The unbundling of South Africa\u2019s only power utility could soon be a reality, says growth partnership company,\u00a0Frost & Sullivan.<\/p>\n
This is following president Cyril Ramaphosa\u2019s announcement at the World Economic Forum (WEF) in Davos in January, pertaining to an unveiling of a turnaround strategy for the power utility.<\/p>\n
Privatisation<\/strong> will be the catalyst needed to unlock Eskom\u2019s true value potential, said Neeraj Sanjay Mense, senior industry analyst at Frost & Sullivan in response to the suggestion of the power utility splitting into three state owned enterprises (SOE\u2019s) responsible for generation, distribution and transmission.<\/p>\n Eskom\u2019s currently structured to manage the entire value chain for power in the country, across generation, transmission and distribution.<\/p>\n By retaining ownership of the transmission infrastructure, with the existing structure, Eskom is potentially losing out on efficiencies that can be attained from free market generation economics, as well as cost and energy efficiencies that private players would bring in, said F&S.<\/p>\n This is a serious barrier to entry for any private generation solutions that could possibly feed into the grid, said\u00a0Mense.<\/p>\n With all the different sources of power which are coming into play such as wind and solar and the cost of alternate energy generation reduced below that of coal, buying from private players such as the IPPs within the Renewable Energy Independent Power Producer Procurement programme (REIPPP) could potentially result in a shutdown of some of Eskom\u2019s existing plants.<\/p>\n This is as a result of Eskom not gearing up to the change that is happening in the electricity industry, said Mense.<\/p>\n “The current system at Eskom is seen to differ significantly from some of the highly successful business models that Utilities globally have embraced.Aspects like digitalisation, customer as a supplier, microgrids, and demand side management are some of the aspects that we can expect Eskom to successfully attain once the privatisation and unbundling take effect.<\/p>\n “This will also benefit customers, since the unbundling could eventually encourage free market plays in what has otherwise been a restricted sector,” said Mense.<\/p>\n He continued that the independent operator will decide where to buy electricity, as well as the structure of the independent transmission body that is associated with procuring and purchasing electricity from the different sources.<\/p>\n “The first mandate that the resultant organisation could reflect, is to source electricity from the cheapest source first, which may be a hydro plant, a coal plant or a wind or solar plant – subject to complying with the requirements\/ mandates\/ regulations in effect in the country.”<\/p>\n Frost & Sullivan said that the challenges that have plagued Eskom including blackouts and high electricity tariffs, have resulted in a reduction in industry and mining operations. This contradicts the development plans that have been envisaged for the local economy.<\/p>\n Mense said that Eskom has the financial capabilities to set up wind and solar farms. He said that an independent operator procuring and selling electricity at a competitive price compared to global benchmarks, would act as an incentive for various industries moving to South Africa, especially where electricity is a significant operating cost.<\/p>\n “We can also expect Eskom to start focusing on sustainability as a central theme, moving ahead, which bears well for the South African economy,” the analyst said.<\/p>\n And considering past precedent from similar cases globally, we can expect a higher economic growth if electricity prices are brought under control.<\/p>\n “This could also encourage innovation within the South African electricity industry,” said Mense.<\/p>\n Opening the market through power being procured from various power sources would also invite companies to South Africa to look at distributed generation and electric mobility which is already being looked at in many other countries, said Mense.<\/p>\n “South Africa could also see companies moving into the country to manufacture batteries as we have the needed natural resources and energy storage is an essential element in the wind and solar grid.”<\/p>\n The privatisation of Eskom into three units would be a step in the right direction and could potentially reduce the current operational inefficiencies and revenue losses, through streamlined processes, and adoption of alternate energy and energy efficiency across the entire generation, transmission and distribution spectrum, Mense said.<\/p>\n
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