Eskom working on tariff suite for energy-intensive users

Power giant Eskom has told Moneyweb that it is developing the principles for the design of an energy-intensive industry tariff suite to support economic growth to ensure the longer-term sustainability of industry in South Africa.

This follows after energy regulator Nersa published for public comment Eskom’s application for a two-year discount price agreement with Sublime Technologies, situated in Kriel, Mpumalanga.

If approved, Sublime will be the second distressed industrial user getting a discount tariff from Eskom in an agreement that allows the company to preserve jobs, while utilising Eskom’s excess capacity and guarantees it at least a contribution to some of the fixed cost of supply to that client that would otherwise be lost. Without the discounted tariffs, other customers would have to absorb this marginal contribution, which would lead to higher tariffs for other customers.

In the first case of its kind Nersa in August last year approved a two-year Eskom tariff discount for the Silicon Smelter plants in Polokwane and Emalahleni. Moneyweb earlier reported that 3 000 direct and indirect job opportunities were at stake as the group that produces silicon metal, ferrosilicon, inoculants, silica-fume and electrode paste for local and international customers struggled to compete internationally with competitors who buy electricity at subsidised prices.

Silicon Smelter CEO Nellis Bester confirmed to Moneyweb that the plants are once again operating at full capacity after the implementation of the tariff discount. He said 200 direct job opportunities and more than 3 200 indirect job opportunities have been restored following the tariff approval by Nersa.

According to Eskom spokesperson Khulu Phasiwe the Silicon Smelter deal was implemented on March 1 and has resulted in increased sales for Eskom.

Phasiwe said Eskom is making progress in partnership with government to address economic growth. “One of the opportunities identified was for Eskom to offer the two-year incentive pricing package. For each application, the optimal incentive pricing package is developed in the best interest of the specific customer, Eskom and rest of the customer base,” Phasiwe said.

He said the Department of Energy, National Treasury, the Department of Trade and Industry and Eskom are working together to finalise a framework for short-term negotiated pricing agreements.

The Silicon Smelter agreement and the one currently before Nersa for Sublime Technologies were dealt with in terms of an interim short-term framework approved by the Department of Energy.

Eskom will only submit further applications to Nersa once the Department of Energy has signed the final framework, Phasiwe said.

Moneyweb wrote in September last year that Eskom had received about ten similar applications.

Phasiwe added that the principles of criteria for an energy-intensive industry tariff suite is being developed to further support economic growth for the longer-term sustainability of industry in South Africa.

Moneyweb has learnt that Eskom is trying to address the needs of intensive users through tariff design. The two focus areas would be to address tariff peaks every day and more specifically during the high winter peak periods; as well as to decrease the extent to which intensive users subsidise other Eskom users.

Intensive users are on time-of-use tariffs, which means they pay considerably more for electricity during the morning and evening peaks, especially during winter, while they are actually using electricity 24 hours per day.

This tariff structure is aimed at sending a pricing signal to users in an effort to reduce the daily and seasonal electricity usage in peak hours when it is expensive to generate electricity and supply is under pressure.

Due to the way these users consume electricity (right through the day and night), with limited opportunity to reduce their consumption and the fact that it is technically more efficient to run their plants consistenly during the day and night instead of ramping them up and down, intensive users have been asking for a flatter tariff throughout the course of the day and between winter and summer.

With regard to cross-subsidisation Eskom corporate specialist Charles Mahony earlier told Moneyweb that intensive users subsidise smaller users through three different levies charged on the Eskom Megaflex tariffs. Two of those levies together amount to a subsidy of about 10c/kWh paid by large users to the benefit of Eskom’s smaller customers, Mahony said.

This puts South African intensive users at a disadvantage to international competitors who don’t carry the same burden and are furthermore receiving electricity subsidies from their governments as they are regarded as critical industries for their country’s economic growth.

Eskom in return is considering to balance it with a take-or-pay agreement, which means industrial clients would have to inform Eskom of the amount of energy they would use and pay for it even if their actual demand is below that level.

Moneyweb understands that Eskom is currently in discussions with government about its plans to assist industrial users through tariffs and it could take some time to finalise the matter.

The challenge would be to balance the interests of different customer groups, since a decrease in the level of subsidisation by large users would logically mean other customer users would have to pay more unless government is prepared to take over the funding of the subsidies.