In January, when the lights went out around SA and industry ground to a halt, Eskom's reserve margin - the utility's ability to supply power above demand, meant to buffer against unexpected high demand or loss of generating capacity - slipped to between 7% and 8% from an international best practice margin of 10%-15%.
The effects on industry were considerable, with mines being forced to halt production for days - at a cost of R1bn/day in lost sales alone, according to Chamber of Mines estimates, and R1,5bn-R2bn/day with supplies and procurement factored in. In total, the power cuts cost the economy about R50bn.
WHAT IT MEANS
 Boosted capacity vital in building reserves
Industry can assist through cogeneration
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As the largest consumer of electricity in the country - more than 60% of the country's power is taken up by commerce, mining and industrial operations, according to the National Energy Regulator of SA's (Nersa) 2007 electricity supply statistics - industry was forced to reduce demand substantially.
"Big business really came to the party in January and February," Eskom nuclear stakeholder manager Tony Stott told the recent Shell Energy Dialogue on business and the energy challenge, hosted by the University of Cape Town, in association with the FM and Summit TV.
"They had huge savings. Initially they stopped some mining production, but once they restarted production, they saved on their energy costs. They were using about 90%-95% of their normal usage."
The situation has stabilised through increased energy efficiency - but Eskom's reserve margin is expected to remain tight for the next few years and reduced demand is a short-term intervention. In the medium to long term increased capacity is crucial to building the reserve margin.
Said Stott: "We can get it by building new power stations, whether they are base-load or peaking power stations, or whether they are opportunistic renewables, cogeneration or other ways of generating power."
But experts agree that without increased government regulation and legislation, getting the full buy-in of the private sector may prove problematic.
One of the ways in which industry can contribute is by pushing power back into the national grid through cogeneration projects, in which the by-products of production are used to generate power. These could add 1 500-3 000 MW to SA's energy supply, improving security of supply.
"Onsite generation builds redundancy into the distribution system," Mike Munnik, board member of the Green Building Council of SA said. "It can work hand-in-hand with the large-scale centralised electricity generation that is currently in the country."
But business is waiting for Nersa and government's go-ahead for cogeneration projects.
"We'd like to buy back surplus power, but the regulatory framework to enable that to happen is not in place," said Stott. "We'd like business and others to be able to sell electricity back into the grid and we are encouraging the regulator to provide the legislation to make that happen."
Early last month Nersa planned to discuss cogeneration guidelines following Eskom's May 31 deadline for bids for its Pilot National Cogeneration Programme. The utility hopes the programme will bring 3 000 MW on stream by 2012.
But, though Eskom has indicated it will pay preferential rates for generators coming on stream by 2012, the low cost of electricity in SA remains an obstacle to private investment. Earlier this year government and the AES Consortium terminated their contract for two peaking power plants because it was not profitable enough.
"There are financial implications to generating your own power," said Harmony Gold group consulting mechanical & electrical engineer Leon le Roux. "To set up a power plant is expensive and the reimbursements that are available do not cover the costs of the capital and the operating costs of those plants."
Electricity tariffs are, however, being reconsidered and government is said to be considering a move to a "cost-reflective" tariff, which would more closely reflect the cost of supplying power.
"Eskom switches on its power stations according to a merit order," said Denis van Es, head of energy efficiency at UCT's Energy Research Centre.
"The cheapest to operate comes first, followed by the increasingly more expensive. If all stations are available to run, then the deployment is in this order and is in direct response to the demand placed by us, the users. The demand is not uniform through the day and some tariffs reflect this."
But what of the effects of price increases on industry? Le Roux seemed unperturbed by the suggestion. Harmony Gold's projections had predicted a substantial increase in price over the next few years, he said. These predictions may not have been as substantial as the price increases have been this year so far, but they have been high in any case.
From a business point of view it is also important to factor in the cost of unserved electricity.
"The highest Eskom energy rate is about R1,40/kWh," said Van Es. "An increase, including doubling, is nothing compared with your cost of lost production. A figure in common use is R20 lost for each kWh not supplied - and that loss may be as high as R75/kWh. Even at the lower rate, the cost of not doing business is hugely greater than the cost of the electricity you buy."
It is also thought that a higher cost will encourage behavioural change in consumers, ensuring reduced demand for electricity.
"If there is some regulation, then it would encourage a whole new industry," said Van Es. "We just need to tip our energy culture over into an energy-efficient one. And to encourage that tipping we need a bit of legislation."
