HILARY JOFFE: SA has already flirted with a good energy plan. Why not commit?

17 March 2019 - 00:12

With tariffs due to rise steeply for another three years and Eskom load-shedding yet again, it's worth asking if the proposed unbundling of the utility offers any kind of solution to its severe cost and competence problems. President Cyril Ramaphosa told SA in his state of the nation speech that the government was embarking "immediately" on a process of establishing three separate entities - generation, transmission and distribution - to bring credibility to Eskom's turnaround and position SA's power sector for the future. Finance minister Tito Mboweni repeated the "three independent components" message in his budget speech. The National Union of Mineworkers (NUM), which opposes the plan, is now threatening a protest strike that will shut down power stations.
But it's not the three-way split in itself that has the most potential to shift Eskom's performance; it's a plan, now two decades old, to pull out one of the pieces as an independent state-owned entity - the transmission grid. An independent system and market operator (Ismo) - or Tismo, with transmission - would transport the power and keep the lights on by balancing demand and supply, whether that supply be from Eskom power stations or independent producers.
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Ramaphosa mentioned the Ismo second - sequentially it should have come first. This is a common structure internationally, and SA has already done plenty of work on how to do it. After a 1998 white paper made it government policy, Eskom ran an internal power market for a couple of years in the early 2000s with a view to unbundling the Ismo; an Ismo Bill went through parliament in 2012 before being shelved; and Eskom ring-fenced transmission two or three years ago with a view to making it independent, but that was reversed.
The national power grid is the real natural monopoly, and splitting it out doesn't mean privatisation (or even necessarily retrenchments) - it makes sense for it to be state-controlled, and perhaps the president in his talks with the NUM is now trying to undo the damage done by the ultra-vague communications on Eskom restructuring thus far.
So what would independence achieve? A key argument is that it would facilitate the entry of independent power producers (IPPs) into the system, including all those renewable energy producers, and enable competition, helping to address Ramaphosa's "too many eggs in one basket" concerns about Eskom's monopoly. In theory, Eskom itself could and should have been clearly mandated by the government to sign up the IPPs and dispatch their power on an equal footing with power generated by Eskom. But government policy has been incoherent, and giving the power to an Ismo would certainly address that, ensuring that the IPPs were allowed in and that the system operator couldn't discriminate against them when it came to whose supply it would buy. It could simply buy from the most reliable and cheapest supplier at the time, whether Eskom-owned or privately owned.
That touches on an even more compelling argument for an Ismo - that it would impose discipline and transparency on all those underperforming Eskom power stations. They would have to have power purchase contracts with the Ismo. If they didn't supply, they simply wouldn't get paid. And if they could not supply power at competitive rates, and reliably, they might not get to supply at all. Whether that would mean the power stations themselves would have to do the resulting, probably highly contested, cost cuts is one of many unanswered questions about the Ismo plan.
A well-structured Tismo regime would force efficiencies on Eskom generation, so it could address cost and performance issues, at least over time. The rest of the unbundling might come later. But all of this is still entirely unclear and uncertain, and that can't be good for markets or for Eskom or for the economy. It's ever more urgent that the government and Eskom tell us what the plan is...

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