/ 8 January 2010

Eskom’s secret tariff plan revealed

Nersa's hearings on Eskom's massive tariff hikes begins soon but government hasn't made the plan it is based on available. Read our leaked copy.

While Eskom has sent the nation into a tailspin by asking for massive electricity tariff hikes over the next three years, the government has failed to make public the plan upon which the increase is based — even though it is required to do so by law.

And this just before the national energy regulator, Nersa, begins public hearings on January 11 on Eskom’s controversial bid for a 35% per year increase in the price of electricity compounded over the next three years.

The application is based on the energy utility’s Integrated Resource Plan.

In the interest of transparency, the Mail & Guardian has published a leaked copy of the Integrated Resource Plan for Electricity submitted with Eskom’s first application — originally for a 45%-a-year increase per year for three years.

The plan is an early draft, dated September 23 2009.

If government had honoured the stipulations in the new National Energy Act, passed in November 2008, the public would have a final document to engage with ahead of the hearings.

The Act requires the Minister of Energy to provide “any data and information reasonably required for the purposes of conducting analysis required for energy planning from any person” (Section 3(1)(a)).

It is understood that the plan was developed by Eskom itself. With no transparency around the plan, it is not known if this has subsequently been updated.

Several questions arise from examination of the plan:

  • As an “integrated” plan, it doesn’t deal with non-electricity issues like liquid fuels.
  • It rightly suggests several scenarios, however, the “Multi-Criteria Decision Making Process” then introduced is based on what appears to be arbitrary weightings ascribed to criteria which include cost, emissions, risk and diversity for each scenario or plan. These are then adjusted through “partial value functions” to judge “goodness of fit”.
  • The plan notes but ignores the “policy” scenario, which should reflect stated government policy on issues like private participation and energy diversification, in favour of a “risk-adjusted” scenario which essentially justifies Eskom’s current build plan.
  • The “risk-adjustment” is done on a traffic-light scale where the current coal power stations score top marks (“green”) for “confidence in cost assumptions”, despite the fact that the price of the two planned coal power stations, Medupi and Kusile, has already increased by more than 50% in the less than three years since it was approved by the Eskom board.
  • The plan cites only 17MW of electricity to come from co-generation by industry, while industry itself says it is able to produce about 3 000MW.
  • Concentrating solar power scores in the red on “confidence in costs” despite the fact that the price for these stations are pre-determined for the 20 years of a power purchase agreement under Nersa’s Feed-in Tariff regulations. Unlike Eskom, the independent power producers who are looking to build these solar plants (Eskom has indefinitely postponed its own solar power station) do not get paid for the costs they incur, but only for the electricity they produce.
  • Beyond a creative treatment of “risk”, it is not clear from the plan what the operational cost assumptions are for the different supply technology options — in its accompanying tariff application Eskom shows both the cost of manpower and of coal doubling over five years, but do not project these costs beyond the initial five-year period.

And perhaps most tellingly, the section on “Impact on the Economy” reads “THIS IS STILL OUTSTANDING”. This section may well be completed in the new plan but as the documents has not been made public, we can only assume what Eskom’s tariff hikes will mean for an economy recovering from a major recession.

The hearings for Eskom’s required revenue application for the period April 1 2010 to March 31 2013 will be held in all provinces from January 11 to 21, Nersa said in a statement. They start in Nelspruit, Mpumalanga and end in Midrand, Gauteng.

Nersa will make its ruling on the application in February.

Eskom is trying to raise funds for a R385-billion power expansion programme. It announced last month it had loaned $1,7-billion from five French banks. The loan would be used to purchase turbines for its coal-fired power stations, Medupi and Kusile.

What do you think of the plan and the tariff hikes? Let us know in the comment box below.