Page 3 - Energize September 2022

FROM THE EDITOR:

Great expectations in the

power sector

by Roger Lilley, Now Media

More power, higher tariffs So, on one hand we have the

excitement created by the government’s
Towards the end of July 2022, President Cyril Ramaphosa appeared on national television promise that the additional electricity that
and made amazing promises regarding the future of South Africa’s electricity sector. Eskom has been calling for - to help it stop
He promised a massive increase in private-sector electricity generation and a doubling load shedding and give it the additional
of the existing Bid Window 6 of the Renewable Energy Independent Power Producers capacity it needs to allow it to take units
Procurement Programme (REIPPPP) from 2700 MW to 5600 MW. offline for thorough maintenance - will
Promises are easy to make and politicians the world over have been known to renege on come from the private sector.
their promises over time. On the other hand, we expect
But, based on the reaction from the market, the private sector has taken the president’s significant increases in electricity tariffs in
words seriously – so much so, that, according to a major local banking group, loans to the near future. While not a given, future
companies wishing to serve the clean energy sector have jumped to over R50-billion since increases are inevitable.
the announcement. We know that the increases will not
At the same time, the Department of Mineral Resources and Energy (DMRE) postponed be imposed because of private sector
the deadline date for bids in Bid Window 6 of the DMRE’s REIPPPP by almost two months, involvement, but because the regulator
to 22 September 2022, to make provision for the minister’s determination of 5200 MW in will, sooner or later, have to correct the
accordance with President Ramaphosa’s announcement of the doubling of the amount of shortfall it caused in the past when it
electricity to be procured from the private sector. approved increases which were lower than
The announcement and the resultant surge in activity by the private sector follows the what the power utility actually needed.
government’s relaxation of the Covid-19 regulations. This relaxation has also permitted the We know, too that the regulator
return of live conferences and expos. has proposed a new methodology for
Many events are benefitting from fresh impetus in the wake of these recent decisions. calculating tariff increases. This new
For the rest of 2022, the following events will benefit: In September, the Electra Mining method calls for information from Eskom
Africa expo will be held at Nasrec in Johannesburg, and in October, Africa Energy Week and in its application, whether capital or
Windaba will be held in Cape Town. We anticipate that all of these will be well supported operating, which must satisfy the regulator
too. that the costs, which the tariff is to
While many in the electricity supply industry commend the government for its initiative cover, have to be prudent, useful, and
and willingness to increase the private sector’s participation in the generation of electricity, measurable.
and the announcement has produced a much-needed boost in business confidence, the risk The result of such high tariff increases
of further above-inflation electricity tariffs casts a dark shadow over the future cost of using will be similar to the effect load shedding
electricity in South Africa. had – people will turn to self-generated
Recently, Nersa published a consultation paper on the power utility’s allowable revenue power, also known as embedded
application for financial year (FY) 2023/24 and FY 2024/25, which reflects a possible tariff generation, by investing in rooftop solar PV
increase of 38% in April 2023 and a further 5% in April 2024 (see the table on page 11). and battery energy storage systems.
This would be of particular concern to the manufacturing sector which needs to keep its The higher the tariff, the shorter
input costs as low as possible if it is to compete successfully with imported products. the payback period, making embedded
Those who are against further private sector involvement will, no doubt, blame the tariff generation ever more worthwhile.
increases on independent power producers. And, where feed-in tariffs are available,
However, let us bear in mind that these amounts exclude Negotiated Pricing Agreement investing in over-capacity could become
(NPA) revenue of R13,2-billion and R13,8-billion for FY 2023/24 and FY 2024/25 respectively, popular.
and that the final tariff increases will most probably change after the regulator has So, like it or not, the private sector
conducted its own prudency tests for efficiency; has received inputs from the public will participate increasingly, either as IPPs
consultation process; and has considered the potential economic impact the tariff increases or as suppliers of equipment for private
would have. generation in South Africa.

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