On Monday, South Africa’s National Energy Regulator rejected Eskom’s tariff increase application – the one that was needed to fund the cost of load-shedding.
Specifically, the cost of limiting the amount of load-shedding.
When I hear NERSA officials saying things like “We reject this application because it isn’t in line with the multi-year pricing methodology” – I roll my eyes. You don’t reject a tariff increase because you’re feeling fussy about methodology – you reject an increase because that increase is unnecessary. If the increase is needed, and you reject it, then you are being useless.
To be fair, I don’t know enough about electricity pricing to know whether Eskom is or is not getting what it needs at the moment. But from what I am told by people that should know better: the reason that we’re facing load-shedding is because there was not enough money for:
- Repairs and Maintenance; and
- Capital Expansion; and
- Certainly not all at the same time.
Then we reached capacity. And then we started losing capacity due to all the R&M that hadn’t taken place. So Eskom was forced to use more expensive sources of electricity (Open Cast Gas Turbines – OCGTs), and buy expensive electricity from elsewhere (Short Term Power Producers – STPPs), while trying to do the R&M and finish the capital expansion projects.
Which means that Eskom now has to:
- Catch up the past repairs and maintenance that it hasn’t done during the years of cheap electricity; and
- Make enough to cover the current repairs and maintenance requirement as well as the ongoing capital expansion; as well as
- Make enough to cover the short-term expensive power that it’s obtaining/generating in order to limit the amount of load-shedding.
- To say nothing of the impact that load-shedding is having on infrastructure and the future R&M requirement (I mean – in my suburb, we had load-shedding twice over the weekend, and twice there were faults when they tried to turn the power back on – and just cast your eye over the City Power Jhb twitter account to see just how widespread that issue has become).
But Eskom must do all this without too much of a tariff adjustment.
Frankly, however you feel about how we got here is a bit irrelevant. The only relevant fact is that the current situation is what it is, and it needs to be paid for if we want to have a national grid.
The way we’re going, I’m not sure that we’re going to have much of a national grid in the near to medium term. Possibly even the longer term.
And I don’t mean in that “If effing Eskom ain’t giving us no effing electricity then it ain’t an effing grid” sort of way.
Consider how South Africans are reacting to the load-shedding situation. It’s in one of two ways:
- Those who can afford it are taking steps to reduce their reliance on Eskom (by installing solar panels and generators and inverters); while
- Those who can’t afford it are just having to make do.
- Those who can afford to reduce their reliance on Eskom are also those people that could pay more for their electricity. After all, consider how much they’re investing in having reliable electricity (tens/hundreds of thousands of rands).
- Meanwhile, those who cannot afford to reduce their reliance on Eskom also probably can’t stomach a tariff increase.
Now I don’t know for sure, but I suspect that these two conflicting responses will start to spiral:
- As the well-to-do move off the national grid, there is less money flowing to the national grid.
- Less money to the national grid means less money for repairs and maintenance, as well as lower credit ratings (which mean higher interest, which makes for even less money for repairs and maintenance).
- So the national grid gets more unreliable.
- Which incentivises more of the well-to-do to move off the grid.
- And the cycle continues, until:
- The well-to-do are self-sufficient; and
- The less-well-off are supplied with highly erratic power by an underfunded shambolic mess.
If that’s what we want, that’s fine. It’s not especially developmental of us – if anything, it’s many steps backward.
On the upside, we might be greener. And at least NERSA is showing leadership, or whatever it is that the DA is calling it.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.