Growing up we were taught to play by the rules. We were also taught that there are consequences to breaking the rules. We were told not to run with sharp objects or we could take someone’s eye out.
Energy markets also have rules and these are codified through policy and regulation. When a rule says there can be only one licensed distributor in any one area, it means you can’t have a municipality, Eskom and a private trader all offering distribution services in the same area to the same clients.
Granted, the market is evolving, and so too must the rules. That is the crux of Eskom’s legal challenge against the National Energy Regulator of SA (Nersa) granting trading licences: change the rules so that the market maintains transparency and fairness and continues to be rules-based.
In 2021, schedule 2 of the Electricity Regulation Act was amended to allow energy-intensive users to generate their own electricity by removing the Nersa licensing threshold. This was done with no consultation with affected parties. Inconvenienced by intensive load-shedding, residential customers were incentivised to install unregistered solar PV systems.
This route to private investment was reactionary and not rooted in a long-term strategy. Expedience was the order of the day; those set to benefit clapped, while others cautioned over the sustainability of these reforms.
Today, behind-the-meter solar installations have eclipsed grid-tied renewable energy installations. Municipal and Eskom energy demand continue their downward spiral, driven by a lack of economic growth and an eroding customer base. Large customers have defected from the grid, taking with them their tariff contribution and subsidisation effect on electricity utilities. Wealthy residential customers are using solar PV and not contributing to their fair share of energy availability costs.
— Rushed and unstructured market liberalisation leads to disaster.
The system operator has no sight of all these installations. As a result, significant investments are socialised in everyone’s tariff to balance the grid. The regulator continues to balance allocative and economic efficiency while making R54bn errors.
Large customers are requesting negotiated pricing agreements because they claim the cost of electricity is affecting their profitability, but they fume when utilities must claw back these tariffs by claiming they want transparency and fairness in the tariff methodology. Meanwhile, everyone else is being made to pay more to subsidise these negotiated agreements.
The thing with rules is that they keep us honest and help us understand the consequences of our actions. We will continue to fight over high tariffs, unaffordability, distribution areas and who can participate, simply because we failed to have a tariff methodology in place before embarking on these grand reforms.
Energy market liberalisation around the world takes time. Countries such as India have been on this path for over 35 years and are still in the process of unbundling some utilities, partnering with the private sector to drive investment and efficiencies in generation and transmission while driving technological innovation through state equity participation.
Rushed and unstructured market liberalisation leads to disaster. It makes us greedy and prone to decisions that drive self-interest. It is this determination that has small and large customers in constant conflict with business, utilities, regulators and government.
Everyone is fighting to either maintain or establish their hegemony through an unstructured rearrangement of the energy market. Meanwhile, tariffs are on a steep upward trajectory, which leads to cost-push inflation, increasing unemployment, inequality and poverty.
All of this results in the financial weakening of electricity utilities and municipalities, which are also burdened with a social mandate while having to deliver profitability to their shareholders.
We’re making up the rules as we go along. Maybe our parents were right; we won’t learn until someone’s eye is gouged out.
• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.
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