Real Estate Investor Magazine South Africa November 2018 | Page 43

COMMERCIAL
market from which large electricity users and retailers buy
their supplies.
Whatever the circumstances other than if the end user
has solar panels or some other form of on-site electricity
generating system, an independently owned and operated
high voltage transmission grid is a necessity. Independent
ownership and management of the grid removes the problem
of conflicts of interest, which inescapably exists when
competing generating companies wish to gain access, for
instance, to Eskom’s grid to transmit electricity across the
grid to customers who want to buy their electricity.
Not surprisingly, Eskom, given its dominant position
as grid-owner, demands to be the sole purchaser of any
electricity that is to be wheeled across their grid, generally
at a sub-economic price, which means that no independent
power producers have managed to conclude agreements
with Eskom to generate the electricity needed to cover the
country’s electricity supply requirements.
Eskom seems to be of the view that new suppliers should
be prepared to provide power at a price equivalent to its
own average cost. This is impossible for a newly-constructed
plant to achieve. For Eskom, any electricity purchased at
a price lower than the hugely excessive cost of its open-
cycle gas turbines is a cost saving. A privately-owned grid
company would not stubbornly refuse to conclude cost-
saving agreements with outside power producers under such
circumstances. Only a state-owned monopoly can afford to
indulge in such behaviour. 
In the case of renewables, the Department of Energy
stepped in to broker agreements for the purchase of the
electricity produced by renewables. Unless a monopoly
generation and grid-owning company is forced to bow
to political pressure, as occurred in the EU, it will not
easily agree to allow grid connections for the transmission
(wheeling) of competitor electricity across its grid.
National Grid is one of the largest investor-owned energy
companies in the world. It owns the high voltage grids in
England and Wales and covers Massachusetts, New York, and
Rhode Island in the US. Being a private profit-making entity,
National Grid welcomes all generating companies that wish
to connect to its grid, conditional on new entrants meeting
operational standards that will not harm grid reliability. The
reason is that more generating companies connected to the
grid translates into more income from transmission charges.
Eskom’s view of such connections is different. To them a
new transmission customer simultaneously becomes an
unwelcome competitor in the sale of electricity.
Removing the South African conflict of interest over the
transmission of electricity is a matter of critical importance. If
the ownership and control of the high-voltage transmission
grid were to be separated from Eskom but continued to
remain in government hands, there would be a proliferation
of electricity generators queuing to gain access. Openness
would naturally increase even more if, as occurred in the UK,
it was sold to a private company. The new owner would be
even more active in canvassing increased generation business.
Government could resolve many problems if it were to
allow Eskom to sell the grid to an experienced international
grid management company and use the proceeds to pay down
some of its debts. This would take a great deal of pressure off
Eskom and the government and open the electricity industry
for much-needed transformation, without which electricity
security will remain elusive. An independent high-voltage
transmission grid is an essential component of a competitive
electricity market in which consumers have a choice of
suppliers.
Having an independent transmission grid would provide
the first crucial step towards a market in electricity. To be
added would be independent generators, distribution grids,
retailers, and an electricity market as they have in New
Zealand. The beneficiaries would be government, taxpayers
and electricity customers. Government, because running
businesses is not what they are elected to do; taxpayers,
because they would no longer have to carry the related risks,
and customers, because they will be able to choose to buy
from competing retailers of electricity to obtain the best
service at the lowest prices.
SOURCE Free Market Foundation
SA Real Estate Investor Magazine NOVEMBER/DECEMBER 2018
41