When I ask myself, will Eskom fail? My first thought was failure, but of course the real problem is: is it reversible? And, what is the budget speech? Will new incentives make a difference?
So, can Eskom be saved?
In theory, yes – with a government that decides to enforce its own laws and people in charge, it can be done. After all, Ukraine is operating its power infrastructure under direct attack in the war. So anything is possible. But the odds are against Eskom’s turnaround.
Why?
Infrastructure looting is the crack cocaine of corruption. Nothing is more addictive or self-destructive.
The more important the infrastructure, the worse. Why? Because the response to failure to throw more money at the problem. And that creates a perverse incentive to fail if looting is a game. The worse the problem, the higher the repair costs and the greater the looting opportunities. Contrast this with other less important state-owned entities. SAA is a shadow of its former self.
Despite the failure of Comair – which operates BA’s domestic brand as well as Kululu itself – there are other options. So when SAA becomes increasingly unviable, it may close. The Post Office works the same way. It never served the poor, who often had no street address. It is better to use the courier for packages and the internet for letters and documents. So the Post Office accident, although sad, is not paralyzing.
But when it comes to daily needs – electricity, water, sanitation and transport – things cannot be left out. However, this is what happened.
Even the cities that used to be good are slowly deteriorating, with widening holes and dead water. I have written about the infrastructural challenges in Makhanda, like the hundreds of millions of rand spent on upgrading the unfinished water plant. Many other cities will have the same problem. To make matters worse, more money is being thrown at the problem – but it’s getting worse.
If the only goal is to corrupt, the gift keeps on giving. Because the infrastructure is important, none of it has led to an investment attack. Who will invest in productive capacity if the infrastructure collapses? So the desperation to fix the problem grows, you get emergency measures to speed up spending with fewer checks and balances than normal. It’s a feedback loop: more failures mean more money, which means more loot.
Let’s go back to Eskom. Back when the proposed nuclear build emerged in 2016, R1 trillion seemed like an unaffordable sum. There are other reasons to be suspicious of this deal – the way it was negotiated behind closed doors and the hidden nuclear costs (waste disposal, dirty mining, links to weapons).
But when you set the cost against what Eskom has paid for the two newest coal plants Medupi and Kusile, this is not new terrain. One estimate in 2019 put the total cost at that point at R694 billion and that is not the end; in 2022 alone, a further R33 billion was added. Madupe started in 2007 and Kusile in 2008, each with an initial budget of approximately R80 billion.
Massive cost overruns are common with nuclear plants but not so much with coal; The final cost is about five times the initial budget. And that assumes there will be a final charge.
Madupi and Kasule together add up to 9 500MW, close to the amount proposed to build nuclear.
So, will nuclear, despite its risks, be the solution?
As long as the government doesn’t give up its addiction to looting infrastructure projects, building nuclear will inevitably have huge overruns in time and cost. Although not impossible, this is a large and complex project that could take a decade or more to complete.
So nuclear will not solve Eskom’s immediate crisis.
What about solar and renewable incentives in the budget?
By themselves, they can add a lot of capacity to the box very quickly. I will be fascinated to see if the Treasury has accurately estimated the cost to the fiscus of tax concessions.
Private households score up to 25% off the cost of solar panels. The government has budgeted R4 billion for household solar panels, indicating at least R16 billion will be installed, based on a 25% rebate, up to a maximum of R15 000. As a rough estimate, based on the price of several solar panels, R7 million buys about 1MW, so the budgeted subsidy is almost equal to 600MW panels.
For businesses, renewable power can be claimed as a 125% deduction against income in a tax year.
The business tax incentive scheme is not specific to solar but other renewable energy sources like wind turbines are more complex to build and are not an option for people who want a project up and running by the end of the tax year, the target for tax incentives. schema.
The cost is estimated at R5 billion. Since the corporate tax rate is 27%, the savings for businesses is equal to 33.75% of the cost of the entire system, so that the R5 billion cost to the government adds up to almost R15 billion in installed costs. The fraction of systems that are solar varies. How many batteries are there, for example? Let’s take 20% as a ballpark. This means that the budgeted amount is about R3 billion in solar panels or about 400MW.
Add the two incentive schemes and you get about 1GW, adding about 2% to South Africa’s nominal generating capacity (53.7GW in 2021).
Each stage of load shedding aims to reduce consumption by 1MW so that an additional gigawatt in the grid will make a big difference – although exactly how big depends on the amount of storage carried out with the new capacity, because solar varies by day and varies. dead at night. CSIR in 2021 estimates that solar nationwide will provide 26% of average rated capacity (capacity factor).
These numbers may be on the high side if solar becomes more widely installed including in areas with lower average sunshine. Even so, the incremental scale in this grid will be significant and can happen quickly in thousands of small projects, in stark contrast to one or two megaprojects that take years or even decades to deliver with a high probability of failure.
The biggest risk to the government from the scheme is that it may demand more than budgeted for. However, if a large increase in solar power reduces downtime, the gain in increased productivity – and hence tax revenue – can offset any increase in budgeted costs for the government.
In the longer term, a large increase in wind power will be helpful because it is less dependent on storage than solar.
But all this is only part of the solution. The beneficiaries of the scheme are the rich. Small businesses that make small profits cannot benefit from large tax breaks. Private households with limited means will not benefit from the 15% discount on solar panels, only part of the system costs. Programs are also needed to provide solar power in schools, hospitals and other public facilities that primarily serve the poor. This will reduce operational costs for the facility, increasing resources to provide services. There should also be a program for subsidized solar power in low-income households and RDPs.
Local governments must offer government funding to support essential infrastructure including water, street lights and government buildings. This has two benefits: services are less affected by the load and the reduction in Eskom’s own bills will offset the lower income of residents and businesses that take advantage of the new incentives.
Unfortunately, anything the government does runs the risk of looting. Therefore, I would like to see an NGO that is trusted to run programs for the poor. However, more reliable basic services will benefit the poor so that equity cannot be cut if local governments take up my proposal.
So where does this leave Eskom?
We are still far from completely replacing its fleet. Even 1GW of solar is only the smallest coal-fired power plant, with a much lower capacity factor. But if Eskom continues to decline, the incentive to find an alternative increases. The biggest risk is that we have a Model C country: which has the means to pay for what should be a universal service and which is without struggle. Is this what you want?
A faster move to renewable energy must be part of achieving climate justice, not another way to disadvantage the poor.
Back to the original question: does this help Eskom? Maybe by removing the immediate pressure to do something important. Without that pressure, a more considered decision could be made to transform Eskom, with less pressure for emergency funding – and therefore more oversight.
Ironically, the greed of those who have taken over the state and Eskom to maximize profits from coal can shorten the life of coal. Some imagination is needed to turn this into an opportunity for equality, yet add more inequality.
The views expressed are those of the author and do not necessarily reflect official policy or position Mail & Guardians.