Steel producer ArcelorMittal South Africa (AMSA) is optimistic that Eskom, with the support of the Energy Regulator, could extend pricing incentives to it and other energy-intensive businesses in light of its surplus position and government’s appeal for interventions to reignite growth in the economy.
CEO Wim de Klerk reports that the group initiated discussions on the issue of a more competitive tariffs for its power-heavy Saldanha Steel mill during 2016, when Eskom began signalling that the electricity market was beginning to transition from deficit to surplus.
Since then, the State-owned electricity utility has indicated that it anticipates the surplus position to be sustained until at least 2021, owing to a combination of weak demand growth, recovering availability from its existing coal plants and the introduction of new capacity from Medupi, Kusile and Ingula.
Eskom also controversially used the return to surplus as the rationale for refusing to signed new power purchase agreements with renewable-energy independent power producers, arguing that new capacity should only be introduced at a “pace and scale” that the country can afford. This position is likely to change, though, given President Jacob Zuma’s announcement that Eskom will now sign the contract.
In a Tweet, Eskom interim CEO Matshela Koko said he welcomed the contents of the President’s State of the Nation speech. “Following the governance process and within the approved Nersa [National Energy Regulator of South Africa] tariff of 2.2%, we are going to sign.”
There are, Eskom says, 2 383 MW of renewables PPAs remaining to be signed, which have been approved by the board’s investment and finance committee, and for which the necessary approvals have been received from the Minister of Public Enterprises. “Nersa has provided the necessary assurances for cost recovery of these power purchase agreements.”
The utility has also indicated that it has already increased exports to the rest of Southern Africa by 25% and that it is once again “open for business” from energy-intensive firms, citing a daily surplus exceeding 5 600 MW.
Power discounts could prove controversial, owing to ongoing disquiet over Eskom’s special pricing agreements with aluminium smelters in KwaZulu-Natal and Mozambique. However, Moneyweb reports that Nersa is willing to consider a “framework”, which encourages greater use of the surplus capacity, having already considered a two-year arrangement for Silicon Smelters, linked to the performance of the silicon price.
CASE BY CASE
Eskom spokesperson Khulu Phasiwe stresses that the utility will not apply a blanket approach on the requests for incentive pricing. “Each case will be dealt with on the strength of its merits, and be taken to the energy regulator for consideration – similar to the Silicon Smelter case. The main consideration on Silicon’s case was the potential losses of jobs, both directly and indirectly, if they close their operations.”
Phasiwe adds that Eskom is open to similar discussions with other industry players and that it will also “fast-track” connections for companies planning to expand operations.
De Klerk reports that Eskom has been showing a willingness to engage: “The decline in the economy has forced more and more businesses to close and, today, Eskom is significantly long on the electricity that they have. Therefore, for the first time, in more than ten years, they are now prepared to talk to us.”
He says an electricity deal for the Saldanha Steel plant, in the Western Cape, is essential for its long-term sustainability as electricity represents up to 36% of the facility’s costs during the high-tariff winter months.
“My team is busy talking to Eskom and we actually have a taskforce with Eskom where we are looking at the survival of Saldanha.”