Johannesburg – The projected slowdown in the growth of SA’s energy demand will serve as a temporary breather to utility Eskom, easing chronic power shortages, an industry group said.

But the slowdown, coupled with difficult financial markets, will also make it difficult for the utility to fully utilise that window of opportunity, said Brian Statham, chairperson of the SA National Energy Association (SANEA).

“It’s a vicious cycle for Eskom… and they will be in a very difficult balancing act trying to manage their way through it,” Statham told Reuters in an interview.

Eskom, which provides 95% of SA’s power, has been rationing electricity since the national grid nearly collapsed last year, forcing mines to shut down for five days and costing Africa’s biggest economy billions of dollars.  Statham expects demand growth to drop to around two percent from previous forecasts for an annual rise of four percent, owing to a slowdown in the growth of SA’s economy, expected to expand three percent in 2009, down from 3.7 last year.

“The demand is dropping off, which means that Eskom’s revenue is dropping because it’s selling less electricity … and the cost of capital is going up, so doing maintenance and massive infrastructure investments has become very expensive,” Statham said.


Eskom has already decided not to proceed with its plan to build a second nuclear plant due to financial constraints.

Statham said the utility would not be short-sighted enough to defer the building of the coal-fired Medupi power station, SA’s first new power station in more than a decade.  But the rise in costs will inevitably lead to a drastic rise in tariffs, which in turn would hit the country’s poor.

South Africans have for long been cushioned by very low electricity prices, which now make it difficult for the utility to get through the hikes needed to fund its R343bn capacity expansion programme over five years.

The power regulator last approved a total 27% tariff hike in June, short of a 53% hike requested by Eskom.

“We’ve had tariffs that were artificially low for so long, so we will have to bite that bullet for some time,” Statham said, but added the regulator should consider a scaleable tariffs system, rather than raising prices across the board.

“This could give people a true incentive to scale back on consumption, rather than doing it on emotions alone,” he said.

It would also contrast with the punitive nature of the new proposals to conserve power laid out by the regulator, under which users will have to pay a charge in addition to regular tariffs if they exceed prescribed limits.  But while some progress has been made to ease the power constraints, Statham said the lack of an integrated energy programme was limiting the creation of new energy sources and the country’s ability to attract foreign energy investments.

“There is a distrust between the government and the private sector … and we have many people, young in terms of experience, thrust into very senior positions with no training at all – those dynamics you don’t overcome quickly,” he said.

Article by Reuters