This story was updated on July 25

A brewing dispute over energy distribution licences could be an early litmus test for the government of national unity’s stated commitment to economic reform and public-private partnerships, says John Lawson, CEO of the Cape Chamber of Commerce and Industry.

Eskom is calling on the National Energy Regulator of South Africa (NERSA) to reject applications for private trading in energy production. This objection emerged during virtual hearings by NERSA, which is considering granting generation, trading and import-export licences to entities like Discovery Green, CBI Electric, Apollo, Green Electron Market and Africa Green Co.

“This arrangement will lead to multiple licencees supplying the same areas or serving customers within another licencee’s supply zone,” says Mohlago Masekela, Senior Legal Advisor at Eskom, adding such actions are prohibited by NERSA’s rules for licensable areas of supply.

Cherry-picking of customers

“Some of the applicants for a trading license have confirmed in their application that they will not supply residential or small business customers but rather only large power users and this is ‘cherry picking’ of customers,” Eskom said in a statement explaining its rationale for its position.

The current rules and tariff decisions allow for cross-subsidies to support certain tariff categories. Removing a group of contributing customers from this subsidy base would further pressure the remaining customers, the power utility said. “Large power users cherry picked by the license applicants are subsidy contributing customers.”

Liberalising energy generation

Liberalising the energy generation and distribution market would be a massive tonic for the economy, evidenced by sizeable investments already made, believes Lawson.

Quoted on the chamber’s website, he says: “No doubt Eskom finds this legislative arrangement – if it pertains – rather convenient given its market position. But maintaining the status quo of Eskom domination would be a decade-long setback for just about everybody else except Eskom, particularly the poor who are most affected by the soaring electricity tariff. Private energy stakeholders say government needs to make a clear distinction between contracts for energy capacity and usage of the transmission network. Misplaced concerns about duplicating physical infrastructure should not be used as a ruse to prevent private players from entering the market. The issue is particularly significant given the potential massive investment in the energy market and the need for possible customers to shop around for affordable and sustainable energy sources”.

Government should appreciate that local energy systems strengthen the circular economy where “prosumers” (those who benefit from self-generation for self-consumption) can freely trade energy via local distribution networks while acting as good citizens supporting a strong, stable national grid, adds Lawson.

“At technical and economic level, local energy systems are the foundation of the shift to a fair and inclusive clean energy system. Power engineering organisations are preparing electrical standards to allow for millions of local and community energy systems to form the foundation of a future smart grid. As these technologies align, our government must take advantage and lead a paradigm shift forward towards a ‘smart grid’ for all.”

Bringing his argument closer to home, Lawson says energy reform has particular relevance in the Western Cape, given the province’s burgeoning renewable energy sector, with tremendous job-creation potential.

“The province has already seen huge investment and innovation in this space. The regional economy would also see immediate benefit from accelerated public-private partnership, particularly in the logistics sector. Government’s approach to energy reform could give a clear indication as to its overall willingness to allow more private-sector participation in key areas of economic activity, previously the preserve of state-owned enterprises.”

A win-win for all parties

Energy expert Vally Padayachee, in an interview with Radio Al Anssar’s The Breakfast Rush, says: “This process by NERSA, given the objection by Eskom, has opened a can of worms and reflects the complexity of the landscape”.

Eskom and municipalities are legally mandated to operate in their respective areas under NERSA licences. Eskom’s objection centres on the belief that allowing private traders to enter these areas would violate NERSA’s own rules, which prohibit multiple licencees from supplying the same area, Padayachee explains.

The introduction of private traders could have severe consequences for Eskom and its customers, he adds. New entrants might “cherry-pick the high-paying customers”, eroding the revenue streams necessary for Eskom and municipalities to fund maintenance, refurbishment and infrastructure development and, in the worst case scenario, lead to bankruptcy, Padayachee warns.

“Competition, although it may bring in better prices, has to be done in an environment that leads to a win-win situation for all parties.”