Eskom has reiterated its position that a proposed plan by the National Energy Regulator for South Africa (Nersa) to charge electricity tariffs based on consumption habits was not practical.
The power utility warned in a 70-page response to Nersa’s recently-published proposed pricing methodology that it could result in surging electricity prices, reports Rapport.
Nersa published a document for public comment on 30 June 2022 explaining the pricing methodology. It also held public hearings this past week.
The principles underlying the new methodology are activity-based costing, type of use tariffs, and marginal pricing. Nersa adopted them towards the end of last year.
Nersa wants the cost to generate electricity from each power station to be calculated. Consumers must then pay a rate linked to the types of power stations that produce the electricity at the time of the day they consume it.
According to Rapport, consumers with variable load rather than consistent demand, like those with solar power systems, would be subject to electricity tariffs over 1,000% more than what big power consumers like mines pay.
Households that typically use more electricity during peak morning and evening hours could pay a mixed rate.
This would be calculated based on the cost of standard coal generation and expensive emergency generation such as that supplied by diesel-powered open-cycle gas turbines (OCGTs).
Homes with embedded solar power generation that only have to use the grid during peak periods would be more susceptible to higher rates linked primarily to the OCGT costs.
Instead of the annual price adjustments Eskom applies for under the multi-year price determination (MYPD), Nersa plans to source information on the costs of generating and supplying electricity from Eskom and power distributors every five years to determine tariffs.
The plan is then for these to be adjusted every month or quarter, similar to how the petrol price is adjusted.
But it works — in Uganda
Nersa has defended the proposed methodology by saying it was developed together with a consultancy firm, US legal expert and economic analyst. It also used Uganda’s approach as an example where a similar system worked.
But Rapport has pointed out one glaring issue with that comparison — Uganda’s total power system capacity is only around 2,000MW and is far less complex than South Africa’s.
Not counting electricity from Independent Power Producers, the generation capacity in South Africa is about 47,000MW.
Eskom previously berated Nersa over the adopted principles document and accused the regulator of not understanding the fundamentals of electricity.
The utility said that activity-based costing was not feasible as it was impossible to “follow an electron from a power station to a particular customer”.
“At its most fundamental, the entire power system is oscillating in synchronism,” the utility explained.
“All power plants supply all [of the] consuming customers at a particular point in time. As demand for electricity increases, more expensive generation must be dispatched to meet this demand.”
“The last generator dispatched does not exclusively supply the last consumer requiring power, but both now participate, simultaneously, with all other generators and consumers at that moment in time.”
Nersa wants to finalise the new methodology by 30 September 2022, but Eskom and other major stakeholders in the country — including the Minerals Council and municipalities — have taken issue with its “rushed” timeline.
Eskom has also questioned whether National Treasury would be able to foot the bill for Nersa’s plan that the government subsidise parts of the costs in the new structure that South African consumers cannot carry.