Recent announcements by Eskom clients regarding shifts to privately generated renewable energy have cast doubts on energy regulator Nersa’s assumption that the power utility’s sales volumes will increase over the next three financial years.
Should Nersa’s assumption prove to be wrong and Eskom’s sales volumes do decline, it may come back to bite consumers later if Eskom uses the regulatory clearing account (RCA) to recover income it may be losing during the three coming years.
Nersa rejected Eskom’s assumption of declining sales and changing this assumption assisted it in limiting the utility’s tariff increases to 12.74%, 5.36% and 6.19% for each of the next three financial years. That is considerably lower than the 36.14%, 11.81% and 6.19% Eskom applied for.
RCA clawbacks from previous tariff periods related to various elements of the tariff determination will cost consumers almost R31bn in the next two financial years. It added 4% to Eskom’s allowable revenue in the next financial year and 3.5% in 2026/27.
The Mpumalanga-based Manganese Metal Company (MMC) recently announced it had reached financial close on a transaction with the NOA Group to secure about 70% of its electricity from renewable sources and the parties “are already talking about the other 30%”.
MMC is an intensive electricity user with a plant running 24/7 365 days a year. It is also a major exporter, and its clients have high decarbonisation requirements.
NOA will be supplying it with 245GWh a year from a diverse portfolio of renewable energy projects and batteries, which it is confident it can do around the clock, due to the geographical and technological spread of the plants.
According to NOA CEO Karel Cornelissen, the aggregator is talking to various mines, smelters and refineries that are interested in following the same path. NOA is a renewable energy group.
The number of aggregators applying to Nersa for trading licences indicate a rapidly developing wholesale electricity market that will offer large power users looking for alternative suppliers some choice.
In Eswatini, African Clean Energy Developments (ACED) and EIMS Africa have reached financial close on the 13.5MW Lower Maguduza Hydro Power Project that will deliver electricity to the Eswatini Electricity Company (EEC), the country’s electricity utility.
Eswatini is largely dependent on Eskom for electricity and the project is aimed at reducing its reliance on the SA utility and its largely coal-based generation fleet in favour of renewable energy.
According to reports, Lesotho is on a similar quest to reduce its reliance on Eskom.
It is projects like these that have informed Eskom’s assumption that its sales volumes will decline by almost 1% over the next three years. The utility said in its tariff application, submitted in August last year: “Eskom’s sales growth has trended downwards over the past three years, with the outlook remaining relatively depressed in the years ahead. Since 2006, sales have declined by an estimated average of 0.5% per year. The decline can generally be attributed to large power users as a result of low competitiveness, high ore extraction costs, and volatile commodity markets — particularly in the ferrochrome, steel, gold, and platinum industries.”
It adds: “In addition, several mines and large industrial customers are exploring alternative sources of energy.”
It did forecast an increase in sales of 0.6% for the current year, thanks to the drastic reduction in load-shedding.
Nersa has not yet published the reasons for its tariff decision, so it is not yet clear what it based its assumed sales increase on.
Financial consultancy Cresco forecasts an increase in electricity demand of about 9% from 2024 to 2030. The IRP 2019 electricity demand forecast was not realised but while reducing the numbers in the IRP review, it still provides for an inclining trend.
That, however, does not mean Eskom will benefit from such increased demand in a competitive environment.
Assuming GDP growth of 2.2% a year, Eskom’s system operator forecasts an average annual energy demand increase of 1.1% over for the five years to the end of 2029.
Eskom indicated it would fight Nersa’s decision to award several trading licences and expressed its concern that traders would “cherry-pick” its large industrial customers, which would result in the loss of subsidies these large power users pay to protect poor residential users.
The SA Local Government (Salga) supports this litigation as municipalities are also fighting for the exclusive right to distribute electricity in their licensed areas.
The litigation may, however, take a long time and whether Eskom will be able to put the genie back in the bottle and protect its sales is not clear. A declining number of clients and lower sales will mean the cost of Eskom’s overheads will be spread over fewer customers, leaving those unable to leave the grid with increasingly higher tariffs.
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