Distribution fingered as biggest problem
July 31st, 2012
The electricity generation capacity of Eskom has been widely regarded as the biggest threat to the country’s energy security and a major risk to the economy. But at parliamentary hearings last week, the electricity distribution network and its maintenance by the fragile municipal level of government was fingered as the really dangerous area that could collapse over the next three years.
Fresh on the heels of a damning report by the auditor general on the state of municipal government, an expert told a parliamentary committee that more highly disruptive power cuts should be expected, as the electricity distribution grid will gradually collapse from 2015 unless the existing maintenance backlog is urgently addressed.
Deon Louw, the deputy director of electro-technical services in Overstrand municipality, Western Cape, told members of parliament that “we are three years away from collapse. It is going to collapse in stages, as some parts are older than others. We will see power failures."
He told the portfolio committee on energy that the lifespan of a distribution network was 50 years. Various components of South Africa's network had an average age of 47 years. Power failures were often wrongly blamed on Eskom's generation capacity, when in fact the fault lay with aging distribution infrastructure, he said.
Over the two days of the hearing it transpired that there is a R35 billion backlog on network maintenance of which R25 billion resides with municipalities, growing by R3 billion due to an under spend of 54% per year.
It also transpired that the problem is not a lack of money for maintenance, but that available income from the sale of electricity is redirected towards unforeseen expenses, such as higher than expected public service salary increases.
Calls were made for maintenance funding to be ring fenced through legislation and for a 1% levy to be charged on distribution.
The auditor general’s annual report revealed that only 13 of the country's 343 municipalities received clean audits in the past financial year. He also faulted municipalities for R11 billion in unauthorised and irregular expenditure.
Ongama Mhalawe, deputy director of the department of co-operative governance, echoing the auditor general’s report, told the committee that municipalities were plagued by a lack of technical capacity, funding gaps and poor revenue management.
Evidence of this was a collective municipal debt of R76 billion, of which R12.7 billion consisted of unpaid electricity bills.
He also said that there was no clear strategy to solve the problem. "If we don't deal with the issues, including governance, we won't be able to deal with electricity distribution."
Thembani Bukula of the National Energy Regulator of SA (Nersa) also told the committee that municipal distribution chain woes, including licensing breaches, were a function of wider mismanagement.
"They're not very good at building roads or supplying water either. There is no reason in principle why municipalities should not distribute electricity, but in the current situation it is not ideal," Bukula said.
To take the function of distributing electricity away from municipalities is, however, also not a simple matter. It would strip municipalities of a vital revenue stream, often used to cross subside other services, which was the main reason why earlier plans for regional electricity distributors were shelved.
Renewable energy project
There might also be more trouble ahead on the supply side of electricity at the same time that the distribution network’s collapse is predicted. It would seem that South Africa’s renewable energy project is heading for another delay.
The 28 renewable energy project developers identified in December last year as preferred bidders, under the first bid window for the R100-billion Renewable Energy Independent Power Producer Programme (REIPPP), have been notified that the timing of financial closure may be delayed again beyond the end of July. The original deadline was 19 June.
Developers were informed that “notwithstanding the Minister of Energy’s reference, last week, to the extension of financial close to the end of July, the department is not currently in a position to advise preferred bidders of the earliest date on which the department and Eskom could conclude the implementation agreements, the power purchase agreements and the direct agreements.”
The department of energy’s aim with the REIPPP, is to procure 3 725 MW of capacity, which could be introduced into the power generation mix between 2014 and 2016.
During the first two bid windows, 47 onshore, wind, solar photovoltaic and concentrate solar projects advanced to the preferred-bidder stage – the projects represented a potential capacity of 2 459.4 MW. A delay in completing the process could also imply escalating costs for the prospective developers.
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