Nomkhita Mona | Diverse energy sector way to go
With the Port Elizabeth leg of Nersa’s public hearings around the Eskom MYPD4 application behind us, and further hearings continuing around the country until early February, the power utility is likely to face more scrutiny in the coming weeks.
A controversial aspect of its application – which seeks an increase of 15% per year in tariffs for the next three years – relates to Eskom’s spending for its independent power producer (IPP) programme.
In April 2018, Business Day reported that Eskom had signed agreements with 27 companies in the energy industry (on top of deals with 53 other companies that had already started operations).
According to the article, the latest agreements were expected to create more than 61,000 jobs within the energy industry.
Approximately 15% of these opportunities were expected to benefit the Eastern Cape.
The IPPs were also factored into our presentation at last week’s hearing in the Bay, where we as the Nelson Mandela Bay Business Chamber voiced our strong objections to Eskom’s proposed increases.
However, some media reports leading up to the hearing have interpreted these objections as our disapproval of the IPP programme, which is simply not the case.
The environmental benefits of renewable energy have been well documented since the birth of the industry, but beyond this, the socio-economic benefits are legion as well.
A strong renewable energy industry reduces over-reliance on a single energy source, provides thousands of new jobs and brings opportunities for the development of new skills, along with the empowerment of those gaining the skills.
This would be particularly welcome in the Eastern Cape and Nelson Mandela Bay, as the area offers the potential for the consistent generation of renewable energy, and its people are in dire need of job opportunities and sustainable economic development.
Our problem is not with the IPP programme, or the companies and communities that benefit from it.
In principle, we are pleased that the state supports the introduction and growth of the renewable energy sector, as we view it as a sector of the future.
However, our strong opinion is that the state should indeed subsidise the development of such an important sector.
Our only concern around the programme is that individual consumers and businesses will inevitably be left to fund this.
Year after year, Eskom has been applying to Nersa for exorbitant tariff hikes to keep the lights on and make up for a crushing deficit.
This is at least in part because the power utility is generating more electricity than it can sell, leading to a catch-22 of sorts: Eskom needs to increase its prices because it isn’t selling enough, making consumers less likely to pay more for the same amount of electricity – instead choosing alternative energy sources – and thereby necessitating Eskom’s next application for tariff increases.
Unless Eskom re-evaluates its approach to managing its assets and increasing sales, this model will be unsustainable in the long term.
A complete, innovative overhaul is needed to counteract Eskom’s spiral into more and more debt.
The energy crisis we are experiencing is not unique to SA.
Interestingly, a research paper titled “Kenya's lessons from two decades of experience with independent power producers” by Anton Eberhard, Katharine Gratwick and Laban Kariuki ascribed the country’s challenges to “policy confusion and a degrading of planning, procurement, and contracting capabilities”.
Another paper by the same authors attributed challenges in Tanzania’s energy industry to poor governance and coordination, and highlighted the importance of “unbundling” from the public sector in the long run, to promote competitive pricing.
An article featured at the World Economic Forum’s annual meeting in 2018 echoed this sentiment, particularly as it pertains to developing economies:
“Public-private partnerships should be encouraged, enabling the development of clean energy to complement progress in society … Finally, careful protectionism or liberalisation of the renewables sector – according to each country’s requirements – is necessary so as not to harm sector growth in the long run.”
In line with this, the Business Chamber realises the importance of a partnership between Eskom and the IPPs – and of honouring the agreements that are already in place – but recommends that Eskom devises an innovative strategy to fund its operations and stimulate sales demand.
If the utility can better manage its assets and review its peak tariff structures, it would go a long way towards taking the responsibility of funding future investments off the consumer’s shoulders.
Through this approach, we can move away from a stateowned monopoly and build a sustainable, diverse energy industry with competitive pricing.
This, in turn, would encourage further investment and economic growth, and bring a positive ripple effect to each of the consumers that have been carrying the burden of Eskom’s debt for years.
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