SA electricity prices still low, Eskom tells Nersa

Inflation-weary consumers who are still struggling to absorb last year ’ s surge in energy prices will probably not want to hear this, but according to Eskom electricity prices in SA are low compared with global trends.

The National Energy Regulator of SA (Nersa), which sets electricity prices in the country, this week hosted public hearings on Eskom’s proposal to raise tariffs by 20.5%

Eskom, which plans to ask for another 15% in 2023/2024 before going back to the regulator with a 10% hike proposal a year later, argues that increases are necessary to help it pay interest on its nearly R400bn debt and for the maintenance needed to keep the lights on.

But the proposal comes at an inopportune time for pandemichit consumers and businesses as they struggle to absorb a 40% rise in the fuel price and a 15% boost in electricity prices in 2021. If the increase is granted, it could put the Reserve Bank in a tight spot because it would need to strike an even finer balance of trying to tame inflation without undermining the tentative economic recovery.

In a presentation delivered on the third day of the hearings by Ulrich Minnaar, of Eskom research testing & development, the utility argued that its tariffs are still low despite persistent above-inflation increases over the past decade.

Referring to the conclusions reached in a 2018 report produced by financial advisory firm Lazard, which provided a comparison of SA electricity prices and those in other selected countries, Minnaar said Eskom tariffs do not reflect the true costs of supplying electricity and its tariffs are “low by international standards”.

The report showed that electricity prices in SA were on par with prices charged in India, China, Indonesia and Vietnam and significantly lower than those charged in most European countries and several countries in the rest of Africa.

Minnaar also pointed out that in 2021 household electricity prices in SA were lower than those in any of the members of the Organisation for Economic Co-operation and Development. Compared with SA’s price of US$8c/kWh, at the top end, households in Germany paid US$34c/kWh, while households in South Korea paid about US$10c/kWh.

Minnaar did specify that the rates charged by municipalities to small and medium industrial consumers are, in some cases, higher in SA than in China.

Looking at 2018 rates, the Emfuleni Local Municipality in Gauteng charged these users about US$22c/kWh and City Power in Johannesburg charged about US$14c/kWh, while prices in Beijing and Shanghai were about US$12c/kWh and US$11c/kWh, respectively.

The mayor of the City of Johannesburg, Mpho Phalatse, representing the city’s multiparty government, said she would lodge a formal objection to Nersa in response to Eskom’s request, adding to widespread public outrage over the proposal. “Such a tariff hike would simply be unaffordable for Johannesburg residents and small business owners, who are already buckling under the pressure of a failing economy,” Phalatse said.

The final day of hearings will be on January 21 in Midrand. Nersa is set to announce its decision on February 25 and the new revenues and tariff for 2022/2023 will then be implemented on April 1 for nonmunicipal customers and on July 1 for municipal customers.

Eskom appears to have learnt from experience by being able to handle periods of heavy rainfall and the effect this can have on coal stocks.

According to the power utility, heavy rain experienced in December and the first weeks of January across large parts of the country — including Gauteng and Mpumalanga, where the majority of its coal-fired power stations are located — did result in some load losses, but contingency plans meant the losses were insignificant.

Responding to questions from Business Day, Eskom said all generation sites had to undertake annual assessments of their wet-coal handling procedures as part of their preparation reviews.

“This takes into account challenges experienced or best practices from other generation sites during the previous rainy season,” Eskom said in a statement.

Slopes on the stockpiles to allow for improved water runoff and channels diverting water away from the stockpiles were inspected and managed after every significant rainfall, it added.

PROBLEMS START OCCURRING WHEN THE COAL FINES [COAL DUST] AT THE BOTTOM OF A STOCKPILE GET WET

Besides wet coal stockpiles, heavy or persistent rain can affect mining operations, and limit the steady supply of coal, according to Chris Yelland, energy analyst and MD of EE Business Intelligence.

“It doesn’t really matter when chunks of coal get wet, but problems start occurring when the coal fines [coal dust] at the bottom of a stockpile get wet,” Yelland said.

Wet granulated coal forms a sludge that can stick to the conveyor belts that carry the coal to the boilers, clogging up the system, he said.

“If you get to the bottom of the stockpile, things get worse,” Yelland added.

That is why Eskom has to maintain a coal stockpile of 20 days to avoid crisis.

Eskom confirmed that at January 17, all its power stations had adequate coal supplies, with total system coal stock days at 80.1 days and no plants were below the grid code.

Despite more rain expected across the summer rainfall region and planned shutdowns at some of its coal-fired plants and at the Koeberg nuclear power station in Cape Town, Eskom does not expect loadshedding in the months ahead.

However, power cuts are still a risk “should the reality not be consistent with the assumptions that were made in the development of the outage plan — such as demand projections and unplanned availability of the generation fleet”.

On Monday, Unit 2 of the Koeberg power station was taken offline for refuelling and maintenance that was scheduled to take five months, Eskom said in a statement.

The Koeberg Unit 1 outage, of a similar duration, is set for later in the year when the unit’s steam generators will also be replaced.

Eskom warned that the extended unavailability of the units meant the supply system may be under additional strain in the year ahead.

Besides Koeberg, at least one unit at all plants will undergo planned maintenance over the next six months, resulting in power cuts as per the outage schedule or shorter outages due to unplanned breakdowns or other issues.