Eskom keeping cash cow alive

Eskom is delaying the unbundling of its transmission and distribution divisions to protect the interests of its coal-fired generation fleet from private-sector competition. 

Energy expert Hilton Trollip told eNCA that he expects further resistance to the unbundling of Eskom’s operating divisions at the country’s detriment. 

South Africa’s power supply consists of large, centralised coal-fired power plants whose electricity is transmitted via the grid to its distribution division, which sells to the final consumer. 

Eskom controls this entire value chain, apart from some municipalities that distribute electricity to consumers within their jurisdictions. 

“This kind of setup was okay when we just had big, central coal-fired plants. What has happened in the last two decades is that a whole bunch of other technologies have become available such as gas and renewables, which threaten to upend this system,” Trollip said. 

These new technologies have been trying to connect to the grid through private sector companies but have faced resistance from Eskom’s generation division. 

Eskom’s generation division has historically been the utility’s prized possession, generating most of its revenue and attracting most of its skills and resources. 

It does not suit the interests of the generation division to allow competitors access to the grid. “The generation division simply does not want any competition that threatens its monopoly,” Trollip said. 

To this end, Eskom has resisted the creation of an open-access electricity grid that would allow multiple sources of electricity generation to compete freely. 

An open-access electricity grid will increase investment in electricity generation from the private sector and help bring load-shedding to an end. 

“As soon as we can get an open-access transmission grid, there are queues of private sector companies wanting to supply electricity. That will reinvigorate the whole sector.”

Eskom has made progress in unbundling its transmission and distribution divisions. However, it has been painstakingly slow. 

The idea of unbundling the utility was first mooted 25 years ago in a 1998 white paper on the Energy Policy of the Republic of South Africa.

This is part of the Eskom roadmap published in 2019 which outlined the unbundling of the utility into three separate businesses under the umbrella of Eskom Holdings. 

Eskom is set to be split into a generation company responsible for producing electricity, a transmission company that will transmit electricity and a distribution company that will distribute electricity to consumers. 

The transmission company will eventually become a fully independent state-owned company outside Eskom with a separate balance sheet.

Significant progress has been made in this regard, with Nersa recently granting the New Transmission Company of South Africa (NTCSA) a transmission facilities license.

Last week, Public Enterprises Minister Pravin Gordhan instructed Eskom chairman Mpho Makwana to transfer the utility’s distribution assets to a new state-owned company, Distribute Company SOC Ltd. 

The NTCSA and Distribute Company will have a separate management team and board from Eskom, giving them the independence to pursue initiatives without the input of the generation division. 

The Electricity Regulation Amendment Bill is set to be put before Parliament. This bill will facilitate the unbundling of Eskom and create an open-access grid.

However, it has met opposition from Energy Minister Gwede Mantashe, resulting in its presentation before Parliament potentially being delayed until after the 2024 elections.

There is speculation that the deliberate delay by Mantashe relates to ideological antipathy by sections of the ANC towards the unbundling of Eskom, which they see as a form of privatisation, as well as his reluctance to facilitate the expansion of independent power generation.

Mantashe is committed to coal-fired power stations and has dragged his feet in expediting the introduction of independent power producers.