Eskom tariff hikes unaffordable – CCCI

15th January 2013 By: Sapa

Eskom's proposed tariff increases are unaffordable and will have a devastating effect on the economy, the National Energy Regulator of SA heard on Tuesday.

In a presentation to Nersa's public hearings on Eskom's proposed revenue application multi-year price determination 2013/14 to 2017/18 (MYPD3), Cape Chamber of Commerce and Industry representatives Viola Manuel and Peter Haylett said the provision of energy should not be profit-driven.

"It is fundamentally wrong for Eskom to generate profits. The government as the sole shareholder should be content with its VAT income from electricity sales," they said.

"Given the massive increases in tariffs, VAT on electricity must be the government's fastest growing source of revenue."

Eskom has asked for a 16% increase in electricity prices each year for the next five years.

This would take the price of electricity from 61c/kWh in 2012/13 to 128c/kWh in 2017/18 -- more than doubling the price over five years.

The current multi-year price determination, MYPD2, ends on March 31, 2013.

In contrast to the MYPD1 and MYPD2, which both spanned three years, Eskom is now proposing a five-year determination for MYPD3 to ensure a predictable, longer-term price structure.

Manuel and Haylett contended that Eskom should support industry.

At present Eskom was keeping the lights on by cutting or rationing supplies to major industrial customers, such as the mines and through buy-back schemes.

"We submit that this is the wrong strategy. The mines and industries are the economic backbone of this country and should, in fact, receive preferential treatment. It would make more sense to ration electricity supplies to domestic consumers."

The integrated resource plan for electricity 2010-2030 (IRP 2010 Energy Plan) was now obsolete.

"In view of the National Development Plan's support for natural gas for power generation and the discovery of the massive East African gas field, the 2010 IRP is clearly out of date and should be completely revised to bring it into line with the National Development Plan."

Gas equalled clean and cheap energy, and it was necessary to come to terms with the reality that natural gas now provided a cheaper and cleaner source of energy than coal.

The big utility companies in the US were building gas power stations in preference to either coal or nuclear.

There were a number of reasons why gas was a better energy source than coal or nuclear.

A new gas power station could be built in two to three years and the need for new generation capacity was urgent. Coal and nuclear plants took between 10 and 12 years from approval to first power.

Gas power stations had small footprints and none of the logistical problems associated with the transport and storage of coal or the removal of ash.

The fuel was supplied by pipeline so there was little or no disruption to traffic or other activities. They were unlikely to encounter much opposition from residents.

They were relatively clean, their emissions less than half those of a coal-fired power station, and they could earn carbon credits while reducing any future carbon tax burden.

Gas power stations could be built at the coast, reducing dependence on long and vulnerable power transmission lines from the coal fields in the north. This also reduced transmission costs and the associated power losses, making for a more efficient grid.

Capital costs were lower because the generating plants were modular, with the turbines or reciprocating engines produced in quantity by the aircraft and marine industries, which also provided back-up and spares.

Lower up-front costs meant smaller loans to finance new power stations, less interest to pay, and the shorter build period (about two years) meant less escalation and better control of costs during construction.

While capital costs might be lower, the cost of gas fuel made for higher operating costs, but these costs would be paid by the actual users of the power.

Gas power stations also provided the foundation for a viable gas industry.

Another advantage was the flexibility of gas power stations. This made for a more efficient grid and there was less wastage as gas power stations could be "switched off" at night or at other times when demand was low.

They were ideal for use in combination with renewable power sources such as wind and solar.

Gas power stations also used very little water, a vital factor in this water-scarce country.

Buying gas from neighbouring countries would boost the economy of the whole Southern African Development region and South Africa would benefit from this economic stimulation.

It was also an ideal way to bring more independent power producers with experience of the new technology onto the grid, said Manuel and Haylett.