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Release Date: 29 January, 2019

Power Struggle – Clearing up South Africa’s electricity miasma will take a national mind set change

The South African electricity industry has, in a relatively short period of time, shifted from relative anonymity to high-profile notoriety. The main cause of this change was the sudden introduction of load shedding by Eskom in 2008, and the continued threat of more. This change in public profile was also helped along by other positive and negative factors.

The South African electricity industry has, in a relatively short period of time, shifted from relative anonymity to high-profile notoriety. The main cause of this change was the sudden introduction of load shedding by Eskom in 2008, and the continued threat of more. This change in public profile was also helped along by other positive and negative factors.

On the positive side, there was a world-class process of procurement of renewable generating capacity, even though some came with exorbitant tariffs. On the negative side, there was the plunder and wreckage of Eskom by those associated with so-called ‘state capture’, among other factors, including unreliable supply and steeply rising electricity prices. The latter has led to lower demand in a vicious cycle known as the ‘death spiral’, which is gripping not only Eskom but also other utilities around the world.

Electricity supply is rapidly becoming less and less of the ‘natural monopoly’ that it used to be. This new reality means that the very conceptual underpinnings our strategic and regulatory considerations are changing substantially. These changes are at least as profound as the move from fixed line telephony to mobile phones but with a much larger economic footprint. Just as mobile phones opened up many new business opportunities and jobs, so too do the changes in the structure of the electricity market, especially for small and medium businesses offering more jobs than the current system and better quality jobs.

Because market forces are stifled by inappropriate regulation in the electricity sector, market signals are not swiftly or properly communicated to suppliers and customers. Instead, the industry has to wait for policy change and then regulatory change, notoriously slow processes. And in the meantime, customers are voting with their feet. And herein lies perhaps the single largest threat to the South African electricity industry – the political and regulatory lag in accommodating change fast enough to avoid a significant disruption.

South Africa has an electricity market structure for a previous era. Changing to a new one without significant disruption requires a whole new mind set. The approaching tsunami of new technologies means that it is probably impossible to develop a workable market structure with the same level of market interference as there is today. More space will have to be created for market signals to operate.

What is to be done? Government needs to move fast. Business and civil society need to move fast. The first objective is consensus on the basic principles underpinning the New Deal electricity market structure.

This will be the easier part. The more difficult part will be massaging the consequential raft of policy and statutory changes through the political system. There will be significant opposition, especially in this election year. It will only be possible by constant reminders of how close we are to the abyss and by occasionally getting all the stakeholders to peer over the edge.

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