These claims are dubious. For instance, the claim about private sector financing rests on the assumption that private investors will get a guarantee of future tariffs or revenues. But a guarantee would also facilitate Eskom borrowing from financial markets itself. And the obstacle to such a provision is partly regulatory and partly that it would create a large contingent liability for the state.
Similarly, private investors will only get involved where Eskom is expected to be profitable in the future. That means that the cost and debt overhangs from the country’s two biggest coal-powered fire stations, Medupi and Kusile, will remain the problem of government and citizens.
A great deal has been written about the restructuring of state-owned enterprises. There have been both successes and failures. International experience across many industries shows that while separation can have a positive effect, it can also lead to breakdown of communication and information flows, distortion of incentives relative to the public interest, decline in operational indicators and excessive profits for private participants.
A prominent example is the privatisation of passenger rail in the UK. What followed was a deterioration in services and subsequent, large government bailouts.
The nature and extent of the risks in the case of Eskom’s unbundling require a detailed analysis. The current narrative gives them too little attention.
Those pushing renewable energy as the panacea are, in my view, downplaying the downsides and playing up the benefits – suggesting, for example, that it’s a costless solution. But it’s not.
Decentralised renewable power generation by firms and households is rarely entirely “off grid”. When the sun doesn’t shine, electricity is drawn from the grid. But revenues from the sale of this electricity aren’t enough to fund the costs of the underlying generation and transmission infrastructure.
Other countries have got round the problem by introducing a high “grid connection fee”. This hasn’t been given much attention in South African commentary.
And while some have led the public to believe renewable energy will ameliorate Eskom’s operational crisis, they fail to mention that it could exacerbate the utility’s financial crisis. Adding renewable capacity does not remove the costs already incurred for new coal-fired power stations. And decentralised generation reduces Eskom’s revenues.
There are other reasons to gradually expand South Africa’s renewable energy capacity. That is certainly better than pursuing a nuclear power option. But obscuring its downsides will lead to dangerously inaccurate beliefs about what is actually a very limited role for renewables in addressing the current crisis.
It would have been preferable if the dangers of restructuring Eskom had been properly considered before the the president and finance minister made their statements. But given that the path appears to be set, it is paramount that policymakers and the public be awake to its complexities and risks.
Seán Mfundza Muller is a senior lecturer in economics and research associate at the Public and Environmental Economics Research Centre, University of Johannesburg
This article originally appeared on The Conversation.