In June Eskom reportedly announced that it wants to raise electricity tariffs by at least 14,6% over each of the next five years. As required by law, Eskom has already submitted its Multi-Year Price Determination (MYPD 3) for the next round of tariff hikes to the Treasury and the South African Local Government Association (Salga) and National Treasury for comment. The MYPD 3 will set out electricity prices for the period beginning 1 April 2013. This as the second MYPD2 expires at the end of March 2013.
Although Mr Brian Dames (CEO of Eskom) said that Eskom has not determined the final application to NERSA (National Energy Regulator of SA), he defended Eskom’s recent above-inflation tariff hikes. Mr Dames said: “The "endgame" was for the tariff increases to be at inflation level. But this was not possible now because coal — which accounted for half of Eskom’s costs — was still costly. Coal costs have increased 18% a year, he said. "We cannot apply for inflation tariffs if our coal costs are high." If Eskom applied for inflation tariffs, it would be subsidising coal companies.
Eskom is to spend over R300 billion on its power station build programme, which is funded through debt. The parastatal currently has debt worth R182 billion (which was raised locally and internationally) that needs to be paid back, of which the interest bill on that is an average R23 billion a year for the next five years. Although Eskom recently announced a R13.2 billion profit for the 2011/2012 financial year, however, it is not making enough profit to pay back our annual interest bill.
If the National Energy Regulator of South Africa (NERSA) approves the annual increases needed to achieve Eskom’s 2017 target, it will mean a hike in electricity costs of 400 percent in the 10 years between 2008 and 2017. How does this tariff increase affect South Africans?
Eskom's proposals work out at its average electricity tariff rising from the current 60,66c per kilowatt-hour in the year to end-March 2013 to at least 118.82c/kWh in the year to end-March 2018 - an increase of at least approximately 96% over the next five years.
The growth in the demand for electricity was only 0.2% in the year to end-March. In 2011 it was 2.9%, and in 2010 1.6%. This means that the tariff increases of 25% in 2010 and 2011 and 16% in the year to end-March 2012 have already resulted in the demand for electricity starting to fall. Shaun Nel, director of BDO Consulting and spokesman for the group of intensive energy consumers recently stated: "We are approaching the point where we are trying to keep Eskom sustainable with tariff increases, but the more it increases its tariffs, the more the demand is falling and the less sustainable Eskom is becoming. Five years ago, electricity was 10% of the input cost for electricity-intensive consumers. Today it is between 30% and 40%.”
Due to the recent increases the profit margins of industrial consumers have fallen considerably. This has very important implications for economic growth and job creation. If the latest hike is granted it would cause further contraction of the manufacturing and mining sectors. A tariff hike will have a devastating ripple effect within South Africa and should only be implemented if all alternative solutions have been exhausted.
Eskom alludes that their power stations are operating at capacity and are burning coal at a rate that is unsustainable, so what can be done to reduce the rate that Eskom is burning coal? What is Eskom currently doing to encourage South African citizens and private industries to participate in making their environment more energy efficient?
Eskom is currently rolling out the Solar Water Heating programme whereby Eskom provides a rebate to customers who purchase and install their Solar Water Heater. The aim of this programme is to reduce house hold energy consumption by replacing conventional Geysers – that consume a large amount of electricity – with efficient Solar Water Heaters. The question on everybody’s mind is: what is Eskom doing to reel in the private sector (intensive energy consumers) and get them to participate in becoming energy efficient?
Eskom has implemented the Integrated Demand Management (IDM) Standard Product and Standard Offer Programme which provides a rebate to clients who invest in making their environment more energy efficient by replacing current technology with Eskom approved energy efficient technology. However, some players in the private sector are reluctant to participate in programme as they may view the Standard Offer Programme as exclusionary because you only qualify for the programme if you are able to generate a saving of 50KW or they may find that the rate offered per KW saved as not alluring enough to justify the CAPEX required to make their building(s) more energy efficient. Is Eskom’s IDM Standard Offer Programme an incentive good enough to reel in the private sector or can Eskom explore alternative options prior to resorting to yet another tariff hike?
It is important to acknowledge that there is an energy crisis within South Africa and that all South Africans should make energy efficiency a priority. However, in order to achieve this it is essential for Eskom to propose tailored solutions that will encourage all consumers (from large customers to domestic customers) to make their environment energy efficient.
This is not a crisis that can be addressed through advertising campaigns; it is a crisis that needs to be addressed by educating the market, forming strategic partnerships and by forming industry tailored incentives that are not exclusionary. This can only be achieved through a partnership between the public and private sector.
A public private partnership would play a significant role in ensuring that the private industries come to the party on being energy efficient. This can be done by informing participants in the private industry that companies such as GenSave offer free energy audits and also the fund the CAPEX required to make a client’s building(s) more energy efficient, at no cost to the landlord. This approach goes a long way in ensuring that buy-in is received from the private industry and is a big step in reducing South Africa’s energy consumption.
We believe that Eskom should allow companies that generate a saving of less than 50KW to participate in the IDM Standard Offer Programme or allow ESCO’s to aggregate a number of buildings under one client, in order to participate in the programme.
In order to execute the Solar Water Heating programme Eskom needs to recruit, train and employ youth who will ensure that the targets set by Eskom are met. We believe that a public private partnership would be mutually beneficial as we could address unemployment by training and employing youth and address South Africa’s energy crisis at the same time.
While Eskom is an important partner we believe that certain policies would need to be reviewed and discussed. We would be willing to discuss and derive a solution that would benefit South Africa socially, economically and environmentally.
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