Power price hike could shock consumers, business

Monday, February 8, 2010

With emotions and tempers still flaring a few weeks after the National Energy Regulator of South Africa (NERSA) held public hearings into Eskom's proposed 35 percent tariff increase in electricity prices, the public awaits NERSA's decision with baited breath on how hard their pockets will be hit in weeks to come, writes Neo Semono.

In December last year Eskom revised its tariff application to the regulator from its initial 45 percent to 35 percent for the next three years. The revised application is a result of consultation with stakeholders in order to secure the country's electricity supply, while not adversely affecting South Africa's socio-economic process.

South Africa's economy, which is still under pressure from the economic meltdown, is extremely dependent on electricity making the economy susceptible to shocks on the electricity side, says Nedbank economist Dennis Dykes.

"If Eskom gets its 35 percent tariff hike every year for three years, this will mean an increase in electricity prices of 314 percent over five years," Dykes told an energy dialogue convened by the South African Chamber of Commerce and Industry (SACCI).

About 60 percent of the manufacturing sector (or 18.2 of the country's Gross Domestic Product) according to Dykes will be sensitive to the hike.

"Forty percent of the mining sector (or 6.3 percent of GDP) will be affected," he said. The hike implies that around 15 percent of GDP is vulnerable to electricity shocks."

According to Dykes, it is not only business that will take a knock but households that are already battling with debt will be affected by the regulator's decision on 24 February.

"There will be employment losses, disposable income losses as well as the impact of interest rates," he continued.

He said if Eskom receives the hike increase it requires, this will result in a "risk of capacity problems emerging in the medium term once again."

Independent Power Producers Association's Managing Director, Doug Kuni, said the current energy supply structure operates like "an open chequebook" and the country's structure makes no provision for the entry of Independent Power Producers (IPPS) to the electricity generating mix.

"IPPs are keen to enter the South African market," he said.

Kuni said that currently the regulator only implements policy drawn up by the energy department and does not have the muscle to make policy for the introduction of IPPS into the sector.
The regulatory environment has kept them out and Eskom has no competitors who can supply energy.

He said the advantage of having an IPP is that the IPP would be locked into a controlled agreement and cannot go to the regulator to say it needs an increase.

However Energy minister Dipuo Peters said that her ministry welcomes input from stakeholders on the department's second Integrated Resource Plan (IRP).

In December Cabinet approved the plan which aims to guide government on how it will meet the nation's energy demands. The plan was formulated under the Electricity Regulation Act to give effect to national policy.

The IRP will focus on a three-year period and will have an impact on Eskom's Multi Year Price Determination (MYPD2).

She said her department would call on the private sector later in the year for their participation.

Last year, the first IRP was published but it did not make provision for private power producers other than the use of renewable energy. The latest IRP would deal with diversifying the country's energy mix that emphasises diversity.

Peters said energy played a "critical" role in the betterment of lives in South Africa. "It is one of those ingredients that will help us do this, she said.

In November, the minister said government had come up with a draft framework to install a million solar powered geysers in households as well as commercial buildings and hoped to reach this target in the next five years.

Since the news, most business had headed to China in order to import parts needed for solar power systems.

"We are committed to localization. We can't import everything," she said adding that localisation will lead to job creation