paper on privatisation later this year, that will set out how best to go about the privatisation of Eskom. This comes as the embattled state-owned enterprise seems to be fumbling from one bad idea to the next as it tries to stabilise power supply.

The FMF condemns Eskom in particular following the latest reports on ‘load-limiting’, a pilot programme that is currently being run in the Fourways area in Johannesburg.

Load-limiting allows officials to exempt an area from loadshedding, provided end-users limit their power consumption below a prescribed usage. If a household’s consumption exceeds the prescribed usage during loadshedding hours, the power is cut.

Should the project be rolled out nationally, it will cost an estimated R16 billion.

While on paper the idea of load-limiting appears to be a form of relief from loadshedding, the implications are nefarious. Load-limiting, which utilises ‘smart metres’, continues to experience so-called ‘software glitches’, where residents are subjected to usage limitations even outside of loadshedding periods.

The FMF does not regard it as unlikely, that in future Eskom will seek to limit electricity consumption as a matter of public policy, in line with increasing Western demands for the developing world to transition away from fossil fuels.

‘This represents a marked threat to the freedom of electricity users to determine their own affairs, and subjects them to often arbitrary political imperatives set in Pretoria or Europe. Accepting “load-limiting” today, convenience aside, sets an unacceptable precedent,’ says Martin van Staden, FMF Head of Policy.

The FMF believes that taking energy generation out of the hands of the state is the only way to turn the corner on the energy crisis in South Africa. ‘More centralisation by the very people who are responsible for disastrous state of our power supply will only make things worse’, said Van Staden.

‘It is dangerous to allow state employees to determine what appliances you may and may not use: things like geysers, kettles, and inverters are impossible to use during load-limiting. The state cannot be allowed to peer into our homes and directly control our lifestyles’, Van Staden continued, and added, ‘Let us not forget that people are paying for their electricity usage – it is not a handout. Load-limiting, and ultimately even loadshedding, treats it as such.’

The real solution

South Africa’s energy crisis is no more than a shortage, and the answer to shortages has long been understood in the field of economics.

When the demand for a good exceeds supply, the price of that good must be raised to limit demand. As supply stabilises, the price is lowered. Loadshedding is an artificial, uneconomic answer to the crisis, and load-limiting, on top of that, shows Eskom seeking ever-more invasive ways to arbitrarily avoid doing the most sensible thing: increasing the price of electricity.

‘The price mechanism is the best way to ensure that goods and services are provisioned in a society whilst also regulating their demand. While not a popular measure, Eskom must be freed from regulatory shackles and allowed to charge market price for electricity’, says Zakhele Mthembu, FMF Legal Researcher.

‘However, this must not happen until Eskom is privatised, and other energy companies – whether coal, nuclear, or renewable in nature – are allowed to compete with it’, Mthembu continued. Among other things, this is what the FMF aims to set out in its research monograph.

As FMF CEO David Ansara wrote in January on Eskom’s application for a tariff hike:

‘Was Eskom being unreasonable in its 32% application? Is Nersa being unfair with its 18.65% counteroffer? Why did Nersa settle on 18.65% and not, say, 18.55% or 18.75%?

Nobody really knows the answers to these questions because the final price determination is not linked to the true cost of electricity production and distribution. Instead of the market, it is politicians and bureaucrats who determine the price of electricity. Consequently, no amount of modelling by Nersa’s number-crunchers can account for the ever-fluctuating needs of a complex society of 60 million people.’

South Africans must not be tricked into believing that more state control, and more encroachment on their freedoms, will lead to any real improvement in the state of energy supply in the long run. We must instead look to the time-tested solutions provided by the market.

Read more from the FMF on electricity price determination:

https://www.freemarketfoundation.com/article-view/south-africas-electricity-price-is-a-thumb-suck

Issued by Anneke Burns, FMF Publicist, 2 October 2023