Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


July 22, 2005 - In the News

The Business Report article outlines the findings of a PESD working paper criticizing the current South African policy of Free Basic Electricity. The article also quotes the chief director of electricity in the department of minerals and energy for South Africa, suggesting his department will follow up on one of the alternative models proposed by the PESD study.

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Rebecca J. Elias

Study recommends energy cards to reduce electricity costs

Appeared in Business Report, July 22, 2005

By Ingrid Salgado

Cape Town - Allowing poor South African households to choose their own preferred mix of subsidised energy sources is cheaper than the government's free basic electricity programme, a top-level study shows.

The study, by Stanford University's programme on energy and sustainable development, said the system it had proposed would also help to alleviate what it described as the nation's looming electricity power shortages during peak times.

It suggested that recipients of the free basic electricity subsidy, which amounts to 50 kilowatt hours a month per household, instead be issued with vouchers or "energy cards", giving them freedom to choose the least costly supply of energy suited to their needs.

The proposed clean energy credits, equal in value to the electricity subsidy, could be used for electricity, liquid petroleum gas (LPG), solar water heating, or combinations thereof. Polluting or dangerous fuels would not qualify.

Ompi Aphane, chief director of electricity in the department of minerals and energy, said yesterday there was some value in the "energy cards" model proposed by the study. The department would follow it up.

According to the study, if the poorest 10 percent of South Africans were to use an LPG gas stove instead of an electric cooker, each household would save R258 a year, or 6 percent of their annual income. This, it pointed out, was a conservative estimate.

Although it compared LPG to electricity, the study did not advocate subsidies for LPG. This would "simply introduce another distortion" to the energy market, in the same way that the free electricity programme encouraged households to cook with electricity, thus raising demand in peak times.

But it warned that the government would have to act fast if it wanted to reform its free basic electricity programme because the poor were already starting to invest in household electrical appliances.

"Once those promises [of free basic electricity] are cemented in place, it may be politically difficult to change course."

Aphane said the economics of LPG was likely to be even more attractive than the conservative figures used in the study. For example, the cost of steel to manufacture LPG cylinders could be lower than that assumed.

He said that in addition to the free basic electricity programme, the government had a German-funded programme to supply areas without electricity infrastructure with solar home systems and thermal heating mechanisms.

The study, conducted by five researchers, including David Victor, the director of Stanford's energy and sustainable development programme, and Mark Howells of the University of Cape Town's energy research centre, said South Africa's electricity-generating capacity was insufficient to meet demand and would be hard-pressed to do so at peak times.

The free electricity programme would aggravate the problem by raising electricity consumption.

But the government maintains it is on course to provide new-generation capacity to meet demand, which is projected to grow by 1 200 megawatts a year from current peak demand of 34 000MW. Eskom's peak capacity is currently 36 000MW.

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