50 South-Africa
Tooze
In the 1990s mining and minerals accounted for 40 percent of electricity consumption in South Africa. Conversely, electricity, even at heavily discounted tariffs, accounted for 32 percent of the intermediary costs of gold production. It takes 600 kwh to yield one fine ounce of gold. As a result, South Africa’s economy was estimated to be three times more electricity intensive per unit of gdp than the USA.
In 1970s as the South African apartheid regime faced the oil crisis, the escalation of the Cold War on the African continent in Angola and Mozambique and the Soweto uprising of 1976. The strategists of Apartheid began to fear what they called a “total onslaught” that would require the South Africa state to defend a last redoubt of white rule. For the power sector, as Andrew Lawrence argues, the implication was that Escom needed to dramatically increase capacity - to a gigantic total of 70 GW by the year 2000. A key element of this expansion drive was the nuclear power plant and weapons program at Koeberg
The last of the big 1980s projects was Majuba Power Station on which work began in 1983. Its last unit came into operation in 2001. At that point, Eskom had effectively doubled the available generation capacity to just under 40 000 MW. It was also the halting point for any further expansion.
At Eskom, Dr Ian McRae, who was appointed CEO in 1985 entered into clandestine contact with the ANC to explore options for expanding power supply to townships. Contrary to the racist legends of the regime, which denied the very idea that Black South Africans might use electricity, McRae found a huge repressed demand for electrical services.
Between 1991 and 2014, in the forefront of the National Electrification Program, Eskom would provide new electrical connections to 4.3 million households. That is almost a quarter of South Africa’s 15 million households. As a result of combined action by the ANC-led government, Eskom and local authorities, the share of households with power rose from 58 percent in 1996 to 87 percent of those in formal housing by 2013. At that point three quarters of informal shanty settlements had power connections too. From 2003 universal connection was encouraged by the introduction a basic ration of 50 kwh per month in free electricity for every household with a meter. It is this expansion of electricity supply, which defines the crisis of power supply as it is felt across South African society today.
The biggest beneficiaries of the power bonanza bequeathed by the apartheid-era expansion were industrial producers. In the 1990s and 2000s with the global resource boom in swing, South Africa’s abundant and cheap electricity made it a major investment location for aluminium production, stainless steel and ferro alloys. The coega aluminium plant owned by Alcan of Canada and then snapped up by RioTinto was to be one fo the biggest smelters in the world attracting huge South African subsidies as well as GW of power.
What unlocked the supply was flipping the risk so that customers made prepayment to their accounts for the electricity they were going to use. In effect hard-pressed consumers extended an advance to Eskom not the other way around. Unsurprisingly this made supplying them more attractive. As critics pointed out, Eskom retained the power to end supply as soon as the cash ran out. What ought by rights to be a social entitlement was turned into a commercial relationship governed by household budgeting. In short, an individualized, market-based, low-trust relationship typical of contemporary, neoliberal thinking about service provision.
Taking advantage of the apartheid-era capacity surge, electricity was cheap. Tariffs were progressively reduced to some of the lowest rates in the world. And under those circumstances, whatever the form of the supply relationship, it was hard to see electrification as anything other than a blessing.
In 1998 the White Paper on electricity proposed extending neoliberal visions to power supply. The White Paper proposed that Eskom be separated into two parts: the transmission system that would remain a monopoly and the generating side which would be thrown open to competition. This was the model of unbundling pioneered in Chile and the Uk in the 1980s and 1990s and that went on to be adopted by over 100 countries worldwide. The idea being that it disaggregated decision-making on price-setting and investment thus minimizing the risk of big mistakes and lowering costs to minimum.
On paper the unbundling vision prepared for South Africa by PwC looked good. It seemed like an obvious way to maximize competition in what might otherwise be seen as a natural monopoly sector. But like any other structural change it was a gamble. Crucially, it was not clear whether such a system could really provide incentives for long-term investment.
Before ESKOM could put in place the new regime of greater investment and price increases, disaster struck. Starting with a failure at the Koeberg nuclear power station at the end of 2005, South Africa’s over-stretched electricity system began to fall apart. From November 2005 rolling blackouts and load-shedding became a daily reality.
The blackouts were caused not by an absolute shortfall of capacity below demand, but by a lack of safe reserve capacity to deal with inevitable outages. From a high of 27% in 1999 the margin of reserve capacity had fallen by late 2007 to a dangerous 5 percent. In November 2007 a new series of power cuts began and by early 2008 Eskom and the government were forced to declare a national emergency.
South Africa’s first renewable energy plan had been drafted in 2003. But it was not until 2009 that the government hosted a nationwide conference on renewable energy in Pretoria. At the COP conference in Copenhagen in November 2009, South Africa’s government committed itself to reducing emissions by 34 percent by 2020 and 43 percent by 2025 - ambitious targets.
In 2009 the NESRA, South Africa’s regulatory agency, took the lead in introducing a feed-in tariff - known as the renewable energy feed-in tariff (Refit) - along the lines that Germany had pioneered.
The fossil fuel interests around Eskom - as opposed to the Department of Energy and NERSA - fought back hard. And they gained support from the outside. In 2010 in a controversial decision the World Bank gave its approval, worth $3.75 billion in loans, to Eskom’s giant Medupi coal-fired power plant, one of the two projected since 2004 and one of the largest coal-fired stations ever built outside Asia. Quite apart from environmental and climate impact, this cemented ESKOM’s ruinous commitment to implementing a giant investment program which its staff had no experience of managing. For a notional budget of R150 billion it planned to build not just the 4 764 MW Medupi plant, but the 4 800 MW Kusile coal-fired stations, plus the Ingula pumped storage scheme in the Drakensberg, which would deliver 1 332 MW of hydroelectricity during peak demand periods. Medupi and Kusile would end up costing three times as much. To this day, they have not reached full capacity. Funding needs far exceeded the World Bank loan, leaving Eskom hugely in debt. To keep up its payments it was forced to raise electricity tariffs at an extraordinary rate. In real terms between 2006/7 and 2017/8 Eskom’s customers would see electricity prices increase sevenfold.
Starting in 2013 electricity supply became chronically unreliable. As the new coal-fired power stations failed to come online and costs soared, ESKOM ran its existing generator stock to the point of collapse, whilst skimping systematically on maintenance. The overall impact was to stop dead in its tracks the growth in demand for power, which had been at the heart of the upbeat story of electrification up to 2006. South Africa shifted from being a society in which energy use was broadening and deepening to one in which economic growth depended on economizing on overpriced and unreliable electric power. Richer consumers resorted to buying their own generators. But industry was prevented from expanding so-called “embedded” power production by rules that barred connections for anyone generating their own power. It was a hobbling, unproductive, inefficient disaster, which helped to constrain South Africa’s lack-luster economic growth. GDP per capita stagnated in line with power consumption for most of the 2010s. Perversely, low growth helped to cap power demand on Eskom, cementing the low-level equlibrium.