A freer market for electricity is step one for sustainable turnaround strategy for SA power crisis

Submitted by Rolina Vorster on Tue, 02/05/2019 - 21:48
power-crises

If Nersa wants to start solving the South African power crisis, it will have to start by taking steps to decentralise the electricity supply and reduce the country’s reliance on Eskom as the primary purchaser and producer of electricity. Done in conjunction with refusing a large increase in electricity tariffs, the entrance of private power producers will reduce risks to the country. 

These are some of comments made by the independent business organisation Sakeliga to Nersa’s board on Eskom’s MYPD-4 application for a substantial electricity price increase. Sakeliga submitted its comments on behalf of its 12 500 members, stressing its concerns about the impact of higher input costs on the business community and the SME market in particular. 

“Eskom’s business model is fundamentally unstable. Continued hefty increases in electricity tariffs may give important end-users increasing incentives to avoid further dependence on Eskom’s supply of electricity. Sakeliga considers further tariff increases likely to be harmful to the economy and our members, but, importantly, also to Eskom’s very own business model. Therefore, today we asked Nersa not to increase tariffs, and considering the possible sensitivity to price increases, it may even have to consider real tariff reductions,” says Gerhard van Onselen, senior analyst at Sakeliga. 

According to Sakeliga the best solution, at this stage, would be to promote the selling of electricity by private power companies directly to municipalities. “The Department of Energy has already moved in this direction with its Independent Power Producers programme. It is, however, woefully insufficient because the producers are still legally required to sell their power through Eskom, amounting to nothing more than another inefficient and bureaucratic tender process. Nersa should refuse to make any provision for additional IPP agreements through Eskom. Instead, the Minister should be using existing regulatory measures to allow for more effective and more market-orientated decentralised purchasing arrangements,” according to Daniel du Plessis, legal analyst at Sakeliga.  

Sakeliga believes that the best solution in the long term would be opening up the electricity market fully to private sector participation. In the meantime, according to Du Plessis, there is much that can be done to move in this direction already. “In terms of the Electricity Regulation Act, the Minister can start improving the situation almost immediately. Private power producers can be invited to tender directly to municipalities – and, with the cheapest and best bids being selected, the Minister may be called upon to approve the purchase in terms of the Act.” 

If Nersa allows the hefty tariff increases Eskom is applying for, Eskom’s inefficient business model will persist, delaying much-needed reforms in the electricity sector. “South Africans will be denied competitive electricity prices, more stability and better provision while economic growth will stay powerless,” Van Onselen concluded. 

 

Daniel du Plessis l Sakeliga

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