Wednesday, December 12, 2007

Who is to blame for South Africa's power crisis?

Very few people aren't hot under the collar about load shedding in South Africa. Load shedding occurs when power supply cannot meet demand and customers are cut off to prevent brown outs and black outs.

As someone who has worked as a consultant to the industry I've had to bight my tongue as to the real reasons behind the problems. But it seems the government is now admitting to the problem (see the article below and more here).

Indeed the government did ignore Eskom requests to build more generation capacity. And as such the country will be short of capacity for at least another 4 years.

Further, the reason they ignored the requests was due to consultants who sold the government on the idea that the South African market should be liberalised (open to competition). Until that happened, Eskom's right to build was taken away. New entrants would build the power generation capacity in a market with the lowest electricity prices in the world - prices that could not cover their costs of capital.

Further, the government then adopted an inflation targeting regime. Applications for electricity price increases outside of the government's inflation targeting range were greeted with howls of protest and derision.

Further still, we have a de facto industrial policy that exports electricity though high energy input manufactured items such as aluminum smelting and mining. One aluminum smelter consumes as much electricity as a city the size of Port Elizabeth. The recent efforts to get an aluminum smelter as anchor tenant for the Coega industrial complex in the Eastern Cape completely ignored the fact that our power prices need to rise substantially to cover the costs of capital of new power stations and the supply crunch we currently suffer.

Neither liberalisation nor inflation targeting are bad policies. However, as with most things in life, adopting a polar position ignores the realities. Overzealous liberalisation contributed to power outages all over the world, including the California and US East Coast crises. Investment decisions are typically based on 5 to 10 year paybacks. Electricity planning requires at least a 20 year horizon. A major power station takes from 10 to 15 years to plan and build. For this reason, private enterprises seldom invest enough or in time to ensure uninterrupted electricity supply.

I have sympathy for the guys at Eskom right now. It will continue to be a thankless task working there over the next 5 years. Their planners knew we were running out of electricity but were held back from building new capacity.

Many who love to criticise anything post-apartheid have been joined by millions of other suffering South Africans pointing fingers and claiming that only morons could have got us into this situation.

I'd point directly at the various consultants who earned hundreds of millions promoting new build policies that ignored the coming supply crunch. Of course the decision makers at the Department of Mineral and Energy (DME) aren't much further behind in the blame queue - they listened.

In the mean time, this is costing the economy and me a fortune. I shelled out about R7000 (US $1000) for a UPS a while back to keep my business computer server going during interruptions. Given the duration of interruptions (this week two scheduled interruptions of 2 and a half hours each), the UPS is not enough. I've been busy with a project to extend my pond and pumphouse and so have built a generator room. My next expense is to rewire my house for automated power switchover to generator on a power outage and a generator itself. That is going to cost a fortune. The next expense will be for diesel to keep the thing running.

Goverment ignored Eskom pleas
Dec 12 2007 11:25 AM

Johannesburg - President Thabo Mbeki has acknowledged that government under-investment is to blame for a growing number of power cuts that have plunged large parts of the country into darkness.

Addressing a fund-raising dinner for the ruling African National Congress night, Mbeki said his government should have heeded pleas by state power utility Eskom several years ago to invest more in electricity generation to keep up with country's economic growth.

"When Eskom said to the government: 'We think we must invest more in terms of electricity generation', we said no, but all you will be doing is just to build excess capacity," Mbeki said in comments broadcast on public radio.

"We said not now, later. We were wrong. Eskom was right. We were wrong."

Mbeki's rare public apology comes at a time when the country is experiencing the worst power cuts in years, forcing Eskom to start rationing electricity this week as part of a programme that should last until the end of the week.

The rationing has led to a raft of complaints from businesses and retailers in the build-up to Christmas, while traffic jams are a common sight with many traffics lights out of action.


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