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A private company, seeking only to increase its profits, will nearly always deliver better goods and services than a state company. But not always. A well-run state industry will always produce cheaper and more reliable electricity than a private one. (Eskom was a well-run state industry; it is now a badly run state industry.) This is because electricity is capital-intensive and the state can always raise capital more cheaply than the private sector, and the state is content with a low return and a long payback period. Nowhere on Earth has privatisation of electricity brought cheaper, more reliable electricity. It has usually done the opposite, sometimes disastrously, as we can see with electricity failures in Australia, the US, the UK and throughout Western Europe. But that’s the plan being posited by Ramaphosa. Someone help us. This article was first published on the Daily Friend.- Sandra Laurence
Sense and silliness: Ramaphosa’s energy plan
By Andrew Kenny*
In his energy plan announced last Monday, President Cyril Ramaphosa said, “The measures we are announcing this evening, together with the steps we have already taken, will hasten the end of load-shedding. They will put our country on a clear path towards reliable, affordable and sustainable energy supply.”
They will do nothing of the kind.
Ramaphosa, who seems to have no ideas of his own, bounces about between various factions of the ANC who have definite and stupid ideas; he bounces between socialists who want the state to control everything and the free-market radicals who want everything to be privatised; and he bounces off green ideologues who have wrecked electricity supply around the world with enforced “renewable” (solar and wind) generation. His energy plan is a mishmash of all this nonsense with a bit of good sense thrown in here and there.
He divides his plan into five sections: first, improve the performance of Eskom’s existing power stations; second, accelerate the procurement of new generation; third, increase private investment in new generation; fourth, encourage business and households to invest in roof top solar; and fifth, transform fundamentally the electricity sector. The first is sensible. The others are vague and ill-informed, and filled with false hopes and silly logic.
Improving the performance of Eskom’s stations is essential and is by far the best measure for reducing load-shedding in the short to medium term. Ramaphosa wants to cut red tape in procuring spares and equipment. Good, but he should also end all BEE procurement, which pushes up costs and reduces efficiency. To overcome Eskom’s critical shortage of skills, he wants to recruit more skilled people. Good; let’s hope he recruits them on merit alone. He also wants to bring back skilled workers whom Eskom had expelled. I’m not so sure how successful this will be. How will existing workers at Eskom feel working under, or being advised by, ex-Eskom workers, probably white, whom Eskom had kicked out? How will the recalled workers feel?
He wants to increase the funds for Eskom’s maintenance. This is essential. The cost of unserved electricity because of power station breakdowns is far higher than the cost of maintenance to stop them breaking down. The management of Eskom’s operations and maintenance needs to be improved greatly. He wants to combat sabotage and theft at the power stations. Obviously, very good.
He wants to make it easier for new generation to come onto the grid. Fine. The trouble is that most of the new generation he speaks about is solar and wind, which are useless for grid electricity unless they have massively expensive back-up, spinning reserve, storage, extra transmission lines and compensation for loss of electrical inertia. This makes the Full Cost of Electricity (FCOE) for solar and wind the highest of all energy sources. All around the world, the final cost of electricity for consumers goes up and up as more solar and wind is added to the grid. Our own renewable electricity programme (REIPPPP) has been an expensive failure – but our president wants more of it. The reason recent solar and wind projects are taking so long to complete seems not so much because of regulatory delays but because of the failure to get financial closure, in other words, failure to convince investors they are bankable.
Few projects with solar, wind, gas or batteries in the 2020 Risk Mitigation Independent Power Producers Procurement Program (RMIPPPP) have come onto the grid, and this seems to be because the costs of solar panels, wind turbines, lithium (for batteries) and gas have all shot up since they put in their bids, rather than that they were obstructed by red tape.
100 MW cap
He wants the 100 MW cap on generation and municipal generation to be removed. Fine again. I believe that anybody should be allowed to generate as much electricity as he or she wants and sell it to anybody who wants to buy it, provided only it meets electricity regulation for safety, voltage, and frequency. The problem is that there have been few takers for even 100 MW generation. I worked at a paper mill in KZN that had two 40 MW generators for its own use. It did occasionally have some extra generation capacity – but not 100 MW. I can’t think of a single mill, sugar refinery, or Sasol plant that can sell 100 MW regularly.
He wants massively increased private sector investment in generation capacity – more Independent Power Producers (IPPs). Fine, but I believe capitalism is by far the most successful economic system in history, especially for the poor, and that private industry is nearly always more efficient than state industry. A private company, seeking only to increase its profits, will nearly always deliver better goods and services than a state company. But not always. A well-run state industry will always produce cheaper and more reliable electricity than a private one. (Eskom was a well-run state industry; it is now a badly run state industry.) This is because electricity is capital-intensive and the state can always raise capital more cheaply than the private sector, and the state is content with a low return and a long payback period. Nowhere on Earth has privatisation of electricity brought cheaper, more reliable electricity. It has usually done the opposite, sometimes disastrously, as we can see with electricity failures in Australia, the US, the UK and throughout Western Europe.
Ramaphosa wants private investment in wind and solar for the grid. But these investors will want to make a profit, and want to persuade the banks they can, and cannot possibly do so by selling reliable, dispatchable electricity unless they charge enormous prices for it. The only way they can make a profit with reasonable prices is by selling junk electricity (the electricity coming off the solar panel or wind turbine on the rare occasions it happens to be generating), which will cause more harm than good to our electricity system. Is this what Ramaphosa wants? I fear so.
His plan for 500 MW of batteries to help the grid is ridiculous. I read elsewhere about these batteries: “The contract is for design, supply and installation as well as operating and maintenance for a five-year period for a storage system that will be used primarily for national peak shaving (managing demand) purposes for four hours a day for at least 250 days of the year.” A quick look at the sums. Eskom’s peak demand is about 5 000 MW over average demand. To shave the peak demand for four hours would require 20 000 MWh of electrical energy. 500 MW of batteries can store about 650 MWh. In other words, 500 MW of batteries could only provide for 3.25% of peak demand.
He wants business and households to have more “rooftop solar”. By this he seems to mean solar PV panels for generating electricity rather than water heating panels, which work well. Solar PV can indeed provide small and useful household electricity. But then he says he wants excess solar electricity to be sold to Eskom. If by this he means Eskom will be forced to buy any excess solar electricity the household is generating, this is a thoroughly bad idea. Such electricity is worse than useless for Eskom, which needs electricity most when the sun is not shining, and which would have problems accommodating these little, unreliable, flickering generators on its grid. This seems like a copy of the “feed-in tariffs”, which proved such a failure in Europe.
A problem he didn’t mention is the problem for Eskom when its customers start buying other electricity besides its own. Eskom should cover all its expenses – capital, operations and maintenance, and fuel – from its revenue from fixed charges and electricity sales. If a customer gets all her or his electricity from Eskom, then Eskom designs its tariffs based on that fact. If that customer then starts buying a lot of electricity from somebody else, say a solar IPP selling electricity during the day, Eskom will have to adjust its tariff to him or her. Eskom will lose revenue because of lower energy sales, and so will have to increase its fixed charges to cover the capital costs of supplying that customer. There was a bit of a row recently when Eskom tried to explain this obvious logic to green customers, who want to be subsidised.
Generation, transmission and distribution
The transformation of the energy sector, notably the splitting up of Eskom into generation, transmission and distribution, seems full of hazard and complication. The idea of an independent transmission company buying electricity on a competitive free market has its merits, but I doubt that the greens will allow it to happen.They know solar and wind cannot compete on even terms in a free market and so will try to capture any independent transmission company, as they have captured Eskom through the REIPPPP.
He made no mention of nuclear power. New nuclear energy cannot provide help in the short term but it is by far our best energy source in future. I find this omission disturbing. I guess it is to do with ideological struggles within the ANC. There were even more ideological struggles over nationalisation versus privatisation, with both sides talking nonsense. There is a conspiracy doing the rounds that Eskom has been deliberately sabotaged by evil capitalists to let the IPPs come in and take it over. The coal mining trade unions are fighting renewable IPPs for the logical reason that the “just energy transition” (to expensive and unreliable energy) will cost them their jobs but they are wrong to blame capitalism for this. The greens hate capitalism as much as the trade unions do.
Finally, President Ramaphosa announced that he has established a “National Energy Crisis Committee”. Oh dear! This sounds like the “National Command Council”, which the ANC set up to rule the country during the Covid-19 epidemic, thus ensuring that its lockdown cost far more lives and livelihoods than the virus ever could have done on its own. Will the National Energy Crisis Committee now do for electricity what the National Command Council did for Covid-19 victims? He says it will “draw on the best available expertise”. Dear, oh dear! If by this he means he will draw on the same “experts” we hear day after day on the radio and TV talking nonsense about energy, the same experts who encouraged the REIPPPP, the same experts behind the suicidal Integrated Resources Plan (IRP) and the fatuous energy models of the CSIR, we are in trouble.
The Ramaphosa energy plan was met with rapturous acclaim from most of the mainstream media and the DA’s shadow minister of energy. Dear, oh dear, oh dear!
- Andrew Kenny is a writer, an engineer and a classical liberal.
- The views of the writer are not necessarily the views of the Daily Friend or the IRR. If you like what you have just read, support the Daily Friend.
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