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We need to end Eskom’s monopoly over electricity supply

13 February 2008

Hendrik Schmidt MPEskom’s monopoly over electricity supply is one of the main causes of South Africa’s electricity crisis. The permanent solution to our energy future lies in dismantling this monopoly. Until independent power producers (IPPs) are allowed to enter the market to expand and diversify the sources of power we have access to, and until we are relieved of the burden of having to rely on Eskom’s outdated and dilapidated processes and infrastructure, local demand for electricity will continue to exceed supply.

The Democratic Alliance will, in the coming Parliamentary session, pursue all available policy and legislative avenues to dismantle Eskom’s monopoly as the sole purchaser of electricity in South Africa. This move would see IPPs either being able to feed into the national grid, or to feed power directly to consumers, thereby reducing pressure on Eskom’s generation capacity.

The current policy position gives Eskom complete domination over electricity supply and generation in South Africa. Although provision is made for IPPs to generate up to 30% of South Africa’s total output, the generated power must be sold to Eskom and not to any other users. Eskom enforces its rights vigorously.

Furthermore, Eskom is empowered to determine which IPPs sell power to the national grid. The National Energy Regulatory Authority of South Africa (NERSA) awards licences to IPPs; but, because Eskom is the sole owner of the transmission lines, IPPs have to enter into a commercial agreement with Eskom to transmit the power on the transmission system.

In addition, Eskom determines the price at which it will purchase electricity from IPPs. Eskom is unwilling to enter into power purchasing agreements (PPAs) with IPPs because their cost of power generation is higher than Eskom is willing to pay. This situation has led to many IPPs being forced to shelve their projects while Eskom retains its status as the sole purchaser of electricity.

This monopoly situation is a major discouragement to investment in the electricity market, but is an environment that is clearly in Eskom’s interests to maintain. In the past, for example, a farmer in Mpumalanga sought to sell the surplus hydroelectric power he generated from a dam on his farm to neighbouring farmers. Eskom successfully sought an injunction against him for doing so.

But Cabinet must also take a large part of the blame. The private sector is willing and able to assist the parastatal if a reasonable rate of return can be obtained. At present, this is impossible because of cabinet’s insistence that Eskom continue to be the cheapest provider of energy in the world – close to 70% cheaper than the next most expensive country, Canada. IPPs will charge more for their electricity than Eskom, but they will be able to guarantee security of supply – an area where Eskom has dismally failed. Only a competitive market can guarantee security of electricity supply.

Amending the laws and policies that create this disastrous situation will immediately mitigate the threat posed by the current power crisis to South Africa’s industrial energy. For example, BHP Billiton and other large industrial concerns will no longer be reliant on Eskom’s erratic supply of electricity. These companies will be able to use private power utilities to build dedicated power plants. The power generated from these plants will be sold directly to the end user instead of Eskom.

Eskom on its own will not be able to meet local demand for electricity, but the introduction of new entrants into the market is a practical way to improve the situation substantially. It is not good enough for the government to continue to expect consumers to take the entire strain of this crisis on their shoulders; it must start looking at tackling some of the root causes of the problem.

Advocate Hendrik Schmidt MP
DA Spokesperson on Minerals and Energy

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2 comments

  1. […] Hendrik Schmidt, a parliamentarian for the main opposition party, the Democratic Alliance. He makes a good, concise case, of which the essence is this: Eskom’s monopoly over electricity supply is one of the main causes […]


  2. ESKOM’S MONOPOLY SHOULD BE BROKEN SOON OTHERWISE S.A WILL SUFFER FOREVER.



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