2 April 2013 – The National Energy Regulator of South Africa (Nersa) says it will not allow funding for national power utility Eskom to continue with its electricity buybacks in the third multi-year price determination period, which begins in April 2013. These buybacks have been undertaken by Eskom whereby it pays energy intensive users such as ferrochrome smelters to take their plants offline and avoid the use of electricity.

While it does not typically make sense to for a utility to pay members of the productive economy to avoid operating their plants, such is the electricity crisis in South Africa that the utility has been running peaking open cycle gas turbines, meant to be used no more than 5% of the time, for many hours a day. These plants cost an estimated R2.50/kWh to run, well above the charged electricity price averaging about 61c/kWh and in this context, as well as due to slow commodities demand, the buybacks have saved the utility and electricity users money, and also benefited the electricity intensive companies that participated.

Thembani Bukula, regulatory member for electricity at Nersa, told parliament’s portfolio committee on energy that buybacks were not allowed in the third multiyear price determination for the next five years.

With generation capacity reserve margins incredibly tight, ending the buybacks will further limit the flexibility Eskom has in trying to match existing supply with demand. Nersa wants the entire process of demand supply management to be taken out of Eskom’s hands, if possible.