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We have a demand problem, Minister

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We have a demand problem, Minister

17th November 2017

By: Terence Creamer
Creamer Media Editor

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National Energy Regulator of South Africa and Eskom executives will naturally be relieved that hearings into the State-owned utility’s revenue application for 2018/19 have drawn to an end. However, it is somewhat of a pity that Energy Minister David Mahlobo did not have an opportunity to attend. If he had, and had he arrived with an open mind, he would have seen for himself that security of supply is no longer the main risk. Instead, insufficient demand has become the real issue facing the economy, the electricity sector and Eskom, whose very sustainability is at stake.

Mahlobo would have heard from Eskom, as well as many other presenters, just how far South Africa’s electricity demand has deviated from the assumptions approved as part of the third multiyear price determination (MYPD3), after public hearings in 2012.

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This demand underperformance was displayed most graphically in an Eskom slide featuring three distinct lines: a red line, representing actual sales, a green line, showing assumed sales, and a black one, offering a ‘realistic forecast’ to 2027. From 1994 to 2007, the red line rose steeply from below 150 000 GWh/y to a peak of above 224 000 GWh/y. However, it then retreated sharply, taking an entirely different trajectory from the green line, outlining the assumed sales path from 2013 to 2017. The black forecast then joins the red line, before tracking sideways to 2027 and without, again, breaching the 220 000 GWh/y level.

In other words, government’s own utility does not foresee a supply squeeze, which is why the presentation also contains a slide outlining what Eskom plans to do to increase sales volumes, both domestically and across borders.

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Sadly, for reasons that are arguably becoming increasingly transparent by the day, Mahlobo is ignoring this reality in a bid to accelerate what would be South Africa’s largest-ever public procurement. His reasoning is based on flimsy security-of-supply arguments and on the premise that, once built, nuclear will produce the cheapest power. Outrageously, he even compares the cost of electricity being supplied for the country’s two operational reactors with new-build renewable-energy plants.

Nobody is saying that South Africa should not plan for electricity growth. Indeed, should the country’s electricity demand continue its current downward slide, it could well signal serious economic collapse. However, the country can simply not afford to, once again, make entirely unrealistic demand assumptions. Doing so is not pain-free, as we can see from the debates over Eskom’s 19.9% tariff application, where 9.4% of that hike relates to the “rebasing” of electricity sales volumes for those approved in the MYPD3.

Instead of putting lipstick on the pig, Mahlobo should be seeking genuine solutions to South Africa’s current power crisis, which has transitioned to become a complicated demand-side problem. Playing the role of chief nuclear procurement officer will not help extricate the country from its current economic malaise and energy predicament.

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