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Oct 09, 2012

Distribution maintenance backlogs threaten power supply

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If the lack of maintenance persists, South Africa’s electricity distribution grids would only last another three years, South African Independent Power Producers Association MD Doug Kuni warned Tuesday.

Speaking at a media briefing in Johannesburg, he said that close to R50-billion would be required to deal with the maintenance backlog in the country’s electricity distribution infrastructure.

“A solution must be urgently found to avoid blackouts at the distribution level. There is no perfect solution that will satisfy everyone, but there are workable solutions to ensure the necessary maintenance is carried out and municipalities derive some income,” Free Market Foundation Energy Policy Unit director Eustace Davie said.

He suggested that municipalities could sell their distribution grids.

“Although municipalities will make less money, it will be in their interest to maintain their grids to attract investors. If this is not done, we could suffer blackouts owing to poor maintenance, not an electricity supply shortage,” Davie warned.

Benefits that municipalities would incur from the sale of assets would be cash injections and the assurance to consumers of well-maintained and developed electricity supply subsystems into the future.

“They will be relieved of the burden of finding capital to continually maintain and upgrade the systems, but would have to weigh that up against the loss of income from the profit they currently make on the sale of the electricity,” Davie pointed out.

He said another option for municipalities would be to contract out the maintenance of their grids. This could be in the form of concessions or maintenance agreements.

Davies further noted that fostering competition in South Africa’s power generation sector would grant consumers with choice and lower prices, as is the case in New Zealand.

He believed that the Eskom monopoly was not benefiting consumers in terms of prices and supply.

“The threat of power failures at the national level can most expeditiously be dealt with by making it possible and sufficiently profitable to attract the entry of independent power producers [IPPs] to build power generating plants and provide the required electricity.”

However, regulatory barriers to the transmission and sale of electricity hampered the entry of IPPs.

“The 178 electricity-distributing municipalities [in the country] are currently totally dependent on Eskom for the electricity they distribute to customers and are compelled to refuse to approve some new developments, owing to unavailability of adequate electricity supplies; the presence of IPPs will totally change the dynamics,” Davie assured.

Meanwhile, Kuni noted that an independently owned and operated high-voltage power grid was essential to solve South Africa’s electricity supply problem.

He added that independent grid would encourage IPPs to invest in new generation capacity.

“An independent grid does not necessarily have to be owned by the private sector, it can be owned by the State, as long as its it independent from the power generator,” Kuni noted.

Further, he stated that given South Africa’s 5 000 MW power deficit, the country should be implementing load shedding, which would be less costly to the economy than the Eskom’s buyback programme.

He said the programme was depriving the country’s economy, or productive sector, of electricity, instead of its unproductive sector, which was the residential sector.

“We are taking electricity from the ‘goose that lies the golden egg’, to avoid a symptom that is load shedding.”

Citing statistics published by the National Treasury, Kuni said that for every unserved kilowatt hour (kWh), the country was losing R75/kWh. If sustained, cutting supply to the industrial sector to avoid load shedding was anticipated to reduce gross domestic product to 2.5%.

In 2007/8, blackouts cost the economy an estimated R50-billion to R119-billion.

He also warned that power shortages in the economy were warding off foreign direct investment.

Further, Kuni slammed Eskom for its slow progress in providing the much-needed additional electricity.

“Medupi’s commissioning date has continuously been postponed. By the time the current building and planned power production is completed electricity demand will have increased further.”

He warned that without new electricity, all the economic development programmes in municipalities would be to no avail. “Without extra power, you cannot develop your economy,” Kuni noted, adding that although government had the ability to put together good plans, implementation remained a stumbling block.

“Policy makers, law makers and regulators need to take steps urgently, we need an implementation programme that goes forward.”

Edited by: Mariaan Webb
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