Eskom urged to reduce price hikes

There has been vociferous opposition to Eskom's attempt to increase its tariffs by 16% each year for five years. (Delwyn Verasamy, M&G)

There has been vociferous opposition to Eskom's attempt to increase its tariffs by 16% each year for five years. (Delwyn Verasamy, M&G)

The ANC this week joined Cosatu in voicing its concerns about Eskom's proposed tariff increases, insisting that it would have a negative effect on the economy and that the proposed increase – 16% each year for five years – could be decreased.

Gwede Mantashe, ANC secretary general, said that costs associated with independent power producers, about R77.7-billion, also needed to be looked at.

In its application to the National Energy Regulator of South Africa (Nersa), the energy parastatal said this "translates into average price increases of 13% a year for Eskom's own needs, plus 3% to support the introduction of power producers".

Eskom said the 3% would mainly support the renewable energy independent power producer bid programme (about R57.9-billion) and the effect of the department of energy's peaker plant (about R13.34-billion) over the next five years.

Provision also needs to be made for power producers that are already contracted through the medium term power purchase programme (about R3.8-billion).

Jonas Mosia, Cosatu's industrial policy co-ordinator, said the union's submission to Nersa addressed the issue of 3% of the R1-trillion Eskom wants aimed at costs related to power producers. "So far it seems it is too much." He added that the programme contradicted the commitment to local procurement because most of the companies that will provide this renewable energy are not South African.

Enoch Godongwana, chairperson of the ANC national executive committee's economic transformation committee, said: "As important as it is to move toward clean energy, the technology must be looked at carefully and we must look at keeping costs down."

Total energy production
Eskom spokesperson Hilary Joffe said independent power producers are expected to contribute 7% of the total revenue over five years but 2% of the total energy production over the same period. The average price for renewable energy is 212c/kWh.

Eskom's proposed tariff increases for the overall electricity price would see it increase from 61 cents per kilowatt hour (c/kWh) in 2012-2013 to 128c/kWh in 2017-2018.
This amounts to the revenue requirement of approximately R1-trillion.

Joffe said the regulator approves all the power purchase agreements that Eskom signs with independent power producers, and ring-fences the revenue granted to Eskom to buy power from power producers. Because it does the procurement, the department of energy sets these costs and Nersa must scrutinise them before making its decision.

The renewable energy procurement programme is a tender of three windows in which companies bid to generate power for Eskom's grid. This power will be purchased by the parastatal at a set price. Contracts for the first round have been secured and these projects are expected to come online in 18 months. Bids for the second window have been closed and the deadline for the third window has been postponed to August.

Jason Shäffler of the Renewable Energy and Energy Efficiency Partnership said that, although contracts are in place, the industry still fears that "the devil is in the detail ... [but] if the independent producers' contracts are as far advanced as everyone thinks they are, there is no way Eskom can renege on them".

Tariff determination
He said the reasons for Eskom's price increases are far more fundamental and power producers would actually save money in the long term.

"The reason for increases include massive capital expenditure on the fossil fuel plants and also demand growth [which is] not what Eskom had been expecting."

Kilian Hagemann, director of G7 Renewable Energies, said the costs of renewable energy were coming down and would become cheaper than coal power over time. "If you look at the 16% increase over five years, you will realise that the 89 cents that wind averaged in round two [of the bidding programme] is already lower than projected Eskom tariffs."

Hagemann said he doubted the tariff determination would affect the plans, but the industry may need to discuss its concerns with the ANC and Cosatu. Anyway, "the tariffs for the peakers are much higher than what renewables are priced at", he said.

The peaker plant has a capacity of 1020MW, comprises two open-cycle gas turbines that will use diesel as primary fuel and will introduce extra capacity when electricity demand is at its highest.

The Democratic Alliance's spokesperson on energy, Jacques Smalle, said: "Since its inception in 2004, it has been clear that the [peaker] project is not only too costly, but that the energy department has not been able to implement it effectively."

Eskom does not pay to build or operate these peakers but must buy this power at a set price per unit set out in its power purchase agreement.

Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn

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