Electricity Watch

Eskom might be killing its own business

Is poles and wires electricity fading?

While organised business in the country is complaining that Eskom is squeezing the life out of the South African economy, it might also be killing off its own business.

By leaving the economy in the lurch, and often the community at large in the dark, both literally and figuratively, Eskom might locally be speeding up an international trend away from its core business – ‘poles and wires’ electricity.

The way things are going, even if and when, government and Eskom get to the point where they want to privatise the business of electricity and its distribution, there might not be much of a business with a future to sell.

In an article titled “Has the death spiral for Australia’s electricity market begun?” on the website The Conversation, Prof Mike Sandiford of Melbourne University, Australia, describes how that country’s demand for ‘poles and wires’ electricity is collapsing and “heading towards territory not seen since the last millennium”. Another few years on current trend and the industry will be in chaos, he predicts.

The 2013/14 financial year was the fifth year in a row that saw demand declining in the country’s National Electricity Market (NEM). Only six years earlier ‘poles and wires’ electricity seemed the only way of servicing growing demand in a growing economy.

Since then, in line with an international trend, driven by the clean-energy hype associated with global warming and climate change, by improved renewal technologies and the fact that the cost of solar photovoltaic panels has come down, the monopoly of ‘poles and wires’ in the electricity market has evaporated.

In the words of Sandiford: “The reduction in demand has clearly blindsided both industry and government, which continue to operate as though demand growth must inevitably return.”

South Africa

It is not too difficult to foresee the same sort of miscalculation being made in South Africa, with consumers, both private and business, moving off the national distribution grid.

This is a distinct possibility, especially in light of how unreliable Eskom’s own figures and projections have become – not only in terms of generation capacity, but also the reliability of its distribution network, due to maintenance backlogs and factors like electricity theft.

Last week none other than Eskom’s supposed ‘turnaround’ manager, acting CEO, Brian Molefe, when questioned about the accuracy of figures used during a briefing on the state of the utilities system, responded with this gem: His plan for winter maintenance without load shedding was a “theoretical presentation” of how it could be done, and was “conceptual”.

Later the state enterprise’s spokesperson, Kulu Phasiwe, described some of the figures used as “aspirational” – in other words, even less concrete than “targets”.

This raises the question, how does an enterprise, relying on extensive use of electricity, calculate the risks in terms of investing in expansion? Or, similarly, a potential private sector partner of Eskom, if and when a decision to go that route as part of a ‘turnaround strategy’ is eventually made?

Against this background, and with the utter unreliability of load-shedding schedules supplied by Eskom, production planning in the business sector, from the small home-based entrepreneur to big production institutions, has turned into a nightmare.

Moving off the grid

To these uncertainties can be added the fast-escalating and unpredictable cost of electricity on the grid. Electricity rates went up by more than 70% in the past five years, and a further request for a 12.61% rate increase, well after the traditional annual budget cycle, is now in the works.

All of this might just add momentum to South Africa joining the international trend to move off the grid with electricity needs.

While the sight of solar panels on roofs of homes and other buildings has become increasingly common in South Africa, reliable statistics on its scope could not be found. Independent figures of the costs involved, outside of advertisements by companies active in that market, are also hard to come by.

In a well-publicised example, one Inus Dreckmeyr, an IT-industry executive, and his family, has proven that it is possible to live completely ‘off the grid’. The upfront costs, and the period over which that costs can be recouped from savings, differ from case to case.

In Dreckmeyr’s case, he calculated the cost of rigging his five-bedroom home as between R500 000 and R600 000 for an 8×3 array of 200 W photovoltaic panels that adjust to track the movement of the sun, and produce 4.8 kW of electricity; a wind turbine; power inverters; a backup diesel generator; and 32 batteries.

This would allow the family to run five fridges and a TV in every room, a state-of-the-art security system and two electric gates.  

According to one article, he said that solar prices are falling fast, and he reckoned he could build the same set-up now for about half the initial price. A smaller array, which would be typical for a cluster home, would cost much less.

It is probably on the cluster-home and similar community-type levels, that the real potential for the development of the ‘off-grid’ market lies. That would certainly be in line with what has been happening internationally.

International trend

According to another article on The Conversation website, under the title “Communities are taking renewable power into their own hands”, community energy has been underpinning the energy transition in countries like Germany, Denmark, the United Kingdom and even the United States. The first modern wind turbine – Tvindkraft - was literally built by a community in Denmark in 1978.

“In Germany, 47% of the installed capacity is owned by citizens and communities, while in Scotland there are now 249 community energy projects.”

The community energy sector has already contributed more than A$23 million in funding for sustainable energy infrastructure.

In his article Sandiford writes: “With the costs of distributing poles and wires electricity consuming a larger and larger proportion of the retail bill, it is time to step back and reconsider what we want from our energy system, and how we get there.”

Local scenario

According to an article on the My Broadband in January of this year, the price of solar power has plummeted in recent years. Tobias Bischof-Niemz, energy engineer at the CSIR, said that five years ago a photovoltaic system cost R5 per kWh, compared to Eskom’s R0.50 per kWh.

The cost situation has, however, totally reversed. Today a photovoltaic system produces power at less than R1 per kWh. The tariff of Eskom-supplied electricity on the grid is very complicated and to find an average per kWh tariff nigh impossible. Before the latest controversial application for a further tariff increase by 12.61%, electricity on a differential tariff between a usage of 450 and 1500 kWh per month on average costs R1,62 per kWh.

That represents a saving of at least between R620 (on 450 kWh) and R930 (on 1 500 kWh) per month if solar power is used.

For the average individual homeowner the upfront costs of installing stand-alone renewable capacity in a large house at a cost of R233 000, according to an article in Finweek, might still be prohibitively high.

For a standard family home the cost is somewhere between R120 000 and R150 000. Even at that price the period for the recovery of investment from savings is a bit long. And the value added to the property does not put food on the table.

However, in the communal complexes that have become very common in South Africa, the permutations can change considerably for the better. And, while the indirect incentives emanating from the Eskom crisis keep growing, the time might have come for government to consider tax and/or incentives on this front. It could add momentum to South Africa’s already solid reputation of being a leader in the field of renewable energy.

by Steve Whiteman

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