You can’t grow an economy without electricity

By: Andre de Ruyter, CEO, Eskom 

Covid-19 has wreaked havoc on economies around the globe and South Africa is no exception. On top of that, we are facing a national crisis with inadequate electricity supply as a result of the constraints Eskom is going through.

“You can’t grow an economy without adequate electricity supply,” said Andre de Ruyter, CEO of Eskom, speaking at the latest Think Big webinar, hosted by PSG.

“Eskom has previously insisted on keeping the lights on at all costs, a philosophy that has done untold damage to the generation plant. Refurbishments were deferred and maintenance was continually neglected. This has left us with a generation system that is fundamentally unreliable and unpredictable, despite our best efforts to turn it around,” said De Ruyter.

Load shedding will remain a reality for now, though the risk of load shedding should be significantly reduced by September 2021 if De Ruyter is able to implement his plans. He acknowledged that load shedding is a deterrent to business investment in South Africa, and that business investment is critical to economic growth. De Ruyter believes that in addition to fixing Eskom’s generation system, we need to focus on building more generation capacity.

“We have to enable the country to procure additional generation capacity. This is why we are restructuring Eskom and separating the transmission business into a new wholly owned subsidiary that will be independently governed,” says De Ruyter.

“New private investment in generation capacity is critical and separating the transmission business will enable Eskom to buy electricity on an arms-length, independent basis,” said De Ruyter. This will give private investors confidence that their bids will be fairly adjudicated by an independent transmission systems operator.

South African electricity still cheap by global standards

Nobody wants to pay more for electricity, but De Ruyter said that reaching cost-reflective tariffs is critical for Eskom. “At a rate of R1.30 per kilowatt-hour we could continue investment and maintenance of our existing assets, and at that level our electricity would still be amongst the cheapest in the world,” Says De Ruyter.

“One of the big problems is that municipalities across the country use electricity as a money spinner for their revenue collection, and the margins they add on are sometimes higher than 80%. This is outside of Eskom’s control, and it is something that needs to be regulated by Nersa, but the public needs to know that the amounts they see on their monthly bills are not all Eskom.”

On top of charging the public these high margins, many municipalities have continually failed to meet their payment obligations to Eskom.

“There is over R31 billion in municipal debt owed to Eskom,” said De Ruyter. He believes the public have a role to play in holding their local councillors accountable, because, in the final analysis, the financial affairs of the municipality is the responsibility of the elected officials.

Options for building extra generation capacity

The role of nuclear power in South Africa’s energy mix is a hotly contested issue.

De Ruyter said Eskom is applying to extend the life of the Koeberg nuclear power station for a further 20 years.

“It’s a great asset to have because the station stays online 24 hours, seven days a week for 430 days at a time. But if you look at the capital cost of building a new nuclear plant it will probably end up costing R1.80 per kilowatt-hour,” says De Ruyter.

De Ruyter believes that this cost, as well as the long time it takes to bring a new nuclear plant online – 12 to 15 years – means this is not an ideal option for South Africa at this point.

“When you compare that to wind power at 70c per kilowatt-hour, and photovoltaic at about 60c per kilowatt-hour, and the fact that you can bring wind and solar online in 18-24 months, the decision makes itself, even if you ignore any environmental considerations,” says De Ruyter. 

The challenge then comes down to storage, and De Ruyter believes South Africa needs to invest significantly in storage capacity.

“This is going to be a big part of the program going forward, but even if you add on the cost of storage, renewable energy is still going to be more cost competitive,” said De Ruyter. 

Views on corruption

De Ruyter said that he is committed to assisting with the criminal investigations into corruption at Eskom, and the utility has initiated steps to recover billions from some Eskom former executives that were lost to corruption at the height of State Capture.

“People have criticised me, saying that all I’m going to do is enrich the lawyers – and of course the lawyers are going to make money off it. But if we don’t take this course of action, the message is clear: you can steal with impunity. That is just not a message that I think South Africa can afford,” said De Ruyter.

Time for everyone to pitch in

De Ruyter believes that South Africans have become disengaged and that they underestimate the difference individuals can make.

“When you see the notifications on television that the grid is under strain, your actions make a big difference. By switching off your geyser or your pool pump, you are making a positive contribution. Many people would rather stand around the braai and complain than contribute to fixing the country, and a fix is definitely what we need, not only at Eskom, but across all fronts,” says de Ruyter.

Johannes Theron, COO of PSG’s distribution team hosted the webinar and thanked de Ruyter for sharing his realistic views and for the contribution he is making at one of the toughest jobs in the country.

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