Thursday, April 08, 2010

Will the UK contribute to South Africa's energy crisis?

For the past two years South Africa has faced a serious electricity crisis. Demand has been exceeding supply, with the reasons for this being multi-faceted:

- Electricity generation remains dominated by a state owned company (Eskom), which has been severely undercapitalised (so not investing in new capacity) as the Government refused to inject capital into a company it was seeking to privatise. State ownership without the state seeking to invest;

- Electricity tariffs have been generously subsidised (described by the Chairman here), so that the price of electricity is around a third of the cost of generating it. The reason being the political desire to supply cheap electricity to the population Eskom makes a substantial loss, so cannot finance expansion from its own revenue. Socialism is crippling electricity generation (although tariffs are increasing by 30% to start to address this);

- Privatisation of Eskom has been stalled for political reasons and because no new owner would want to buy a company that loses money without the power to increase tariffs to address this;

- The government deregulated the electricity market, but there is no foreign interest in building new capacity whilst the state continues to bear Eskom's huge losses as it continues to price electricity well below cost.

So South Africa has been stuck, with ample coal reserves, but without the capital investment to translate this into electricity generation, and pricing a scarce resource so cheap, it gets rationed through blackouts.

Now the appropriate answer to all this is to split Eskom into three or more companies, privatise them one by one, letting each privatised one set its own tariffs. This would effectively allow new entrants to decide how to invest in new capacity and match price and demand.

In the meantime, South Africa has sought a World Bank loan to help pay for a new power plant for Eskom. Setting aside whether this should happen at all (it should not), the UK government is apparently considering vetoing it at the World Bank. Why?

Not for economic or financial reasons, but because Greenwar, Foes of the Humans and Christian Aid oppose it as the new power station would be coal fired.

They want money into so-called renewable energy, even though the cost would be twice as much per unit. Not that these organisations are planning to build and fund power stations themselves. No, they would rather South Africans endure blackouts and keep their economy crippled than to let some coal be burnt.

Why is the UK interested? According to the Times, Gordon Brown is looking for a way to capture the "Green" vote, though it is interesting to see how this clashes with the interests of some of the poorest on the planet.

So if the UK vetoes the World Bank loan, it will be about pandering to a Green agenda - it wont be about incentivising South Africa to engage in serious reform of its electricity policy.

After all, even if South Africa did privatise and reform electricity, the anti-human environmentalists would no doubt continue to oppose new coal fired power plants, also oppose more nuclear power, and want to force taxpayers in wealthier countries to subsidise "renewable" energy.


Andrew B said...

Do they get enough rain there to make hydro worhwhile? It's barely profitable in NZ but a place like Scotland should be turned into a series of hydrodams.

Canterbury Atheists said...

South Africa will collapse economically and socially (due to crime, large disenfranchised under-class, crumbling hospitals etc) in the next two decades and become another Zimbabwe.

Say what you like apartheid/white rule was better for the average black South African than the current government. My sons football team has two South African lads who left the country for New Zealand’s greener and safer pastures.

Where’s John Minto when you need him, eh?