Eskom cost of electricity cluster

Image via GCIS

Eskom’s plan for cheaper electricity: Internal competition clusters explained

The Minister of Public Enterprises, Pravin Gordhan, aims to break Eskom’s monopoly.

Eskom cost of electricity cluster

Image via GCIS

Eskom is hoping to reduce the cost of electricity by furthering its unbundling strategy in incremental stages, typified by a ‘cluster’ programme which will create internal competition within its generation department.

It’s been many months since President Cyril Ramaphosa first announced plans to split Eskom up into three separate entities. While the president’s plan was welcomed by the public – who have struggled under the burden of Eskom’s financial and operational failures – criticism from trade union partners quickly dulled the edge.

The hard road to unbundling Eskom

The unbundling strategy, which had the support of Finance Minister Tito Mboweni and Public Enterprises Minister Pravin Gordhan, was seen to signify the beginning stages of privatisation – a swear word to unions and members of the African National Congress (ANC).

While the unbundling policy has, by all accounts, taken a more moderate turn, Eskom’s glaring inadequacies – demonstrated by burgeoning debt, now exceeding R440 billion, erratic load shedding, record financial losses and ballooning electricity prices – put South Africa on the precipice of disaster. Indeed, Eskom’s volatility and unsustainability has been highlighted as the greatest threat to the country’s economy.

Gordhan, who has the unenvious task of turning the state owned enterprise around, delivered his proposal on Tuesday. After detailing Eskom’s numerous failures, Gordhan asserted that in order to effectively revive the utility – and spare South Africans the affliction of skyrocketing electricity prices – an entirely new business model would need to be implemented.

Breaking the monopoly: Gordhan’s ‘cluster’ strategy

Gordhan confirmed that the biggest problem at Eskom was that its cost structure was greater than the revenue it generated, putting the utility in a perpetual cycle of debt.

The Public Enterprises Minister elaborated on his repositioning strategy, which, in line with models proposed by President Ramaphosa, would see a shift towards competition within the utility, effectively breaking the Eskom’s monopoly. Gordhan said:

“The problem with the current generation structure has been the lack of competition in the monopoly. The paper proposes creating power station clusters where intra-company competition will be increased and plants will be run as businesses to improve efficiency.”

Splitting and segmenting power plants into ‘clusters’ is intended to increase production and better cost-efficiency, which, in turn, will result in cheaper electricity for the citizens of South Africa.

Gordhan confirmed that 15 coal-fired power stations would be clustered in groups of three and that these sets would then compete directly with one another.

Gordhan also confirmed that the move to unbundle Eskom’s transmission structure will be completed by 31 March 2020. A date for the clustering strategy has not yet been confirmed.