Eskom is back in trouble and energy prices are still too low

Eskom has once again run into problems meeting demand for electricity in South Africa. This comes as several of the utility’s demand side management subsidy programs have been discontinued due to a “lack of financial resources”. Large industrial companies have had to curtail their production costing the country in lost economic opportunity at a time when inflation, exchange rates and high level of government debt mean that we can ill afford loss of productivity.

Ultimately, although big business only is asked to reduce power, the effects are felt through the entire economy including the poor.

The situation further emphasizes Eskom’s funding dilemma and puts the spotlight back on the electricity price increases requested in the previous MYPD (multi-year price determination) applications – 16% y.o.y for 3 years. With Eskom’s business prospects heavily reliant on cost reflective tariffs, the public and the government are under pressure to raise prices or face the consequences of further blackouts or requests for curtailment – either route effecting the economy negatively. Cost reflective pricing however, would allow other technologies to be valued alongside the current power prices in a more equitable way. We have already seen that new solar power is cheaper than new coal.

Hybrid renewable solutions are starting to gain traction in being able to provide a secure and stable supply, whilst still remaining carbon efficient and cost effective in some cases.