Browsing the website of the state-owned electricity producer, Eskom, where “load shedding” schedules are published, is a depressing pastime for a sunny Friday afternoon. It’s a tale of woe that underscores the truth of the classic economic argument that if you control prices, you’ll get only shortages for your efforts. Witness:
The Energy White Paper of 1998 encouraged independent power producers (IPPs) to enter the generation market. Private-sector investment was not forthcoming and in 2004, government revised its policy and Eskom was given the green light to build new generation capacity.
Because of the low South African electricity prices and the slender returns they could earn, years passed without a single IPP entering the local electricity market. Meanwhile Eskom’s fleet of power stations got closer to the end of their design life while the demand for electricity grew inexorably higher.
The government has a nasty habit of describing such reluctance of the private sector to come to the party as “market failure”. But why aren’t they coming to the party? Low prices. And why are prices low? Because they’re regulated. For socio-economic development (read “central planning”) reasons, South Africans get cheap electricity — when they can get it.
The South African electricity-supply industry, long the envy of the developing world, must be allowed to restore its reputation and resume giving its customers excellent service.
To achieve this, there must be cooperation and support (Thekga) from everyone. The rebuilding of a world-class electricity supply must become a national issue — a social rallying call.
Until that happens, domestic customers would do well to have gas bottles and other emergency equipment prepared for use, in case of unexpected interruptions.
The only thing this proves is that the social rallying call should be to liberate South Africa from the shackles of government social service delivery. It ain’t going to happen, folks. And since it won’t, we might as well repeal the laws that oblige the government to provide for us, while preventing private entrepreneurs from supplying the needs of their private customers.
If that means prices are going to rise, fine. I’d rather pay more for electricity and actually get it than pay less and be told by my state electricity supplier to invest in “gas bottles and other emergency equipment”.
As Friedrich Hayek said, the cure for high prices is high prices (hat tip: Neil Emerick, Free Market Foundation). Only when prices are permitted to rise will they attract competition and investment. In turn, this competition will result in lower profit margins and a systemic decline in prices. But much more importantly than providing cheap electricity efficiently, only by permitting prices to float freely as demand dictates will supply rise or fall to match that demand. Price caps on electricity can have only one outcome: shortages.
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