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Electricity crisis in SA? Lights are on aren’t they?

24 August 2012 – "Because the lights are on in South African homes and offices, we think there is no electricity crisis. It’s an illusion. In fact the lights should not be on all the time as Eskom should be load-shedding. Instead it is Eskom’s buy-back programme which has been keeping the lights on and Eskom’s savings are in fact losses; serious and unrecoverable loses to SA’s economy which will impact far into the future." This was the comment from Doug Kuni, MD of the South African Independent Power Producers Association (SAIPPA) at a media briefing held at the Free Market Foundation (FMF) on August 14th 2012.

Kuni said that a conservative estimate of the supply shortage is 5,000MW excluding current projects. Unless this crisis is acknowledged and resolved very urgently then all talk of growth and jobs is superfluous because without power the economy cannot grow and it is already preventing desperately needed job-creating economic expansion in the region of 3.0 to 3.5% gross domestic product (GDP) per annum.

Part of the problem is the regulatory hurdles faced by independent power producers (IPPs) and the lack of urgency from the regulatory authorities charged with South Africa’s electricity policy. No one is seriously dealing with this crisis. Eskom cannot do any more but buy power out of the economy. The minister, Dipuo Peters, in the Department of Energy (DoE) maintains that, because there is no load shedding, there is no crisis. The DoE’s renewable energy programme has hit delays. There is no other visible activity aimed at resolving the most serious issue facing the SA economy; most serious because, without an adequate electricity supply, there will be no new jobs on a mass scale.

The 1998 Integrated Energy Plan (IEP) white paper set out a sound policy and should have been implemented but was not. The Electricity Regulation Act second amendment prevents the wheeling process by which IPPs would sell electricity across the grid to consumers while the independent system and market operator (ISMO) bill will not create an independent grid which was specific policy in the 1998 IEP and is essential to a well-functioning electricity market. This is unconstitutional because it alters the policy set down in the IEP without parliamentary approval.

According to Kuni, "In a complex and unfathomable combination of the second amendment, the ISMO bill and new government regulations which require ministerial approval for an IPP to obtain a license, these three have created regulatory obfuscation with dubious intention,  in that there is no rational explanation other than to prevent development from happening. The new requirement for IPPs to get ministerial permission has no prescription or process attached i.e. an IPP has no idea what it needs to do to get this. The whole process is vague and probably unconstitutional and IPPs have to spend hundreds of thousands of rands in development before they can even apply for this discretionary ministerial permission. IPPs are in limbo until they get clarity. This must not continue and government and regulators must be galvanised into immediate action.

Kuni, joined by Leon Louw (FMF’s executive director and a member of the Energy Policy Unit), says this is not Eskom-bashing but bad policy-bashing. Eskom has no choice but to take revenue from wealth and job creating organisations and use this to pay the same people not to create wealth and jobs. "In any other circumstance this behaviour would be considered bizarre. Instead it is slowly destroying the prospects of the eight million unemployed citizens in South Africa and Eskom’s talk of a diminished credit rating if assets are separated is simply a red herring to divert attention from the immediate and desperate electricity crisis facing South Africa."