Engineering News, 29 June, 2017.
If South Africa wants to prevent its deindustrialisation and find middle ground between the sustainability of State-owned Eskom and the affordability of electricity, a few “holy cows will have to be slaughtered”, former Energy Intensive User Group (EIUG) of Southern Africa chairperson Piet van Staden believes.
In an opinion piece published on EE Publishers on Thursday, Van Staden added that this required “out-of-the-box thinking” as business-as-usual would not do it. He also suggested that it could be a good idea to use the existing Ministerial Advisory Council on Energy or set up a special industry think tank to come up with proposals for EnergyMinister Mmamoloko Kubayi’s consideration.
He suggested that, over the short term, more cost-reflective pricing for large power users (LPUs) would help to sustain current sales, as well as generation displacement agreements where nonutility generation can be curtailed if it makes sense.
“In all such cases, the LPU prices should be above Eskom’s marginal costs to ensure the additional electricity sales still contribute to fixed costs.
“For a long-term solution, we will have to look at the industry structure, Eskom’s business model and the electricity pricing policy”, he said, adding that the current rate-of-return regulatory methodology spoke to a previous era, where utility companies were low risk/low return businesses, entitled to recover prudently incurred costs and earn a fair return on assets.
However, he pointed out that if the future belongs to distributed energy resources and some gas-fired independent power producers (IPPs), the question becomes how to optimally manage the decarbonisation journey, and not how to ensure Eskom’s generation fleet stays on as a sustainablebusiness ad infinitum.
The optimum way forward may be to separate the transmission and market businesses and ensure it is managed sustainably, while the existing Eskom generation business should be exposed to competition and managed as efficiently as possible to the end of life over the next few decades, he suggested.
Van Staden further noted that it may also be decided to maintain some momentum in the renewables programme by pre-investing until new capacity is really needed, as long as it formed part of an agreed national plan and the cost of renewables displacing cheaper Eskom generation is manageable.
Here is the full article