Eskom letter opens festering wounds

12th August 2016 By: Terence Creamer - Creamer Media Editor

Eskom letter opens festering wounds

Revelations last month that Eskom is insisting on consultations with Energy Minister Tina Joemat-Pettersson before signing any further power purchase agreements with private generators has opened up all manner of wounds that have been quietly festering for the last number of years.

Firstly, it brought to the fore the sharp differences that still exist over the structure of the electricity supply industry and the role Eskom should play in this fast-changing milieu.

Under CEO Brian Molefe, the State-owned utility has become far more muscular – some might say brutal – in fighting the dominant supplier’s cause. An opportunity is hardly missed to emphasis Eskom’s primacy, or to question the contribution of the independent power producers (IPPs), as well as the benefits of renewable energy.

Such a stance comes as no surprise to those who have repeatedly warned that Eskom is inherently conflicted as a vertically integrated utility. For them, Eskom’s rhetoric is yet more evidence that South Africa missed a transformative opportunity by not proceeding with the Independent Systems and Market Operator legislation. There is no question, however, that such a move also carried serious risks, particularly for a utility (backed by National Treasury guarantees) that is relying so heavily on debt to finance its build programme.

A second festering sore exposed by the note is ongoing mistrust over Eskom’s much-vaunted operational turnaround, particularly the sustainability of its energy availability factor (EAF) recovery. Eskom is boasting far higher levels of plant availability, well ahead of expectations, but there are few true believers outside the group. What is clear is that Eskom is using its higher production as confirmation that additional IPPs are not required. It would surely be prudent, however, for government to pursue an independent audit before betting the farm on an EAF that has been in sharp decline for a number of years and may come under strain again should demand begin to recover.

Another sore point relates to the role and future of the IPP Office. The office is yet to be fully institutionalised within the government system, despite the Department of Energy and the National Treasury holding it up as proof of government’s willingness to facilitate private investment in sectors that have hitherto been dominated by a State company. However, the office is also relatively insulated from political influence, which, ironically, makes it vulnerable in a context where power is often wielded through economic-influence peddling.

That brings me to the fourth wound: South Africa’s proposed procurement programme. Some view Eskom’s hostility towards the IPPs, and by extension the IPP Office, as little more than a crude attempt at closing the door on the supply alternatives, no matter their possible cost advantages. In other words, by selectively highlighting the technical shortcomings of renewables and the relative costs of IPPs, opinion – especially within the political elite – could be swayed in favour of a mega nuclear investment.

But the main sore exposed is the lack of obvious leadership in the electricity sector. Policy gaps abound, the Integrated Resource Plan is badly out of date and industry participants – Eskom included – lack clear guidance and direction. In such a context, is it really a surprise that the more politically astute will seek to fill the void?