Alternative power market in disarray?

Eskom's ability to pull itself up by its bootstraps and deliver a reasonable service to consumers in South Africa, together with a delay in the utility's application for an increase in prices pending the national treasury's confirmation of the details of its R60 billion loan, have had a severe impact on the alternative power market.

The market is in disarray following the apparent reversal in Eskom's poor fortunes.

When load-shedding and electricity cuts were introduced to SA in early 2008, sales of petrol- and diesel-powered generators soared, with some retailers recording a tenfold increase in sales.

Prices began to spiral upwards driven by demand. One of the major banks approved a budget of R50 million to equip its branches with generators and uninterruptible power supply (UPS) systems.

The market reacted with panic to the power outages, with vendors placing substantial orders for generators, inverters, battery backup systems and UPS systems on overseas suppliers.

Now, around 10 months later, these products have not only landed in the country, they are on resellers' shelves in every town and city in SA.

The market is facing a seriously overstocked situation, which will negatively affect the viability of many of the smaller vendors - many of which sprung up to take advantage of, and profit from, Eskom's early problems.

As we move into 2009, we can expect huge quantities of products to be dumped on the market by resellers keen to divest themselves of their inventory and turn their backs on the power market.

For buyers, there will undoubtedly be many bargains on offer, but a sizable percentage of the products will be sold without warranty - or with worthless warranties - as companies leave the power business and call a halt to after-sales support in the weeks and months ahead.

The spectre of load-shedding and power blackouts could return to SA if rumours that Eskom is set to pull two power stations off the national grid for repairs and maintenance are true.

Philip Hampton is CTO of Powermode.

As a result, buyers should be more cautious than ever and deal only with reputable, well-established resellers with a proven track record in the power business.

There is no doubt that SA is not out of the woods yet. We might be experiencing a continuity of electricity supply and stability of prices, but it will not take much to destabilise the market.

The spectre of load shedding and power blackouts could return to SA if rumours that Eskom is set to pull two power stations off the national grid for repairs and maintenance are true.

Eskom's reported reserve capacity is less than 6%, and even a serious breakdown at an Eskom generation plant could return the country to the dark days of rolling blackouts that characterised the first quarter of 2008.

Although the man in the street might not realise it, many Eskom generating plants are operating outside of their reserve margins. These plants cannot accept any new connections to major industrial or residential developments unless space is created on the system. There is no safety net.

According to Eskom, it is working to improve the reserve margin through savings from the existing customer base, not additional generating capacity.

Adding insult to injury, Eskom has had its international credit ratings cut by Moody's Investor Services - a provider of credit ratings covering debt instruments and securities in the global capital markets - after it failed to win government approval to double electricity tariffs earlier in the year.

This will have a bearing on its ability to attract loans and funding from the international business community to underpin its proposed R343 billion expansion plan.

In this light, it's important for companies to reassess their positions with regard to strategic power supplies and make contingency plans accordingly - preferably in partnership with a knowledgeable consultant.

* Philip Hampton is CTO of Powermode.