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Electricity intensive firms to approach Nersa for new job-saving tariff deal

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Electricity intensive firms to approach Nersa for new job-saving tariff deal

EIUG chairperson Dr Tsakani Mthombeni

16th August 2017

By: Terence Creamer
Creamer Media Editor

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The Energy Intensive Users Group (EIUG) will approach the National Energy Regulator of South Africa (Nersa) before the end of September with a proposal for structural changes to Eskom’s tariff for large power users by removing existing cross-subsidies to assist businesses whose future sustainability is being placed in jeopardy by the utility’s current fast-rising price path.

In motivating for the short-term tariff relief, the EIUG will argue that competitive prices for electricity heavy firms will help stimulate economic growth and stave off the job losses that are likely to arise should these companies be forced to accept the further double digit tariff increases being sought by Eskom.

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Nersa is currently considering an application for a two-year negotiated pricing agreement (NPA) between Eskom and Silicon Smelters, which would facilitate the restart of ferrosilicon production in the Limpopo and Mpumalanga provinces. It is understood that steel producer ArcelorMittal South Africa plans to make a similar application, having been in ongoing consultation with Eskom on an NPA for the past several months.

EIUG chairperson Dr Tsakani Mthombeni says Nersa has the legislative authority to approve such incentive pricing for a period of two years under Section 15(3) of the Electricity Regulation Act. He stresses, however, that the EIUG’s application for cost-reflective industrial tariffs will differ from the current submissions before Nersa for bilateral NPAs between Eskom and individual power-intensive firms.

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Mthombeni tells Engineering News Online that, while these NPAs will be important in establishing the criteria for those eligible to apply for incentivised tariffs, a more generic, and less time consuming, framework should be established for all energy intensive industries where output and employment is being placed at risk as a result of rising power tariffs.

The proposed cost-reflective industrial tariffs should not be accessible only to EIUG members and direct Eskom customers, but also to any company that meets the objective criteria set by the regulator. Importantly, these more cost-reflective tariffs should also be available to power-intensive firms that buy their electricity from municipal distributors.

The EIUG’s planned approach to Nersa comes against the background of falling domestic electricity consumption, which has declined by 0.5% a year on average since 2006. This decline has been led by large power users, with Eskom estimating that consumption from industrial customers has decreased by 1.7% a year for the past ten years.

The decline has persisted notwithstanding the State-owned utility’s return to a surplus position, following more than a decade of supply shortfalls, during which Eskom leaned heavily on EIUG members to cut their consumption by 10% against an agreed baseline.

Eskom acting CEO Johnny Dladla has stated that, whereas security of supply had been the overriding concern previously, the utility’s focus had since shifted to managing surplus capacity.

The utility claims to have up to 4 000 MW of surplus currently available on a daily basis and has indicated that this excess-supply situation could persist until at least 2021. It is, therefore, aiming to recover sales volumes and has set a target of growing yearly domestic sales by 2.1% over the coming fives years, while increasing export sales by 8% a year over the same period.

Mthombeni, who is head of carbon and energy at mining group Gold Fields and took over as EIUG chairperson in July, believes there is potential for Eskom to be even more ambitious with regards to its domestic sales target, arguing that there is a significant amount of idle capacity that could be revitalised through a more competitive industrial tariff.

The EIUG does not claim to have full visibility of the opportunity. However, the organisation has a good sense of difficulties being faced by power-intensive businesses, with its 32 members consuming more than 108 000 000 MWh yearly, or about 40% of the country’s electricity demand.

“For many of these companies electricity makes up between 15% and 50% of the operating costs and electricity tariffs have become unaffordable for a large part of our membership,” Mthombeni warns. Further double-digit hikes will place a range of industrial and mining businesses, and their employees, at risk.

He notes that key industrial and mining capacity has already shut either permanently or temporarily, or has even moved offshore. “Unfortunately, we see no change in this downward trend if tariffs continue to rise.”

Eskom is seeking a 19.9% hike from April 1, 2018, having been granted a 2.2% increase from April 1, 2017. Moreover, Eskom’s tariff has more than doubled in real terms since 2007.

Mthombeni believes there is a genuine opportunity to rekindle demand and stimulate economic growth by tapping into Eskom’s surplus both through bilateral NPAs, as well as implementing a more cost-reflective tariff for electricity-heavy companies.

He has been encouraged by the responsiveness of Dladla to the EIUG’s proposal, indicating that the utility’s acting CEO has concurred that it “can no longer be business as usual” when it comes to its embattled industrial and mining customers.

The EIUG is hoping to align its proposal with Nersa’s adjudication calendar for Eskom’s 2018/19 tariff application so that any possible changes to industrial tariffs are factored in ahead of the April 1 adjustments.

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