Former Eskom CEO Andre de Ruyter wrote in his new book that South Africa must bid the old Eskom farewell and welcome a new model whereby the private sector handles the bulk of generation.
De Ruyter said, “The notion of a vertically integrated monolithic monopoly that meets most of the power needs of a country is as superannuated as a state-owned telephone company.”
Eskom’s unbundling is the first step in ushering in a new generation model for South Africa.
The unbundling process involves separating Eskom into three divisions – generation, transmission, and distribution.
It also involves decentralising South Africa’s power supply by establishing a competitive electricity market and diversifying its energy sources.
De Ruyter referred to unbundling as “a key enabler to creating a competitive electricity market and attracting much-needed private investment in generation capacity”.
This process has been in the works for around four years but has only recently begun.
Earlier this year, De Ruyter expressed his frustration with the speed of this process, saying that Eskom has done “everything in its power” to complete the unbundling. Still, not one division has been fully separated.
According to De Ruyter, South Africa is the 106th country in the world to embark on the unbundling of its utility. It is a “well-trodden path towards an electricity system that supplies power cheaply and reliably”.
In other countries that have completed the unbundling process, “the bulk of generation is handled by competing private-sector plants, and the government’s role is largely restricted to regulation and owning the grid operator, although even that is not strictly necessary”.
“Why, after all, would the South African taxpayer invest in another Medupi, Kusile or a new nuclear plant, when the private sector is prepared to stump up the capital and accept all the risk?”
De Ruyter suggested the country use its scarce climate financing to improve and expand the current grid, enabling private investors to supply electricity to a competitive market.
This should be done “rather than trying to resurrect the outdated notion of a mammoth utility”.
Energy analyst Chris Yelland has also suggested listing Eskom’s generation division on the JSE after its unbundling.
Yelland told Daily Investor that listing Eskom’s generation unit on the JSE would subject it to more oversight and transparency due to introducing new shareholders.
“When you have one shareholder – the state – nobody cares about the investment,” Yelland said.
Eskom of the future
De Ruyter’s vision for Eskom going forward involves a far smaller generation footprint, with Koeberg and about six coal power plants operating until the end of their design life.
He also envisages an expanded generation grid and a distribution company that has transferred most of its operations to municipalities or private distributors.
However, he warned that South Africa must “come to grips” with the culture of non-payment if this is to become a reality.
He referred to the current “grid defection trend”, which involves large municipalities and industrial customers buying electricity from independent power producers wheeling across the transmission grid.
De Ruyter warned that if this trend continues, “it is not inconceivable that Eskom will be left with non-paying areas like Soweto, and delinquent municipalities such as Maluti-a-Phofung and Lekwa”.
“In no time, we would be back to begging for bailouts,” he said.