eskom vs the california option - there is an alternative to the price hike

Submitted by sproutingforth on Tue, 2009-07-07 10:36

If you've been reading the news, then you know that NERSA granted Eskom a 31.3% tariff rise, falling just short of their request for a 34% hike due to hit our pockets from this month.

But there is an alternative, despite the tired - 'we've had such cheap electricity for so long that it's time we paid more for it' argument (skip my musings to 'the California option' below, to find out more).

A friend of mine came up with a pretty valid argument – because, let's face it, who wants to pay so much more for electricity when, rather than investing in alternative energy, the conglomerate is headed for 'business as usual' and intends spending R385-billion of our money on further coal-guzzling power stations...

This amount (R385-billion, just incase you missed it) does not include all the capital expenditure required to meet the long term electricity needs of South Africa into the future and takes into account only Eskom’s current expansion programme.

My friend speculated that if Eskom came to some sort of agreement with major banks to offer an incentive to extend our home loans to include a further Rxx.xx amount to invest in solar water panels and/or photovoltaics, then at least we could directly change the way in which we receive our power (by investing directly in 'green' energy) and we could feed back into the grid, contributing to the country's obvious battle with a shortage of electricity.

Like me, she doesn't appreciate that a major decision has been taken without consultation or any active participation by the public. .

Our money is now invested in “rising manpower costs, maintenance costs and 'sundry costs' (whatever they are?), including additional costs to return old power stations to service, and bad debts.”

That “these decisions must be taken in the interests of the country's economic development, the sustainability of industry and ensuring a reliable supply of electricty” (according to Frost & Sullivan's energy industry manager Cornelis van der Waal) just does not wash with me.

The California option

But there is a very valid alternative to the one Eskom is offering us. A company called Smart Green Prosperity, led by John Joslin, delivered a presentation to NERSA about Eskom's application for a tariff increase arguing that:

  • Eskom could reduce the annual expenditures by most customers
  • avoid building many new coal-fired power stations
  • increase the use of renewable energy
  • cut down millions of tonnes of CO2 emissions
  • highly likely help earn South Africa R millions in 'subsidies' from developed countries
  • and save us from having to pay higher prices for electricity made from coal

The plea was for Eskom and its shareholders to consider what he calls the 'California option' where they:

  • saved building 24 giant power plants
    saved their customers around $65 billion (±R600 billion)
  • created 1.5 million jobs
  • reduced CO2 emissions (about 7 tonnes per capita)
  • saved 40 000 Gwh pa

And how? By increasing the energy efficiency of both customers and supply chains and using renewable energy.

If all of America adopted the same energy-efficiency policies that California is now putting in place, the country would never have to build another polluting power plant.

John Joslin argues that Eskom:

  • doesn't place enough emphasis on efficiency
  • relies on BAU coal-fired electricity generation
  • doesn't invest enough in wind and solar power
  • pays little attention to climate change and Copenhagen
  • does not exploit the new green technology revolution

If Eskom would consider a strategy with much more emphasis on energy efficiency and wind and solar power, with a commitment to phase out coal-fired plants without CCS (carbon capture and storage) South Africa could achieve: lower expenditure on electricity, the creation of many more jobs, global competitiveness, less stress on water supplies, lower CO2 emissions, and we would be environmentally friendly.

Studies in many countries (Germany, China, California, etc) show that energy efficiency, which covers buildings, industry, households, appliances and wind, solar water heating, photovoltaics and concentrated solar power create many more jobs than the traditional emphasis on big coal-fired or nuclear power plants.

How did California get it right?

California redefined the tariff calculation formula - “Probably the most important measure was to change the tariff calculation method to include saving energy use for customers and give it the same revenue earning status as selling energy.”

California managed to disconnect how much you pay from how much you use.

The success of the California option in plain English

The presentation by John Joslin to NERSA used a quote by former USA president, Bill Clinton, that I think summarises what could happen in South Africa beautifully:

    “ Here’s the way you pay your electric bill (in America), — the electric company gets permission to charge a certain rate per kilowatt hour, so the more you use, the more you pay, and this is the way it is everywhere. Only California today has the power to disconnect how much you pay from how much you use. The significant thing is you can pay a little more kilowatt hour and pay over time for investments in energy efficiency. They’ve been working on this for 32 years. As a result in California, our largest state, the per capita energy consumption is only 55 percent of the national average”.
    “If the utilities do this, then they can put together a plan, go find all the contractors, get all the materials and in effect pay for the cost on your home or in your office building as if they were building a mini power plant there. That is instead of financing it like a consumer loan for one year or a car loan for three, it could be financed over a twenty-year period or longer. The consumer then would have to pay a little more per kilowatt hour but never so much that they wouldn’t still have lower total utility bills because they’d be using so much less.”
    “ So suppose they make your home 30% more efficient, they charge you 15% more per kilowatt hour, so your bill goes down 15% and they get the financing they need, collectively it will be much less expensive for them than building a new power plant. They’ll be able to finance and we won’t be contributing any more to climate change.”

So, why doesn't Eskom take up the California option?

The last thing electric utilities want is more efficiency, which means lower sales and revenue.

Most of the world’s electricity systems are run like this.“ The more electricity a utility sells, the more money it makes. If it's able to boost electricity demand enough, the utility is allowed to build a new power plant with a guaranteed profit. The only way a typical utility can lose money is if demand drops. So the last thing most utilities want to do is seriously push strategies that save energy…” J Romm (Climate Progress)

“Eskom makes profits out of sales and return on capital, a typical formula for tariffs the world over. Reducing electricity sales via energy efficiency would reduce revenue for Eskom. Their demand management strategy's aim is to reduce demand for electricity. Eskom treats this as a cost. Why would they want to decrease revenue and increase cost? Given their tariff calculating formula that would be irrational.” - John Joslin

But, let's not forget that:

  • South Africa's carbon intensity carbon/GDP is double the world average
  • Our CO2 emissions at 7tCO2 per capita are more than France, China, India and only slightly less than the UK
  • SA contributes 4 times as much to global pollution than to the global GDP
  • SA is seen as a 'major emerging economy'; others are Brazil, China, India and Mexico
  • SA has much higher CO2 emissions per capita than the other 'major emerging economies'
  • already, developing countries account for about 50% of energy-related carbon emissions, and their share is expected to rise to 70% by 2030 in the absence of appropriate policies

The “California option “ would create a tariff formula which would be made up of half the revenue from electricity sales and half from electricity savings. Savings typically cost one fifth of new plant. Thus they can make more from efficiency.

In California the utilities are mainly privately owned. They must make profits to survive. Eskom is like SAA . The government can bail them out if they are about to collapse. But everybody would prefer a successful performance. The California option is a “win, win, win” formula. Fewer new coal fired plants, greater efficiency, less cost to customers, more jobs and less CO2 emissions.

John Joslin believes that the California option could work in SA. But he needs support from Eskom, NERSA, Department of Energy, Public enterprises and Environment, the ANC and the DA. And this all needs to be achieved before Eskom commits to a long term capex strategy.

How long are we going to allow Eskom to effectively hold a gun to our heads saying – 34% increase or else the lights will go out? We do have a say. This is our tax money!

You can contact John Joslin on johnjoslin@mweb.co.za