South Africa has gained from an abundant and inexpensive delivery of electricity since the founding of the monopoly public utility, the Electricity Supply Commission, or Eskom, in 1928. The law establishing the monopoly mandated that electricity be sold at cost. Artificially lower labour costs under apartheid, together with South Africa’s large reserves of coal, enabled Eskom to subsidise industrial development and to become a surplus producer, ultimately exporting electricity to neighbouring countries. The lower cost of South Africa’s electricity has discouraged foreign power companies from entering the market. As a result, Eskom supplies 95% of the country’s power. The African National Congress governments since 1994 have scaled service to rural areas and townships and successfully followed policies to increase GDP growth. There were forewarning signs a decade ago that demand would exceed supply at about the time that this in fact happened.
With demand levels high compared with the supply capacity, and a reserve margin of 4% well below the internationally recommended minimum of 15%, the state-owned utility Eskom has resorted to adopting a rationing policy: Eskom’s customers have to accept that they currently get 10 to 20% less electricity than before the crisis. Hotels, large offices, and commercial customers will carry the biggest burden. (Source: Doing Business Blog)
Lessons can be learnt from other countries that have been in similar situations. Short-term strategies that can be adopted include:
A seemingly clear solution would be to raise power prices as this would directly impact the customer. With tall prices “hurting” the consumers, they would be led to preserve more. But, increasing “electricity prices” in a country where these prices are highly subsidized like in South Africa would not be a policy of option for most politicians.
Another technique is to ration electricity, like Ghana and Brazil. In Ghana, the electricity sector depends heavily on hydropower. Majority of the country’s electricity originates from a net of hydroelectric reservoirs. Water levels in the reservoirs constantly decreased. In the following a period of drought, the water levels in the reservoirs had reached such dangerously low records. The government, like in South Africa, had to establish a rationing policy. Customers were required to cut their energy consumption.
Countries can also choose to embrace more energy-efficient equipment as a way to solve the issue. This is one approach California resorted to during its 2000/2001 power crisis. The Golden State opted to replace millions of existing light bulbs with compact fluorescent lights in a very short time.
No matter what approach is taken, communication seems to be key in any effort to save energy in a hurry;Ghana, Brazil and California had to resort to advertisement campaigns. Ghanaian utilities kept their customers updated on the levels of water in the reservoirs and on the demand decrease in the different regions of the country. In California a website was created that displayed graphs showing the changing levels of supply and demand. Both approaches not only proved useful in alerting the population to the seriousness of the situation but also allowed consumers to monitor the direct impact of their efforts in saving electricity.
In the longer-term the current calamity will result in new power plants being built and diversification of energy sources from coal to solar, wind and biofuels, all of which will be good for the economy, the environment and the country as a whole. In the meantime there will be pain and sacrifices. The question is how much and for how long and who will take the responsibility politically?
The World Bank is currently initiating a new indicator on the importance of electricity for businesses in countries across the world. Once the new indicator is out, countries like South Africa will be able to find out from more than 100 other countries’ practices.