Eskom’s Role in South Africa’s Electricity Generation and Efficiency

South Africa’s energy production sector is fairly concentrated among a few actors. 85% of coal mining (~80% of SA’s energy and 90% of its electricity production) is controlled by five companies. Electricity generation is even more concentrated. Though the state owned Eskom does not have exclusive rights, it does produce 95% of SA’s electricity. It does so at one of the cheapest rates in the world.

Electricity rates have been particularly low for the industry sector. Though this is common globally due to contracts with large electricity users, this disparity is greatest in South Africa.

However, the electricity grid capacity in South Africa is proving insufficient for growing demand. Eskom, has had to significantly increase the traditionally low prices in order to garner resources for investments. These price hikes have affected all sectors equally, despite the fact that industries already have such a price benefit. This reduces the value of energy efficiency for industrial users, at the expense of government subsidies. The incentives for improvement must be more tangible for a wide scale industrial movement.

Table 1: Electricity Prices in Various Countries – USD cents/kWh, adjusted for PPP

Given the need for a grid upgrade and the need for increased revenue to do so, Eskom could use the process as a way to further develop South Africa’s energy efficiency. Applying the utility price increases more strategically, industries could see more of a benefit to energy efficiency. This is in contrast to the current situation where government subsidies support the industries’ electricity use rather than the industries themselves. Additionally, including smart grid technology in the upgrade could significantly improve efficiency in electricity generation and distribution. Because the monetary benefits are realized almost immediately, and because the Eskom handles both generation and the distribution, the benefits would cover the extra investment almost immediately. Therefore, given that upgrades are already due, the smart grid is an excellent option for South Africa.