Molefe
Brian Molefe justifies Eskom’s need for the proposed 25% tariff increase at a public hearing in Johannesburg

In South Africa, the National Energy Regulator of South Africa (NERSA) commenced the first day of public hearings on Eskom’s proposed selective reopener application for a 25% tariff increase, which did not go as ‘smoothly’ as the utility had planned.

Addressing the NERSA panel and members of the public was acting Eskom CE Brian Molefe who highlighted the publicly known fact that at an operational level there is a backlog in maintenance of Eskom’s aging generation fleet and delays to the new build programme.

He stated : “We can point fingers and say who did what when, but, the fact of the matter is that we are now finding ourselves in a situation where we have to do maintenance and as a consequence of maintenance, we have to do load shedding because we have to shut off some generation capacity.”

Eskom selective reopener application

In April, state-owned power utility Eskom submitted a selective reopener proposal to NERSA asking for a total price increase of 25.30% for 2015/16. This will consist of the 12.69% approved by the energy regulator, the 10.10% selective reopener for OCGTs and STPPP, and a 2.51% increase in the environmental levy by ZAR0.02c per kWh.

The power utility submitted their third multi-year price determination methodology to NERSA in October 2012 to determine an increase in electricity tariffs.

Eskom stated that it has “initiated a selective reopener of the MYPD3 application from the 2015/16 financial year onwards that proposes an adjustment in the tariffs. This is due to costs incurred securing further short-term power purchases and increased use of open cycle gas turbines.”

Molefe continued with his plea: “We need the tariff increase to leverage supply options and reduce the impact of load shedding to the economy.”

Eskom continues to justify reason for hike

coal smokestack
Eskom’s generation fleet is beyond mid-life and requires extensive maintenance

Speaking at the hearing, Eskom group executive, transmission and sustainability, Thava Govender highlighted a ‘few’ challenges motivating the tariff hike:

“Half of Eskom’s generation fleet is beyond mid-life and requires extensive maintenance.

According to Govender, the utility doesn’t have the ability to avoid all the outages due to insufficient funding and capacity constraints.

Acting CE, Molefe further highlighted on a slide (dated April 2015), that without the availability of OCGT’s (Open Cycle Gas Turbines) and STPPPs (short-term power purchase programme), the performed load shedding for the April 2015 period would have almost doubled.

Molefe put the slide in perspective by saying: “If the decision of NERSA is that we [Eskom] should not engage in mitigating the cost of loadshedding or the impact of load shedding on the economy by using diesel and STPPPs, this is the kind of loadshedding that we [South Africa] will have.”

Putting figures forward

The Eskom CEO presented the following figures to the panel: “Load shedding costs are approximately ZAR15 p/kWh according to a document by TIPS compared to OCGT costs which is ZAR2.30 p/kWh.”

“Therefore, for every ZAR1 billion we spend on OCGTs, we save the economy up to ZAR6 billion.”

Molefe demanded that the South African economy decision makers “give” Eskom the ZAR1 billion instead of incurring the ZAR6 billion due to higher load shedding.

What the oppositions have to say

roger-baxter
Roger Baxter acknowledges Eskom’s need for funding, but feels that the financial structure needs to be revised

The South African Chamber of Mines responded to Eskom’s ‘plea’ yesterday, opposing the tariff increase due to the severity it will have on the sustainability of the mining industry.

However the Chamber acknowledged that the utility is in need of funds, but that the “funding mechanism” should be revised.

In a statement Chamber of Mines CEO Roger Baxter commented: “…we note Eskom’s need for further funding. What we are saying is that government needs to explore other avenues to raise these funds –we cannot accept that tariff increases are the most appropriate way of dealing with this shortfall at this time.”

Baxter added: “Given the crisis situation the sector finds itself in, with the majority of operations loss-making, this additional electricity tariff increase will place the industry in jeopardy.

“Further job losses may be sustained as a result of operations scaling back significantly, being placed on care and maintenance or having to close completely.”

Energy specialist and Professor at the University of Cape Town Anton Eberhard tweeted yesterday: “No chance Eskom will get [the] 25% tariff increase. NERSA will dispute [the] calculation or rule application is moot as [it[ can’t be implemented before 2016.”

Day two of the public hearing continues this morning.