Grid connection fees vital for Eskom, municipalities
THERE’S been outrage from some quarters in South Africa about reports that Eskom and some municipalities intend to increase the connection fee for electricity users who also generate their own power.
A number of commentators have also criticised the idea even though Eskom has said that no such proposal has been tabled officially.
We take a contrary view, for two main reasons. Firstly, we believe that grid connection fees are crucial to protect the finances of both Eskom and municipalities. Secondly, they are needed to support the “just transition” to which the South African government and energy experts claim to be committed.
There is a broad consensus that the world needs to move to “net-zero” energy sources to avoid a global warming climate disaster. For South Africa’s coal-based society, this transition will have a major effect on peoples’ livelihoods and standards of living. A “just transition” would distribute the costs, benefits and opportunities fairly.
The proposed connection fee is a good example of the principle. The fee is needed to cover the costs that electricity providers incur to build and maintain the capacity to generate and deliver additional energy when users’ private systems cannot provide enough.
Opposition to the connection fee reflects the interests of commercial users and wealthy individuals.
The debates have left the wider public confused. South Africa’s electricity supply has become increasingly unreliable and expensive. Many of those using solar at home appear to believe that they should not be charged for, as they see it, helping to solve electricity supply problems.
Our view is that both grid connection fees and structured feed-in arrangements are necessary to ensure greater fairness in the social distribution of Eskom’s financial woes. The burden of the costs should not disproportionately fall on the less wealthy middle class, the working class and the poor – or on future generations.
The confusion is aggravated because the government is in the process of separating Eskom into three separate components: generation, transmission and distribution. We have argued that this is at best a misplaced priority which risks aggravating the country’s electricity problems.
Eskom has a generation crisis and a financial crisis. The generation crisis is most visible because it manifests in staged power cuts.
The financial crisis could be aggravated by the government’s decision to allow large-scale decentralised electricity generation. While this may help to reduce power cuts, it will make
Eskom’s financial problems worse.
Decentralised generation will also undermine municipal finances because they rely on levies on electricity sales to raise revenue.
The financially unsustainable combination of grid defection and higher tariffs creates the so-called electricity utility death spiral. Under this scenario, the government and citizens either have to take on the costs or allow the utility to fail.
Since failure would have a disastrous impact on the government’s broader ability to borrow, the costs will inevitably be transferred to citizens through higher taxes and public debt levels, or reduced expenditure on goods and services.
Wealthy households and businesses that choose to generate their own electricity and “defect from the grid” often stay connected so that they can use electricity from the public supply as a back-up.
A (higher) grid connection fee for these defecting electricity users will reduce the financial losses and be less inequitable.
But it will not prevent wealthier municipalities sourcing electricity elsewhere and large companies going entirely off grid – those problems will require other solutions.
The complexities involved provide fertile ground for critics and lobbyists to press for more favourable treatment for wealthier individuals.
But for a “just transition”, the decentralisation of power generation must ensure that the costs and benefits are fairly distributed in society at large.