Power problems make even the good news tricky

There is good news and there is bad news. First the bad: electricity tariffs will rise sharply after Nersa allowed Eskom another bite at the cherry. The good news is that businesses and households will be able to generate their own electricity, meaning that not only can they ditch Eskom or at least try, they can earn money from the electricity they generate if they feed it back into the grid. But even the good news may have negative unintended consequences. City councils, which usually add a margin to the electricity tariff they charge consumers, risk losing crucial income. Theoretically, the margin should be used to maintain and extend electricity infrastructure, but it’s often used for other purposes. Even if municipalities do spend it on electricity infrastructure, the demands are intense. Load-shedding earlier this year damaged some of Johannesburg’s electricity infrastructure that the city had to pay to fix, and vandalism and theft mean constant replacement costs. In addition, much of City Power’s old infrastructure constantly requires repairs, and there is the much-needed extension of electricity to areas that still do not have power.

Businesses and middle-class residents (with their pools and multitude of appliances) are the most likely to be able to afford to go off the grid, meaning councils can expect less income from this lucrative customer base. And other customers are already purchasing less electricity as they struggle to make ends meet.

Johannesburg mayor Herman Mashaba said in a statement this week: “Around 45.2% of our residents exist, barely surviving, below the poverty line. Just over 900,000 of our residents are unemployed.” And this will worsen with Nersa’s decision to grant Eskom a 15.63% tariff increase from the previous rise of 9.4% for the 2019/2020 financial year.

Big metros that lose lucrative middle-class and commercial customers will find other ways to make up the lost revenue with, for example, higher property rates. And of course small-scale embedded generation — generating electricity on the site where it is used — also means municipalities could generate their own electricity or possibly buy from other suppliers aside from Eskom.

But in some smaller municipalities some businesses are already making their own plans to ensure reliable electricity supply, and more are now likely to follow.

Chicken and feed producer Astral Foods has had long-standing problems with electricity supply in Standerton due to the municipality’s arrears with Eskom. It was ultimately left with no option but to turn to the courts. The company said in its 2018 annual report it received a high court order “guaranteeing the business uninterrupted electricity supply, which includes a provision for the direct payment of the electricity bill to Eskom and not the local municipality”. But it added that poor maintenance of “municipal infrastructure for electrical reticulation is now regarded as an increasing risk in most municipalities in which Astral operates”. The company is working on projects to cut its reliance on Eskom or become self-sufficient through solar power, gas or using waste to generate electricity.

Energy minister Jeff Radebe’s move to enable industrial, agricultural and mining enterprises to own electricity projects that generate between 1MW and 10MW has been welcomed. However, given the government’s many policy flip-flops in recent years, it may be wise for those with plans to install relatively large-scale generation on site with the aim of feeding electricity back into the grid to wait for clarity — specifically on the tariff that can be charged — before incurring the costs.

And given the precarious finances of Eskom and many municipalities, there will be a pushback against plans to dent the utility’s monopoly and curb one of the municipalities’ main sources of income.

The right to ditch Eskom likely to cut income for city councils