Lack of planning in electric sector - the South African lesson

The electricity sector in Israel is confronted with a serious generation capacity problem in the upcoming years.

Hadera power 88 224 (photo credit: Courtesy)
Hadera power 88 224
(photo credit: Courtesy)
"The current energy shortage is largely due to the government's delays in giving the Electric Company the go-ahead to invest in new capacity." The electricity sector in Israel is confronted with a serious generation capacity problem in the upcoming years. The main reason for the shortage is that the Israel Electric Company, the government owned electricity monopoly, was not given the requisite approvals to build any new substantial power stations, as part of the governmental policy to develop the private sector. However, the quote at the beginning of this article is not about the electricity sector in Israel. It is actually taken from a South African newspaper reporting about the South African electrical company, Eskom. The electricity sector in South Africa is in the midst of a serious crisis, not to say catastrophe. The same newspaper reported heavy losses to the ceramics industry, due to 26 outages in the Krugersdorp area this May. An additional article focused on the steep decline of the Rand since Eskom made a statement in January, according to which it would be unable to provide power to new industrial projects until 2013. South Africans do not need to read newspapers to discover that their electricity market is undergoing a major crisis. They have been living through planned and unplanned outages for over a year. Power failures in a country with personal security problems cause more serious repercussions than the inconvenience of melted ice-cream. Homes and businesses are largely protected by electrical burglar-alarm systems, and when these are neutralized, people and property are left unprotected, or entry into one's own home building or community might prove impossible because of electrical security gates which do not open. It is safe to say that the outages have ruined any quality of life that South Africans might have had. The economy is also suffering, with industries crumbling and foreign investors taking flight, despite the commodity boom. What is the reason behind South Africa's crisis? South Africa is endowed with natural resources, including coal and uranium, so lack of fuel for either coal or nuclear power cannot be considered a major factor. The general consensus is that the crisis was caused by the government's flawed planning of the electricity sector. Towards the end of the 90s, the South African government decided to privatize Eskom and sell 30 percent to the private sector. As part of this policy, Eskom was prevented from investing in new capacity, despite frequent warnings that existing capacity would soon be insufficient to meet projected demand. By the time the privatization policy was put on hold (due to delays in private investment) and the ban on Eskom's new capacity was lifted, the seeds of the power crisis had been sown. Power stations are not built in a day, and South Africa found itself unable to meet the robust demand growth in electricity, with generation reserves below 10%. The low maintenance level of some of the power stations and lines, greatly exacerbated the problem. One cannot ignore the many similarities between the South African and Israeli electricity sectors. Here too, the government decided towards the end of the 90s to implement a privatization-restructuring policy, and the Israel Electric Company was not allowed to build substantial new capacity. Unfortunately, the government's forecasts regarding private generation capacity were totally unfounded and private production is today almost non-existent. This has caused reserve capacity to drop below 5%. One could say that this data quite possibly translates into an impending crisis in the Israeli power sector. To date, however, due to the high level of maintenance of power stations and transmission systems, the supply of electricity has been mostly unimpaired, even at the present low reserve rates. The Israeli government has started to heed the warnings from the Israel Electric Company, namely that a power shortage was imminent unless emergency measures were taken. Such measures are now being carried out vigorously by the relevant authorities, yet it is too soon to know whether these steps will actually prevent a crisis similar to that in South Africa. Renelle Joffe is a lawyer for the firm Meitar, Liqournik, Geva & Leshem.