A different Eskom: Achieving a just energy transition for South Africa
Sandra van Niekerk | DailyMaverick | 04 July, 2019
The knee-jerk reaction of both government and many commentators to the crisis of Eskom has been to tout unbundling as the major solution to the conundrum of saving Eskom. But will it really save Eskom, let alone ensure access to electricity for all and reduce energy poverty? Or will it compound Eskom’s problems and take us no nearer to delivering an equitable electricity service to all?
The Alternative Information and Development Centre is involved in a research process together with Trade Unions for Energy Democracy and the Transnational Institute, as well as NUM and Numsa, to investigate how to transform the current electricity sector in a way that turns on the lights for all, regardless of ability to pay, that ensures less inequality rather than more, and does this while reducing greenhouse gas emissions in the country. Our argument is that for this to happen, electricity needs to remain broadly in the public sector, a radically transformed Eskom needs to remain a vertically integrated public utility, and Eskom should become the lead organisation introducing renewable energy into the country.
We have identified three core commitments that are shaping the research:
- Building a “New Eskom”: Fully Public and Serving the People
- Securing a Democratic and Just Energy Transition
- Working Towards a Socially Owned Renewable Energy System
Eskom’s crisis is South Africa’s crisis
Important features of Eskom’s crisis are the result of government policy. The government’s decision to convert Eskom into a publicly traded company in 2001 marks an important turning point that set the stage for neo-liberal marketisation.
Eskom’s post-1994 electrification programme successfully connected 2.5 million people to the grid, so that by 1999, overall electrification stood at 66%. Left to its own devices, private sector markets could never have accomplished this level of electrification. And sure enough, when Eskom was corporatized in 2001, the electrification rate slowed down considerably.
Today almost 16% of South Africans don’t have formal access to electricity and many more can barely cover their ever increasingly unaffordable electricity bills. The required re-commitment to full electrification won’t be cheap. These costs, however, must be distributed across the entire system of government finances. They must not be Eskom’s sole responsibility.
While the poor are struggling to pay their electricity bills, large energy consumers have not been required to pay their fair share of the total cost of providing a universal public electricity service. The mining and industrial sectors together consume 60% of Eskom’s generation, whereas residential users consume just 20%. Mining companies alone consume more than 40% of Eskom’s power, but contribute just 34% to revenues. Large private interests are therefore being subsidised by public electricity, with additional costs being borne by Eskom.
Steeply rising coal costs have also made matters worse. Expanded coal use mainly in India and China has inflated the global price of coal. Coal producer costs have not significantly increased, but the prices charged to Eskom by these same producers have more than doubled in just a few years.
All of these factors suggest that many of Eskom’s problems are not internal to the utility itself. Rather, Eskom’s problems are in many respects a reflection of South Africa’s problems. Solving them will require a reappraisal of the role of energy today and the role it might play in future. It is essential that these problems be viewed with an eye on how the energy system can become more socially and ecologically sustainable. The governance of Eskom must be completely transformed, and this must serve as a precursor to a major policy review of the whole sector.
Reform and reorganisation of Eskom
Despite President Ramaphosa’s insistence that the privatisation of Eskom is not on the cards, unbundling remains a World Bank policy and a precursor to predatory “partnerships” with private corporations keen to seize and control national assets and public property and to raise electricity prices.
Breaking up the public utility will not generate a single rand in additional investment. It will not resolve its debt crisis, and it will not address Eskom’s death spiral. The death spiral refers to a situation where the amount of electricity that Eskom is able to sell declines for a range of reasons including higher tariffs and increased use of renewable energy.
As its income stream gets less, Eskom is driven to increase its tariff even more to make up the difference, which results in more people opting for renewable energy. As revenue and profits continue to fall, the electricity infrastructure decays and the situation worsens. But unbundling will not solve this problem. If implemented, unbundling will undermine the potential for much-needed co-operation and effective energy planning across the entire electricity sector.
While we argue that electricity must remain a fully public service and the utility’s present and future infrastructure should remain in public hands, we recognize the vital need for the utility to be transformed from top to bottom, with transparent and effective governance structures introduced that extend decision making powers to workers, middle management, and representatives of communities and municipalities.
The corporatisation and commodification of Eskom, which we believe is a major contributor to the current crisis, must be reversed. This must form the basis for changes in governance as well as organisational changes at the level of operations and management. The ‘New, Socialised Eskom’ will need to transition towards a model of generation, distribution, transmission and conservation that, while remaining fully public and integrated, can incorporate the progressive development of distributed renewable power into the energy mix.
This must be done in ways that, for the foreseeable future, can efficiently balance base-load power with variable renewable energy. To achieve this goal, Eskom must be allowed the space and support to develop renewable energy along the lines of a utility owned generation model, which gives content to our demand for the expansion of a socially owned renewable energy system.
Renewables will need to play an increasingly important role in the future energy system. Protecting the climate, our water, and the integrity of our ecosystems is a working-class issue of central importance.
It is nevertheless important to recognise that coal will have an important role to play for years to come. Coal currently generates roughly 90% of South Africa’s electricity. The country’s current coal-based power generation system could be (and should be) much more efficient. Refurbishments of power stations at their mid-life (30 years) point have been routinely postponed, and we are now paying the consequences.
Under the guidance and leadership of a reformed public utility, communities and municipalities will play a larger role in energy decision-making and management than now. However, these entities will function as partners in the fully public system, and not as agents of private interests positioned to undermine Eskom as a fully public provider. This is the best way to keep the entire system viable, to create jobs, and to improve quality of life.
All South African citizens and commercial entities should have access to the public grid and all must help sustain the entire system as a universal service. Going “off grid” is currently the privilege of very rich individuals. But these same individuals feel they can then come back onto the grid as and when they need to. This means the costs of sustaining the system are borne by the working class. This is neither equitable nor sustainable.
The state must guarantee either suitable alternate employment or a grant equal to their current salary/wage of all workers displaced by renewable energy. Energy choices must be liberated from profit-maximisation and political patronage. A reformed public utility can lead the effort to explore the most equitable and efficient means of decarbonising supply in a planned and transparent manner.
Energy transition: Renewable energy and the failures of the IPP approach
We support renewable energy, and the increasingly vital role it must play in the energy system, but at the same time, we oppose the Renewable Energy Independent Power Producers Procurement Programme (REI4P) because it serves a privatisation agenda, imposes costs on the public electricity system, and will ultimately raise prices and increase energy poverty. The REI4P programme is to serve the interests of investors. Rather than help South Africa meet its climate targets, the REI4P program will turn the South African people against renewable energy.
Drawing on the international experience of investor-focused renewable energy deployment, our report will explain why the Independent Power Producer (IPP) approach erects obstacles to deploying renewable energy at the speed and scale required. Despite the lavish praise heaped on the REI4P programme from the World Bank and private investors, the programme is not the best way to develop South Africa’s renewable energy potential. The current approach to the expansion of the renewables sector puts renewables in an antagonistic relationship with Eskom, which, in turn, adds to the fiscal crisis of the utility and threatens jobs. A truly just transition from fossil fuels to renewable energy must be part of a project to modernise the economy in ways that can create employment alternatives for those who will lose their jobs, as well as create employment opportunities for those who either do not have steady work or whose work is in every respect precarious.
The proposed Independent System Market Operator (ISMO) is the government’s attempt to discipline Eskom and to expedite the deployment of renewables, but it will merely add to Eskom’s fiscal crisis. Eskom currently produces electricity far more cheaply than for-profit IPPs.
According to neoliberal logic, the fact that Eskom is a public system built up over decades, with much of the infrastructure costs already fully paid, amounts to an “unfair advantage”. Therefore, the ISMO’s job is to level the playing field by giving IPPs preferential treatment and guaranteed access to the grid. Clearly, this is not introducing “competition”. It amounts, instead, to the suspension of competition in the service of private interests and profit-making.
Social ownership of renewables
We believe that an alternative approach to energy transition is both viable and necessary, and must incorporate development options and industrial strategies that are built around economy-wide decarbonisation, job creation, and diversification. A reformed public utility will play an essential role in coordinating and driving an energy transition to a low-carbon and truly sustainable future. It will also explore ways to develop a domestic and socially owned renewable energy sector with a significant manufacturing base and the formation of local supply chains. This will create jobs at the community level, something the REI4P has failed to do.
Profits, high interest rates demanded by capital-lenders, and the costs of competition all inflate the price of renewables. This is why the power purchase agreements (PPAs) signed with IPPs are above the market price – and not because renewable energy is intrinsically more expensive than any other form of energy. Social ownership will remove these additional payments, making the actual cost of renewables much cheaper than other forms of energy. And this is before the health and safety costs of fossil fuel and nuclear energy are quantified.
With social ownership, renewables could be developed as a public good and be deployed in a manner that, in contrast to the IPP approach, does not undermine the entire public service model of electricity provision. Tariffs can be linked to the real cost of sustaining the entire public system, with everyone contributing their fair share.
Cost is important, but it cannot be the main consideration because, for the foreseeable future, coal and renewables will co-exist alongside each other. This co-existence is technically unavoidable for now. The “price war” therefore serves no purpose and must be ended. A co-operative relationship between different forms of energy is essential and will allow South Africa to plan its transition based on social and ecological need. Only a socially owned system can ensure a just energy transition.
A public utility or a national government can borrow capital at lower rates, as the cost of capital is the largest single contributor to the cost of delivering renewable energy. It can procure technologies from established producers as needed, and progressively develop wind and solar supply chains in-house.
Socially owned renewable energy will allow South Africa to bring renewables to scale in a planned and equitable way. In this scenario, the creation of a domestic wind and solar industry is feasible. With the IPP model, it is all but ruled out completely. Social ownership will deliver renewable energy faster, cheaper and fairer.
A socialised New Eskom would first reduce the costs of renewable energy and then arrive at a “levelised” cost based on mixing renewables with coal-fired generation.
Our map towards charting a new public electricity system will be based on extensive research in understanding the current crisis of Eskom, going beyond the narrow narrative of State Capture and corruption. It will be based on international experience of grappling with the phenomena of the death spiral of public utilities and of the social and environmental failures of the liberalisation of the energy/electricity sector.
An unbundled Eskom will add to, not solve, the problems of the electricity sector. We believe a transformed Eskom, leading the Renewable Energy revolution, working in partnership with local government, community organisations and other not-for-profit entities is what it will take to ensure cheap electricity for all.
Sandra van Niekerk is a researcher focusing on the public sector, and the delivery of basic services. She is part of the team, based at AIDC, researching Eskom as a viable public utility. For many years she worked in the trade union movement, with many of those years spent as the National Education Officer of the South African Municipal Workers’ Union (Samwu)