The Energy Intensive Users Group of Southern Africa’s (EIUG’s) Piet van Staden has expressed anxiety about the near-term sustainability of South Africa’s electricity industry in light of the prospect of yet more tariff hikes, which would further damage industrial demand and, in turn, trigger yet higher tariffs for the remaining consumers.

Speaking at a South African National Energy Association conference, in Johannesburg, Van Staden warned that a price tipping point had been reached and that electricity-intensive firms could be forced to defect from the grid should further double-digit increases be approved. Such defection could take the form of firms installing cheaper own or cogeneration plants, or result in operations being moved to jurisdictions where power prices and the price path were more attractive.

He said one South African silicon-carbide manufacturer, which he did not name, had already relocated to the Netherlands to take advantage of low prices that could be secured during times of supply surplus – a phenomenon associated with periods of excess wind-energy generation. Other smelters have relocated to countries in Asia, on the basis of the power price certainty extended.

Eskom has submitted a one-year application of nearly 20% for 2018/19 and also wants the National Energy Regulator of South Africa (Nersa) to process three outstanding Regulatory Clearing Account applications for the third multiyear price determination period, through which it is seeking to recoup a cumulative R60-billion in what it claims to be under-recovered revenue.

The EIUG, along with other stakeholders, is expected to object strongly to further hikes, which would come in the wake of a sustained period of above-inflation increases that had seen Eskom tariffs rise by around 300% over the last decade.

At the same time, domestic electricity consumption has declined by 0.5% a year on average since 2006. This decline has been led by large power users, with Eskom estimating that consumption from industrial customers has decreased by 1.7% a year for the past ten years.

Unless managed, the transition to a new electricity dispensation would be “painful” and the supply industry and Eskom could be “broken” in the process.

“I’m suggesting a middle road, whereby we creatively manage this transition rather than allow it to manage us. The alternative is large-scale grid defection that could result in Eskom entering a utility death spiral.”

The EIUG will approach Nersa before the end of this month with a proposal for structural changes to Eskom’s tariff for large power users by removing existing cross-subsidies to assist businesses whose future sustainability is being placed in jeopardy by the utility’s current fast-rising price path.

However, Van Staden believes a more comprehensive policy discussion is also required to assess the best way for South Africa to navigate the transition from its current coal-based electricity system to one that is built primarily on solar photovoltaic and onshore wind, backed by flexible generation sources such as gas and batteries.

“The long-term outlook for a least-cost electricity mix is actually clear. It will bring more complexity, but complexity preferable to a lack of affordability.”

What is not clear is how the immediate transition will be managed. “Either we sit down as stakeholders and plan for the transition, or there will be painful restructuring by default,” Van Staden warns.