Eskom offers 83% electricity discount to two heavy power users
The National Energy Regulator of South Africa (Nersa) approved a preferential pricing deal for two of Eskom’s biggest power users, with tariffs that are less than a fifth of what regular households pay.
Energy and financial analysts have questioned how Eskom will be able to support the deal, especially given that the tariff is also over 50% lower than the amount the utility spends to generate electricity.
The Negotiated Pricing Agreement (NPA) between Eskom and ferrochrome smelters is expected to save over 3,700 direct jobs and over 20,000 more indirect jobs in the broader mining sector.
It is also expected to be the first of several such agreements aimed at helping key power-intensive companies in South Africa stay afloat amid surging electricity tariffs.
The NPA has given Glencore Merafe and Samancor Chrome a preferential rate of 62 cents per kilowatt-hour (kWh), roughly 83% less than what regular households pay.
The agreement came after months of negotiations, during which time the companies complained that their electricity costs had pushed their product prices to a point where they were uncompetitive.
At the same time, electricity tariffs have plunged in China, one of South Africa’s biggest competitors in the production of ferrochrome, an alloy of iron and chromium that is a key ingredient in stainless steel.
It is produced by smelting chromite ore with coal and coke in a submerged electric arc furnace at extreme temperatures of roughly 2,800 degrees Celsius.
In an interview with RSG Geldsake on 2 June, Glencore Alloys CEO Japie Fullard said the agreement would enable the company to restart 10 of its smelter furnaces.
If Samancor accepts the tariff, it will be able to light up another 24 furnaces. Overall, these furnaces would account for 34 of the 66 in South Africa.
Fullard explained that other smelter companies — manganese and ferrosilicone — could also get preferential tariffs to restart their operations.
The combined energy consumption of Glencore Merafe and Samancor Chrome’s operations is around 12.8 terawatt-hours (TWh) to 13TWh annually, working out to roughly 7% of Eskom’s energy demand.
The facilities add an average of 1,500MW of baseload demand to the grid, equivalent to one and a half stages of load-shedding.
Fortunately, Eskom appears to have sufficient capacity to support the return of these furnaces, as its overall electricity demand has been much lower.
In the year-to-date, residual energy demand is down by around 10%, in part due to the closure or pausing of numerous smelter furnaces and the uptake of private electricity generation.
If the power utility can maintain its energy availability factor (EAF), it may be able to fend off load-shedding even with the extra demand.
Questions about who is paying
Energy expert Chris Yelland has also questioned whether the job protection and specific economic benefits of NPAs with smelters outweigh the costs to the broader economy.
Yelland wanted to know where the money would come from to support lower tariffs for the smelters, given that Eskom’s average cost to produce electricity was already 147 cents per kWh in 2024/25.
That would suggest the NPA’s costs would need to be subsidised in some way. “The question is who pays, because Eskom is not going just to give them that price,” Yelland said.
“Is it you, me, and other businesses? Or is it the taxpayer? Is this money going to come out of the fiscus?”
Nersa, Eskom, and the companies have asserted that the costs under the arrangement would be ring-fenced, although it is unclear exactly how this will be achieved financially or operationally.
One provision to protect other customers is that a shortfall in revenue caused by the NPA may not be recovered through Eskom’s Regulatory Clearing Account.
The mechanism allows the power utility to apply for additional increases based on past revenue shortfalls or to reduce increases based on revenue surpluses.
Fullard has maintained that the newly approved NPA would not increase tariffs for general household users and businesses, but help avoid sharper hikes.
“Everyone thinks that Eskom gave us the 62 cents per kWh, and the rest of South Africa is going to have to pick up the tab,” he said.
He highlighted that the agreement would enable the two companies to buy R6.2 billion in electricity from the power utility that it would otherwise not have sold.
With a large proportion of Eskom’s costs not being linked to the amount of energy it produced, it would still have incurred costs regardless of whether it burnt the coal or diesel for the NPA electricity.
Fullard added that the NPA was not a “silver bullet” and would not be a sufficient cost mitigator that guaranteed the future sustainability of the smelters.
He explained that the smelters had to adapt and integrate new, more efficient technology, or they could find themselves in the same position if China continued to reduce industrial electricity tariffs.
Loading ...