Eskom shooting South Africa in the foot

Eskom has been a roadblock to South Africa’s energy liberalisation for years, with its latest court application posing a signficant threat to reforms in the country’s electricity market.

The Bureau for Economic Research’s Roy Havemann said this is not new behaviour for the utility, which has been a roadblock to energy liberalisation on several occasions.

Havemann’s comment comes after Eskom recently filed an application with the Gauteng High Court.

The utility seeks to review and set aside the National Energy Regulator of South Africa’s (NERSA) approval of five electricity trading licenses and one import/export licence.

Havemann explained that Eskom’s main arguments include that these licences were issued without an appropriate regulatory framework, allow traders to “cherry-pick” profitable customers, and undermine Eskom’s ability to recover costs through regulated tariffs.

In its court filing, Eskom claimed that NERSA’s decision represents a radical and unconsulted new policy that threatens to “upend the entire landscape of electricity provision” in South Africa.

The utility’s legal move has been harshly criticsed by industry stakeholders and business lobby groups like Business Unity South Africa (BUSA) and Business Leadership South Africa (BLSA).

These critics have argued that Eskom’s move is a backwards step in the country’s energy reform process, especially since NERSA followed due process, including public participation.

In addition, Havemann pointed out that the liberalisation of electricity trading has been a policy goal for decades.

In fact, he said Eskom has been a roadblock to this process on several occasions since the publication of the Energy White Paper in 1998.

This White Paper introduced the notion of third-party electricity trading, open access to the grid, and competitive supply.

It called for the unbundling of Eskom and creating a competitive electricity supply industry to improve South Africa’s efficiency and ensure energy security.

The government also endorsed it at the time, saying the electricity sector would gradually be opened to greater competition and the current single-buyer model would be reformed.

Serious threat to South Africa

Havemann explained that, even if Eskom’s application is unsuccessful, this court action will likely delay critical reforms in South Africa’s electricity sector, particularly in developing a competitive trading market.

These are delays South Africa cannot afford, as new generation capacity and the introduction of more players are vital to South Africa’s electricity security.

This is because the country will face an electricity supply crunch when Eskom begins decommissioning some of its coal-fired plants, as it is scheduled to do in the coming decade.

A recent report from Standard Bank’s Corporate and Investment Banking (CIB) division with Credo shows that the country is not adding new energy generation capacity fast enough to prevent another severe electricity crisis when the decommissioning begins.

The report shows that while load-shedding has been significantly reduced since March 2024, the country’s long-term energy security now depends on quickly adding new capacity.

“Considering the looming risk of another energy crisis, which may materialise as soon as coal decommissioning is resumed, new capacity additions and RE implementation need to increase at a dramatic rate,” the report read.

“There is no room for error in REIPPPP Bid Window 7, gas-fuelled generation capacity additions or delays in the private sector procurement.”

Havemann said Eskom’s court actions also highlight concerns about a lack of coordination in government. “Eskom, a state-owned entity, appears to be fighting the government’s stated policy position,” he said.

This is similar to critiques from BUSA and BLSA, which said these actions create uncertainty and send a negative signal to investors.

They also delay critical energy projects, and ultimately may prolong the devastating economic and social impact of load-shedding.

“Eskom’s current strategy of litigation and obstruction is directly undermining South Africa’s national goal of achieving energy security,” the groups said.