The rolling blackouts started happening again in June 2018. By February 2019 they were the worst they’ve ever been. South Africans found their electricity was being switched off for hours throughout the day. Businesses were forced to shut their doors, office work was disrupted and restaurants were left without power.
With South Africa already struggling due to a high rate of unemployment (26.6%) and low economic growth (predicated at only 1.3% this year), Eskom’s failure to provide the country with reliable and affordable electricity has become a national disaster that is crippling the country’s economy.
Eskom is Africa’s biggest supplier of electricity and one of the top ten energy-generating companies in the world. Owned by the South African government, it is the largest state-owned business in the country and operates the sole nuclear power station in Africa.
The utility relies predominantly on coal, which is both cheap and abundant in South Africa.
While other countries depend on the competition between electricity companies to lower prices and therefore regulate the market, Eskom has maintained the monopoly on electricity supply since it’s establishment in 1923.
What’s the problem?
The state-owned company has been in a crisis for over a decade now and has been called the “single largest threat to South Africa’s economy” (Nhlanhla Nene, SA’s former Finance Minister).
Why did they fail?
The main issue is that Eskom’s operating costs are exorbitant and it cannot pay off its own expenses let alone its debt (R419 billion). To alleviate its high costs the government have continuously increased tariffs, resulting in many of its reliable consumer base going off-grid or seeking alternative energy sources.
Climate change has also added extra pressure on the government to introduce renewable alternatives, like solar and wind power. Formally too expensive to compete with coal, the popularity and development of new technologies has resulted in renewable energy operations become increasingly low-cost and therefore decreasing the demand on Eskom’s’ coal-generated electricity.
Subsequently, Eskom’s sales have decreased by about 1% every year, while their debt continues to rise:
What caused all this debt?
One of the reasons for Eskom’s massive debt is the construction of two of the largest coal-fired power plants in the world. Unfortunately, the amount they cost to operate has drastically exceeded the original budget of R19 billion to around R150 billion each and thus, they are now falling into disrepair due to mismanagement.
“These power plants are probably the single largest disaster in South Africa’s economic history.”
Rod Compton (professor at the African Energy leadership centre at Wits Business School)
What’s happened as a result?
Eskom cannot meet the overwhelming demand for electricity due to increased demand, lack of working machinery, lack of capable employees, corruption within the organisation and poor management. This has resulted in on-going load shedding.
What is load shedding?
The dictionary defines load shedding as: “to reduce the load on something, especially the interruption of an electricity supply to avoid excessive load on the generating plant.”
According to Eskom the reason for implementing load-shedding is to protect the power system from collapse when the national grid is under strain.
South Africa has been experiencing load shedding from as early on as 2007.
Yet since 2015, the company have managed to prevent power cuts from occurring.
However in February 2019 the country experienced some of the worst blackouts on record with the power being shut off 12 times over 4 days (stage 4)
How are regular South Africans affected?
Load shedding negatively impacts all sectors of commerce from ordinary households to shopping centres, offices and restaurants; with small business owners being hit the worst.
In 2009, Eskom was selling one kilowatt hour of electricity at 24c (1 p sterling) but in 2018 it is projected at about 97c (5 p sterling).
So what next?
Experts say that the situation is only going to get worse, especially over the next ten years as Eskom are forced to shut down many of its older, out-of-date power plants, losing over a quarter of its generating capacity. Replacing these obsolete plants will cost the government an estimated R1 trillion (54 billion pounds).
What can be done?
In February 2019 the government proposed a R32 billion bailout of Eskom’s debt for the next 3 years. They also agreed to raise the tariff to 14% to try and meet operating costs.
However Eskom said this amount would not be sufficient to keep the company financially secure. Right now the company is borrowing money just to pay off older debts.
Many of the public are leaning towards privatisation of the company as a relief from having to bail out Eskom through tax-money.
However, due to the history of state capture and political corruption in South Africa, others believe the privatisation of the company will lead to politicians selling Eskom at an unfair value and lining their own pockets
Energy expert, Chris Yellend is slightly more optimistic about a solution:
“Eskom need to sort out the problems of unplanned breakdowns by doing better and proper maintenance. This is not just a quick fix, it can take time and money, but we’ve already got the capacity. We just need to get it working.”
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