Eskom – Restructure or Destructure?

The Government proposes to restructure Eskom into three entities:

• generation
• transmission
• distribution

What is not clear is what problem this is meant to solve. Eskom’s problems are many and deep. The most obvious are:

• failure to diversify away from coal – a sunset technology not only because of climate change but the massive pollution it causes in the vicinity of mines and the other toxic pollutants it emits like heavy metals
• massive crisis in municipal debt – many are so far behind in paying Eskom that they have no way of recovering
• unsustainable payroll –  there are estimates that Eskom has as many as 30,000 more employees than it can afford; the exact number is under question but it is likely to be large
• inability to manage large generator projects – not only is Eskom investing in massive coal plants when this is the worst possible time to do so, but they have had massive cost overruns and are not operating reliably many years after they should have been commissioned

Which, exactly, of these problems does the proposed restructuring solve?

None of them.

Instead, it creates a new problem. If you split distribution of electricity from production, the distribution entities have an incentive to under-invest in maintenance as their business does not suffer as much as the producer if parts of the network fail. This is exactly what happened in Australia when this sort of split occurred. A similar example is the split of the British rail system where the rail network was no longer owned by the train operators and maintenance was neglected.

So what is the alternative?

The simplest is to keep Eskom as it is and lay off a large part of the workforce. But politically this cannot fly as mass job losses is not a plan any party will sell at election time. We also need to consider the effect on the workforce.

A better plan is for Eskom to stop resisting large-scale deployment of small-scale solar power. A rapid roll-out of home-scale and small business solar could add a gigawatt to the grid in a short timer – as little as 6 months. Two things hold this back: inadequate support of exporting excess power to the grid and municipal reliance on profits from sale of electricity. Both of these can be addressed – and I will in a separate article.

Eskom should split as follows, to enable this:

• bulk generation and distribution – what Eskom does now but with a reduced workforce
• RDP solar – installation of a solar panel on every RDP house, with an initial target of 1-million homes, to be funded by a combination of government subsidy and cost recovery of a share of the electricity generated for the first 5 years
• public institution solar – schools and tertiary institutions should be encourage to go solar, with a mix of subsidies for the less wealthy and private funding for the well-funded insitutions
• home solar – no subsidy; those who can afford to buy solar should be permitted to feed into the grid with a feed in tariff equal to their municipal electricity tariff

Each of these could be one separate company, or be further split if geography makes a smaller entity more viable. In the initial stage, the former Eskom company would be the sole provider where government was involved to eliminate the time delays and corruption of the tender process. Once we have the first gigawatt installed, this can be opened up to competition.