I recently received a chain email from a friend where the original author was complaining bitterly about the massive electricity price hikes being mooted by Eskom (our state-owned electricity company) in order to pay for their build programme. The author felt that since it was Eskom and government who were asleep at the switch and allowed the power situation to reach its current dire state, that the electricity price should not be raised. Instead, the author suggested that the power stations be built using the surplus that government has accumulated over the past few years.
It's in a slightly histrionic tone, but I think many people would sympathize with the author's points, certainly the 278 people who had signed it by the time it got to me did. The Eskom situation easily inflames people since we're not only being slammed with a price hike, but also rolling blackouts, and to top it all off, a large amount of the problem seems to be from fat cats keeping their eye on profitability rather than on long-term viability. To top it all off, the stories about Eskom supplying Zimbabwe with free electricity added the outrage over our government's dithering on that country to the issue. What I'd like to do is look at things from a less emotional point of view. I'm incredibly lucky in having some inside information about this, since certain colleagues have done modeling on this issue. I don't unfortunately have the raw figures, so I'm going to have to try and remember them as best I can.
This is the situation we find ourselves in
The first thing to remember is that complaining about Eskom or government or whoever may make us feel a lot better, but it won't actually solve anything. What has to be dealt with is the situation that exists right now. What this boils down to is reserve margin. From the Wikipedia page about Eskom I see that their overall capacity is about 39,046 MWe. So, that's the amount they could produce in a perfect world. However, the world is not perfect, and there are situations where you have to take a power station offline in order to maintain it, and of course you have unplanned outages as well. So, the idea is that the total amount you can produce exceeds what you need by a margin, the reserve margin. It is this that has been allowed to drop too low. Eskom have enough generating capacity, in theory, to supply all of South Africa's needs. However, to do that, they'd have to stop maintaining the power stations, and we can all guess where that would lead us. The ideal reserve margin seems to be at about 15%, and ours is about 6-8% right now.
Now an important point is that this reserve margin is over our peak usage. The usage of electricity during the day is similar to the graph you see here. Electricity usage is low at night, climbs rapidly in the morning, dips a bit during the course of the day, and then climbs in the evening before settling down again.
So our problem is that our usage is rising above the ideal reserve capacity during the day, and this is why Eskom is being forced to have these blackouts (I refuse to call it load shedding, its bloody rolling blackouts, not some saccharine platitude).
So, what can we do about this situation? Well, two main approaches are fairly obvious:
1. Increase supply
2. Decrease demand
Let's look at them in a bit more detail.
Increase Supply
Well, this is nice and simple it would seem: build more power stations. All well and done, but it costs money to build power stations. More importantly, the big ones take a long time to build. The following are some of the things we can do:
Buy more power from neighboring countries
Unfortunately we're by far the biggest producer and consumer of electricity in the region, so the amount of power we can buy is limited. Eskom recently upped the amount we get from the Cahora Bassa hydroelectric station by 250MWe if I remember correctly. It will help, but it's a drop in the ocean.
Build more power stations
There are a few main kinds of power stations we can build. Coal powered stations are huge and take a long time to build. On the upside they produce vast amounts of power very cheaply. Eskom are building two huge coal powered stations called Bravo and Medupi which will start coming online in about 2012. They are also de-mothballing another three, but they're not nearly as big. Another main type of station they can build is gas turbine. These take far less time to build, but they also produce far less. Unfortunately they also cost vastly more to run as well, so the electricity from them is very expensive. Normally, because they can be switched on and shut down fairly easily, they are used only to deal with demand spikes. Hydroelectric has the advantage of being fairly green and fairly cheap. Unfortunately we live in an arid country, so the amount of these we can build is limited. Finally, we have nuclear stations. These make an awful lot of sense, the electricity from them is fairly cheap, like coal, they're "base load" stations. But, like coal stations, they take a long time to build and are very very expensive.
"Green" electricity production such as wind farms and solar is also a possibility, but tends to be fairly limited in the amount of power they can produce as well. Plus, they do tend to be expensive. One of the nice things about them is that they can start coming online fairly swiftly, and every little bit helps.
So, it looks like a good strategy would be to build some green producers and gas turbines, and boost the amount of coal and nuclear stations in the long term. This is in fact exactly what Eskom are proposing to do. Again, I might have these figures a bit off, but they plan on spending about R1, 3 trillion over the next 10-15 years on building new capacity. This is an awful lot of money, and it has to come from somewhere.
Encourage cogeneration
Cogeneration is quite interesting. There are quite a few industries in South Africa that produce an enormous amount of heat from their processes. What happens with cogeneration is that this heat is channeled into turbines which then provide electricity to the national grid. Now, a company is not going to do this out of the goodness of their hearts, they're going to expect to be paid for the electricity they supply. Unfortunately, the low price it is at right now is not enough to make this feasible. However, the increases Eskom is proposing will move us into a position where cogeneration will become viable. The amount of cogeneration capacity may be as high as 5,000 MWe, basically the same as a huge coal-fired power station.
Encourage independent power producers
This is in fact what government was hoping for, why they didn't want Eskom to build more power stations. They were hoping that companies would come to South Africa and build power stations. Unfortunately, for some reason, companies did not flock to compete in an environment where their only customer set the price, and more importantly the price was too low for anyone to compete with. Building a power station is expensive, and you have to recoup your capital costs somehow. Eskom didn't have to, since they already had the power stations, and had pretty much paid them all off. Anyone else coming onto the market would have to compete in an environment where they would be unlikely to be able to make a profit. Interestingly enough, the price increases that Eskom is proposing will likely make potential independent power producers interested. It would now be possible to compete. This is largely because Eskom is now undergoing the same kinds of massive capital costs an independent producer would have to go through.
Encourage energy-negative houses
In some countries, the power utilities are required to buy back any power you produce at home. So, if you have solar panels and your house is producing more power than it consumes, then you get paid back. This is a quite nice idea for encouraging energy efficiency, but it is unlikely to be terribly effective in South Africa. Even with Eskom's price increases, electricity would still not be so expensive as to make this profitable for the individual concerned. In any case, it is feasible for only relatively well off households, which is a small percentage of the total.
Decrease Demand
This one is fairly obvious, since Eskom are using rolling blackouts as a mechanism to force decreased demand. What are some other alternatives?
Encourage energy efficiency in households and offices
This is fairly obvious. Switching to energy efficient light bulbs can produce a marked saving in power, geyser blankets and timers similarly help. More importantly, timers can be used to drop demand during times of peak usage. If every single person who has a geyser switched it off from 6am to 7pm, they wouldn't greatly inconvenience themselves and it would make a significant reduction to peak load. Switching from electricity to gas would probably help a bit, but not as much as you'd think, largely because you don't really cook during peak times. Tumble dryers and air conditioners are proverbially profligate in their energy usage. You could look at solar water geysers, but I think you'll find that a timer is just as effective, and much cheaper.
Apparently up to 15% of your house's energy usage is consumed by appliances which are plugged in, but "off" in a standby mode. Your TV, hi-fi, cell phone charger you left plugged in and so forth. We could encourage people to unplug these.
However, this raises a problem. All these ideas either cost the consumer money or they are a pain in the neck. Why would people do these things? South Africa is remarkably wasteful when it comes to electricity, a hangover from decades of cheap power. I've heard numerous suggestions such as punishing people who use "too much" with punitive fines. However, who decides what's too much? What if I have 6 people in my house and you have one in yours? It becomes very, very tricky. However, capitalism has a nice and simple way of encouraging people to use less of a thing whilst at the same time punishing those who use "too much". It's called raising prices.
Unfortunately, people can easily become habituated to small changes, so to force people's behavior to fundamentally shift you have to shock them, and a big increase is likely to accomplish that, whilst numerous small ones will probably not.
Shut down industries
This is not a good one. Shutting down mines and aluminum smelters saves power, but it harms the economy as well. Badly. In any case, as with normal consumers, the best way to get industry to use less power is to charge them more for it. A lot more. This will lead to inflation, true, but it is far better to see some inflation rather than entire sectors of our economy being brought to a standstill. Unfortunately our Reserve Bank has an itchy trigger finger when it comes to inflation and is pursuing a punitive interest rate policy to keep it in check. I think we will have to let the Bank allow the inflation caused by Eskom's increases to work their way through the economy without raising interest rates, even if it does mean some spiking in inflation. If not, the Bank may all but shut down the economy. This would help conserve power, but not in a way any of us are likely to enjoy.
Punitive blackouts
This is what we have right now, where rolling blackouts happens no matter what, unless you cut your usage by 10%. The only problem is that Eskom and the municipalities are not geared to blackout small areas, so it's groups of suburbs that go down together. Ideally, in my opinion, they should try and get to a point where a blackout unit is about 10-20 houses. Then it becomes feasible for communities to encourage and work towards energy efficiency in their area. If they do so, and cut their usage by 10%, they stop getting blacked out. Right now, it's not really practical to lead a community effort to cut usage by 10% across all of Johannesburg, but a street, now that's doable. When you're sitting in the dark and the guys in the next street have lights, maybe you'd consider changing your light bulbs or putting in other energy saving mechanisms.
Denying access to power
This is another approach that Eskom are using; they're simply refusing to provide power to new developments. The long term effects of such a strategy will be horrific though. What they're essentially doing is stopping most new fixed investment in South Africa, investment we critically need for our economy to grow. This cannot continue for very long without causing a massive problem.
Changing the peak structure
This is one I find personally interesting. The idea here is not so much to conserve power, but rather to shift it, to flatten out the peaks of demand by moving that demand to the troughs. An obvious way of trying this is to charge more for peak times, just as the cell phone operators do, maybe even give "free" power away in off-peak times. Again, the difference would have to be big enough to make people sit up and take notice.
Another very interesting proposal has to do with time zones. The idea here is that we split South Africa into two time zones. I'd guess that Cape Town, Port Elizabeth and Bloemfontein would fall into the one time zone, and Johannesburg and Durban into the other. This morning the sun rose at 07:11 in Cape Town and at 06:17 in Durban. So, if South Africa is in two time zones, an hour apart, that usage pattern above would be flattened out a bit, and widened. I personally find this idea fascinating and well worth the attempt. Changing time zones would not cause too much inconvenience in any case. For goodness sakes, have you ever tried to get hold of a Capetonian before 9am? Not a chance. So, this would just formalize that 
Going forward
Quite simply, the price hikes that are being proposed are important and necessary. There is the worry about how they will affect the poor, obviously, and how the inflation created would similarly add pressure to them. However, the poor would be worse affected by our economy tanking and their ranks being swollen with newly unemployed. Right now, the fundamentals of our economy are in pretty good shape. Besides our trade deficit which is a bit worrying, the only other cloud is this power problem. If we solve it, then there's no reason our economy can't carry on growing. Of course, that would increase demand for electricity even more. You win some and lose some.
Anyway, I digress, the point is that there is a lot we can do to increase supply and most of it is being done or planned for. However, to increase supply enough will require a significant increase in electricity prices; effectively they are going to have to double over the next two years. The problem is that the supply increases will largely take a long time to come on stream; we simply can't build the power stations quickly enough. Therefore, for the short and medium term we have to look at constraining demand. Blackouts and stopping new developments will quite simply bring our economy to a screeching halt. We're doing these now, because we don't have any choice, but we must aim at getting rid of these measures at the earliest possible time. That means consumers, business and industry coming to the party on saving power. Eskom and government's pleas to consumers and business have not had much effect on people's behavior.
Personally, I think part of the reason for that is the anger at them for letting this situation develop in the first place, there's a sense that it's "their problem". Unfortunately, it's not, it's our problem, and will remain so for some time to come. A lot of people are understandably unhappy about the proposed price increases and see it as being punished for someone else's mistakes. Certainly there is an element of that, but think about it this way. For the last decade or so, you've had electricity at a discount. Those discounts are coming to an end. Sure, it's not nice, and it would be easier to swallow if the lights stayed on the whole time, but they were at a discount, and prices are just moving to where they should have been. Eskom and governments mismanagement extended to not increasing prices as much and as fast as they should have been. So in a sense we all benefited from their mistake in the past, and are suffering for it in the present.
A final thought. Whenever I have issues that afflict me, work or personal, I always try and think about two things:
- What could I have done differently?
- What can I do in the future?
It very rarely helps matters to worry about who to blame, all that does is distract you from the solutions. In this case, yes, there are definitely people to blame, and I doubt there's much many of us could have done in the past, since we didn't even know about this problem. However, we can look to the future. By conserving power, especially at peak times, even if all you do is cook a little later or install a geyser timer you can actually make an important difference. More importantly, by just being a little more energy conscious you will be planning for your future.
I assure you, this power issue is the tip of the iceberg. Energy costs are rising worldwide, and this trend is going to continue. We will look back on this power cost increase in a decade and laugh at how little power cost in 2010.