Eskom – the worst kind of monopoly
AT 4AM on January 18, 2007, the Eskom top brass huddled in a room for an emergency meeting that would change South Africa forever. The utility was running perilously short of electricity. In the week before, there had been unplanned outages at Camden, Matimba, Majuba, Kriel and Tutuka power stations. By the time of the meeting of the Emergency Command Response Centre, 5GW was offline, or about 15% of the system. At 8am, Eskom reduced the electricity supply to its large customers.
On St Valentine’s Day, February 14, 2007, Eskom appeared before Parliament to explain what had happened and used the word “load shedding”.
We know from Google that this is actually an old word in the electricity world: one of the earliest uses appeared in the Great Britain Electricity Supply Commission Report of 1937. But for South Africans, this was the first time that “load shedding” had been uttered so publicly, and in Parliament.
And since then, South Africa has known that it has too little electricity to run the country.
For economic success, we urgently need to find a way to produce more electricity quickly.
So why do we not have enough? Because we have not kept up with the times. We have allowed the ideas of long-dead men to control the way we operate even as the world has moved on. We have based our entire system of how we supply electricity on a model that dates from 1923. In 1923, the most popular and “technologically advanced” car on the road was a Model T Ford. In respect of both electricity supply and motoring, the world has moved on, and we need to do so as well, or else we will be left as a country in the dark forever.
Before we get started, there are three basic elements in electricity supply. First, there is generation: producing electricity at a power plant. Second, there is transmission: moving the electricity from the power plant to a bulk supplier like a municipality, usually on a high-voltage line. Finally, there is distribution: getting the electricity the last few metres around the suburb or city to the end user. Each of these elements has its own complexities and is quite different from the others – this will be a core part of our story. We start in China with a blackout. In early 2003, large parts of China went dark as rolling blackouts hit the country. A recession in the late 1990s had collapsed the demand for Chinese goods and consequently no power plants were built between 1997 and 1999. When the economy recovered, demand for electricity exceeded supply. Electricity therefore had to be rationed: it was load shedding in all but name.
To fix the problem, China moved quickly. Historically, China had a single power company for the whole country – the State Power Corporation. This single corporation was too complex to manage the electricity demands of the entire country. And so, rather than continuing with a single state-owned company to manage all parts of the electricity system, the Chinese chose to create a set of nimble, focused stateowned enterprises for each bit.
Two new independent transmission companies (one for the north and one for the south) were established to carry the electricity. Generation was transferred to five independent generating companies. The Chinese realised that transmission is what economists call a “natural monopoly”. It is more efficient if there is a single transmission grid for an area rather
AFTER state capture, South Africa is f***ed, not in a good place. The system is down. How do we reboot? We are not the first country to find itself in a difficult spot. China, India, South Korea, Vietnam and many others have gone from being economic basket cases to powerhouses, lifting millions out of poverty. So how can we pick ourselves up and fix things? In this book, Roy Havemann argues that right now we need to focus on six basic “E”s: Eskom, Education, Environment, Exports, Ethics and Equality. Havemann lays out how to practically learn from other countries’ achievements and mistakes: for example, how China, Greece and Colombia solved load shedding, how different South American countries are dealing with inequality and how Brazil and Kenya are upgrading their education systems. He believes we are slowly moving in the right direction, but more can be done to accelerate reforms to make South Africa a success. Sometimes the solutions to our problems are right here – all that is needed is for us to recognise and harness them. than multiple grids. This part had to remain under state control.
But the Chinese recognised that in the modern era, generation does not have to be a monopoly. Indeed, smaller generation companies are easier to manage, and the Chinese even allowed for some private sector participation.
What were the results of untangling generation from the rest of the state-owned monopoly? Between 2003 and 2006, new generation companies added more than 237 500MW (megawatts) to the Chinese grid.
To put that in perspective, on January 15, 2023, in the middle of stage 6 load shedding, Eskom had 24 700MW available for generation. So the Chinese model delivered nearly 10 Eskoms in three years. In addition, spinning out transmission into a separate entity with its own borrowing capacity enabled the Chinese to expand grid capacity.
With these ideas in mind, we turn to what South Africa can do to get over its own electricity crisis. I will show that by democratising electricity and shifting away from Eskom’s monopoly, we too will be able to achieve a sustainable electricity supply.
In this chapter, we take the elements of growth – technology, capital, labour and institutions – and apply them to the question of Eskom. In terms of technology, we should upgrade. Just as the world has moved on from flip phones, in electricity the new technology is solar and wind power. City Power in Johannesburg charges customers more than R2 per kwh (kilowatt-hour). In South Africa, the fifth round of bids for the renewable energy programme came in at the lowest cost ever. The cheapest solar bid was 37.5c per kwh, and the cheapest wind bid was 34.4c per kwh.
Then we need capital or investment to build new power.
We can do this by letting independent power producers build power stations. This will require us to press ahead with allowing independent power producers to supply electricity, as they can borrow and invest.
Our labour ingredient requires us to invest heavily in skills for the electricity revolution. But the biggest change needs to be made in institutions – the “rules of the game” – and the way Eskom is structured. Currently Eskom is what is called a “fully vertically integrated monopoly”. This is probably one of the worst types of monopoly. What it means in plain English is that Eskom controls all parts of the electricity chain: how it is generated, how it is transmitted, and how it is finally sold to the consumer.
Imagine if we allowed Shoprite to be the only supermarket chain in the country, and to control the farms, the trucks between the farms and the warehouses, and the final destination of the food.
Without the discipline of competition, it would be unsurprising if Shoprite stopped trying to deliver good-quality food at the right price.