Latest tariff increase brings more questions than answers

Maybe the planned publication of an improved National Integrated Resource Plan for South Africa (IRP2) by June this year will bring more clarity, but for now the announcement last week of a 24.8% increase in April of Eskom’s electricity tariffs, followed by increases of 25.8% and 25.9% for the following two years has , if anything, left the picture surrounding the country’s  power security murkier than ever. Individual consumers and business sectors have little room to effectively cushion themselves and in the meantime Eskom’s financing plans for more coal-powered electricity  have become the focus of opposition by environmental groups internationally.

Perhaps it was one of the unspoken motives for the steep climb in electricity tariffs over past years to put Eskom in a position to buy electricity from independent generators (a function that will now be fulfilled by an independent central electricity agency announced in this year’s budget speech) at the higher initial cost associated with the development of alternative and/or renewable energy sources.

But in the world of smoke and mirrors created by a lack of transparency and the Machiavellian spin by Eskom over a number of years, it is impossible to tell where the truth really lies – assuming that there actually is some formulated strategy for a secure power future. (In this regard also read our article of 7 December, 2009, Eskom's Trick).

What remains unexplained at this stage is what financing plans are in the offing to bridge the gap left in Eskom’s financing of expansion plans that was supposedly to have been filled by its initial request for a tariff hike of 45%. Acting deputy director-general of energy Ompie Aphane said last week that the latest tariff announcement will see the shortfall on Eskom’s build programme increase from R34billion to R50billion.

In a briefing for the media in Parliament the minister  deferred questions about how the shortfall will be made good to the planned June release of IRP2. She would also not be drawn on possible further government guarantees for Eskom to secure financing for its programmes.

In the meantime South African environmental groups like Climate Justice Now, groundWork and the Federation for a Sustainable Environment announced that they are linking up with international groups, including the World Wildlife Fund (WWF) in opposing a $3.75billion World Bank loan to Eskom for its coal-fired power stations. If granted, the loan would contravene assertions by the bank that it is a climate-friendly financier, the groups are saying.

"Private finance would be better directed to developing local industries in renewable energy technologies.
With timely finalisation of provisions for implementing the renewable energy feed-in tariffs, solar and wind could provide the same generation as the new                                                                                                                                                                                                                                                                                                                                                                                             Kusile power station, with far greater social benefits," WWF Living Planet unit head Saliem Fakir added.

The WWF believed that before proceeding with any more coal projects, beyond Medupi, South Africa required a proper integrated energy planning process that incorporated a mix of different energy solutions in line with a low-carbon development pathway.
"There is also concern that stakeholders have yet to be informed of the process for consultation during the development of a second Integrated Resource Plan promised by Minister Peters in the IRP1 issued in January," Fakir said.

Uncertainty is increased by the campaign by elements inside the governing ANC-alliance’s Congress of South African Trade Unions (COSATU) against privatising parts of power provision in the country. The National Union of Metalworkers (Numsa) for instance attacked minister of public enterprises

Barbara Hogan for saying that the days of a state monopoly on electricity generation is over and that private investors will have to be found. It comes at a time when the World Bank is attempting to include privatisation in its loan to Eskom and investors are being sought for the planned Kusile power station.

Amidst all of these uncertainties Eskom last week warned that if the country did not implement energy efficiency now, it would suffer a tight electricity supply in  the coming winter  and into 2011 during Eskom’s maintenance period.

The utility’s MD for systems operations and planning, Kannan Lakmeeharan told delegates at an energy conference in Johannesburg that demand was expected to return this year to 2007 levels -- the year of load shedding and rolling blackouts. He further warned that the adequacy of electricity supply between 2012 and 2013 was of serious concern and that worse-than-planned generation performance could result in higher risk and reduce the system adequacy during that period.