By Eustace Davie
June 06, 2011
Inherent in having a single grid owner and operator is the lack of competition. This lack creates the problem of potential excessive charges and difficulties with obtaining access to the grid. A problem governments generally attempt to solve by regulation and, especially, price control, which are not as effective as competition and consumer choice.
Most people do not know that the electricity transmission grid plays a significant role in their lives. The grid consists of high voltage wires strung between huge pylons and stretching across thousands of kilometres from generating plants to electricity users. In SA, this grid is currently owned and maintained by Eskom.
But this is about to change. The Department of Energy recently released the ‘Independent System and Market Operator Bill’, which proposes to transfer responsibility for operating the grid to an independent operator, ISMO. The Bill provides for a process that will allow for the transfer of ‘fixed property and other real rights in fixed property’ as well as other assets, liabilities and obligations ‘that can legally be transferred’ from Eskom to ISMO but it does not specifically mention the electricity grid.
Should the 27,770 kilometres of high voltage transmission lines currently owned by Eskom and all the other components of the grid become owned and operated by ISMO, leaving Eskom to focus purely on power generation, the grid would function in the same way as electricity transmission is handled in the UK, except that it would be publicly and not privately owned.
National Grid is an investor-owned company that owns and operates electricity transmission grids in the UK and parts of the US. In England and Wales it owns the electricity transmission system, including approximately 7,200 kilometres of overhead line, about 690 kilometres of underground cable and 337 substations. The company is the Great Britain system operator. Besides the operation of the England and Wales transmission system, it also manages the two high voltage electricity transmission networks in Scotland. According to the company, day-to-day operation of the Great Britain electricity transmission system involves the continuous real-time matching of demand and generation output, ensuring the stability and security of the power system and the maintenance of satisfactory voltage and frequency.
Inherent in having a single grid owner and operator is the lack of competition. This lack creates the problem of potential excessive charges and difficulties with obtaining access to the grid. A problem governments generally attempt to solve by regulation and, especially, price control, which are not as effective as competition and consumer choice. Competing regional owners and operators of high voltage grids, who are linked for purposes of balancing loads, buying and selling electricity from each other when necessary, allow trading across their grids and some consumer choice. This is essentially what occurs in the EU and US. A single monopoly government-owned electricity generation, transmission and distribution organisation, such as Eskom, creates the most problems for consumers and for itself.
Consumers, be they individuals or large organisations, have the obvious problem of lack of choice, a problem that regulators in countries such as the UK and New Zealand have been at great pains to address. It is important to at least have final distributors who purchase electricity from competing generating companies, transmit it across transmission lines, transform it, and compete with each other for the business of the final consumers.
Public enterprises experience a great many difficulties that retard the efficiency of their operations. Inevitably, there is political interference in the functioning of the enterprise, the requirements changing every time there is a change in the political leadership. Industrial relations are politicised with demands being particularly difficult to resist when the employer is the only supplier of an essential service. Delays in political decision-making, such as the delay in facilitating the entry of private electricity generators to provide the power so desperately needed in SA, hamper the activities of the responsible public enterprises. Long term plans which can be set aside with the wave of a political hand deprive public enterprises of the kind of certainty that is essential for proper planning and efficient management.
World experience has shown that a vertically integrated electrical generation, transmission and distribution structure is not the best way to organise the supply of electricity. Even if most of the parts of the whole structure remain government-owned, which is not desirable, the entities will function better if they are separated and can concentrate on their core functions. The creation of ISMO to channel electricity to the end users will relieve Eskom, as an electricity generator, and its employees of responsibility and blame for electricity shortages that are none of their making.
ISMO and the electricity regulators will hopefully encourage private generating companies who believe there is business to be had, to enter the market. ISMO does not have to weigh the risks on behalf of potential investors; all they need do is to allow access to the grid for their generating plants. SA needs more generating capacity rather than less. An independent ISMO will provide electricity generators, distributors and purchasers with information regarding supply and demand for electricity, including peaks and lows, on which to make their production and investment decisions. An independent grid operator, as long as it is instituted quickly and efficiently, will go a long way towards solving SA’s electricity supply problems.
ISMO is set to buy electricity from Eskom and new independent suppliers to ensure that the demand for electricity is properly met. We will know that this has been achieved when ISMO, Eskom, new independent power producers and distributors start advertising to encourage consumers to buy more electricity, instead of appealing to them to buy less.
An independent electricity transmission grid is important to each and every one of us. Give the establishment of ISMO your support. And if government decides to make shares in the various entities available to employees and the general public be even more enthusiastic in your support.
AUTHOR: Eustace Davie is a director of the Free Market Foundation and associate of AfrianLiberty.org. This article is syndicated by AfricanLiberty.org