Why Does Eskom Clobber its Best Customers?

Having done an impressive job of ensuring reliable power supply throughout the Winter, Eskom screwed up last week, declaring an emergency and instructing its best customers – the mines, smelters and so on – to cut back on their power consumption. Once again, we have a clear indication that our lack of generating capacity is a severe brake on the growth of this country, and the fruits of past under-investment are rotten, maggot-infested and cancerous for the SA economy. Should these big, job and wealth creating industries be in the front line when power generation capacity is inadequate? We asked some of our experts…..

Mario Pretorius from Telemasters:
Spreading pain in never easy, and to quote my friend Leon Hart: ‘"Genius has its limitations, but stupidity is boundless". So Eskom and NERSA have driven the cost of alternative energy down, limited the amount of purchases thereof and in general done coal BEE where coal is priced up to 40% dearer. They have shrugged off the damage done to the local roads by coal transporters – and Eskom has revamped its HQ by the billions of rand. Here is the order in which every load-shed must happen:
1. Eskom HQ and regional offices.
2. Government departments, starting with the DME.
3. Provincial departments.
4. National parliament, provincial and municipal offices.
5. All 249 SOE’s.
6. Any residential area with more than 10% in arrears.
7. Shopping malls, in decreasing size.
8. Power to neighbouring countries
9. Residential users – for no more than 60 minutes at a time
10. Any Gupta-owned enterprise. (Maybe this should come first and we’ll be safe for a while.)
In a real emergency, the E Toll gantries, Nkandla municipality, traffic departments, and all political party offices should be switched off. Permanently.

Mike Schussler from economists.co.za
It is easier for Eskom to cut the big users to create savings in demand. But it is certainly not fair, as they could argue that they are at present keeping all our lights on. Rolling black-outs may however have more economic damage – as value-add is often in the areas such as Sandton or the CBD in Metros. Perhaps a rolling blackout that is never longer than 2 hours per area, that rolls across the country on a schedule, might be best. The country does owe the big power users some relief from all the times they have taken the hits. Anyway, Eskom could just allow any industrial customers with extra capacity to supply power and free up the system now. This state monopoly has to think outside of their very narrow box now to help save the country.

Duane Newman from Cova Advisory:
It does not seem fair that industrial users are the target of Eskom, as this impacts their financial viability in the medium term. I do understand it is easier for Eskom to negotiate with large business than municipalities. It is clear that Eskom has negotiated some favourable buy-back deals to make it financially worth it for business in the short term, but it is harming their medium to long term outlooks when Eskom supply becomes unreliable. I do understand that business is starting to have a sense of humour failure on this issue, and it is important that Eskom do come up with alternative plans. Many municipalities are marking up power to consumers and businesses, which is also not sustainable. With Eskom’s IDM programme running out of funding, it is likely that business and households will not be investing in energy-savings devices. It is time that Eskom, the Department of Energy and the Department of Trade & Industry push harder for business to develop Co-Generation projects to develop base-load capacity that can be used by large energy users – and any excess can be sold back to the grid. For this to happen, we need a lucrative incentive programme to stimulate this investment. I have been dealing with foreign investors who would like to invest in South Africa – and the deal breaker is not high levels of crime, poor education, excessive strike action, nor lack of incentives – but is the lack of electricity from Eskom and lack of gas from gas suppliers like Sasol.

Peter Attard Montalto from Nomura:
I think it’s a big challenge to decide who gets cut and who not.
Arguably the best way, economically – to ensure investment and job creation etc, would be to cut households and allow SMEs and big business to be able to still produce. However that’s practically impossible to separate SMEs from households and is also politically impossible to target households. That really only leaves bigger industry to take the strain as most practical alternative. We are talking about a handful of users here where there can be real time Eskom monitoring of usage to prevent shirking. The trouble with asking households to cut is that there is no household by household monitoring or ability technical to cut their usage by say 10% – they can only be asked, implored – and then there is a beggar thy neighbour problem that there is little incentive for any particular household to cut if they assume a neighbour will do it instead. These issues, and the push back by larger users is why when the system is very tight for a prolonged period the chances of deterioration into load shedding (ie from normal through level 1 to level 3 emergency) is actually quite likely. The saving grace last week was that the specific problem was quite easy to fix and short lived. In the new year we may not be as lucky.

Chris Gilmour from Absa Investments:
Not an easy one, and one that changes over time. Had this situation occurred 20 or so years ago, cutting residential consumers would have made very little difference, as their collective usage was much lower than it is today. However, with the accelerated rollout of electricity supply to a far greater residential base in the past couple of decades, coupled with virtually no growth in the installed capacity of Eskom, this has meant that collective residential usage as a percentage of total electric capacity is now significantly higher than it was then. So, residential customers should now bear the brunt of power cuts? Logically, probably, yes – but politically this would likely hit a very raw nerve indeed. We only need to cast our minds back to the dark days of early 2008, when Eskom was literally hours away from collapse. Random power cuts affected everyone and the impact on national morale was truly awful. Having said that, when rotational, scheduled power cuts were introduced, people accepted them and in fact began to get used to them. So, if a thoughtfully-invoked rotational schedule were to be enacted, it might just work with the minimum of consumer resistance. Trouble is, this is happening in the run-up to a general election, where the proportion of undecided voters is extremely large. If scheduled power cuts were to be introduced for a few months before April next year, it could play a meaningful role in determining how people vote. Another factor to bear in mind is that our municipal electrical distribution system (mainly residential sub-stations) is so clapped-out that regular power cuts would play havoc with it, as they did in 2008. This could wreak havoc with sub-stations and exacerbate an already parlous situation.

Prof Raymond Parsons, Special Policy Adviser, Business Unity South Africa
Busa does not believe it was appropriate to place the burden of the emergency measures on a few firms – and expect them to take the hit for everyone. It is the household sector, and not industry, that has the high peaks in the morning and the evening that place a big strain on the network. Other methods should be explored to smooth these peaks. Fortunately, Eskom has now lifted the state of emergency under pressure from the companies affected, but that is not the end of the story. We need to look down the road as to what other contingency measures may be needed to keep the lights on in a continuing tight supply situation. Busa considers that the longer-problems that arise from the latest Eskom experience are twofold. Firstly, the uncertain power supply is clearly unable to accommodate planned new investment, a serious bottleneck which has broader economic implications and, secondly, there has been a serious delay in dealing with the ISMO bill in Parliament, which is meant to develop independent power producers. It nonetheless remains a paradox that SA should be experiencing a power emergency at a time when the economy is at a low ebb of only 2% growth this year. We are obviously still facing a vulnerable situation in which to avoid further disruption before new capacity is assured late next year. Conclusion: Industry drives the economy, and I am uncomfortable with Eskom’s current strategy. Not least because it partly conceals the true scale of this country’s energy crisis.

Tweets of the Day:
Ellen DeGeneres (@TheEllenShow): Excited to make fun plans for this weekend. Last weekend, I spent 8 hours organizing my spice rack. Where does the thyme go?
Fake Dispatch (@Fake_Dispatch): Five Habits of Annoying People: 1. Not finishing what they started. 2.
Funny Tweets (@iQuoteComedy): later is the best time to do anything

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