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Supply shadow makes way for demand cloud

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Supply shadow makes way for demand cloud

10th November 2017

By: Terence Creamer
Creamer Media Editor

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As public hearings into Eskom’s application for allowable revenue of R219.5-billion in 2018/19 enter their final stretch, resistance to the proposed 19.9% tariff hike from April 1 remains as strong as ever.

An appeal by acting Eskom CEO Sean Maritz for the National Energy Regulator of South Africa (Nersa) to base its final determination on the merits of the application alone, rather than swirling allegations of corruption, has fallen on deaf ears.

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What’s more, the chorus of voices challenging Eskom on whether it is really doing enough to cut costs has intensified. In addition, legitimate questions are being asked about whether it is prudent for the utility to continue with its new-build programme unabated in light of the dramatic shift in the supply-demand balance and its sustainability crisis.

Without doubt, this change in circumstances has put an entirely new gloss on proceedings, effectively ending a ten-year-plus cycle during which Nersa proceedings were held in the shadow of power shortages and even load-shedding. The discussion is no longer confined to debates about whether consumers should be forced to bear the full burden of closing the supply gap. Instead, it has shifted to Eskom’s demand dilemma and the potential for deepening the problem by approving yet another double-digit hike.

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Epitomising this shift is the fascinating input by Meridian Economics, highlighting the fact that the build programme remains the single largest cause of Eskom’s large tariff demands. Therefore, in a context of surplus, it could make sense to consider curtailing the programme, as well as decommissioning some of the existing coal-fired power stations. The authors of what is an ongoing study have urged Nersa to independently assess the costs and benefits of such a move, particularly in light of the emerging opportunity to transition to a lower-cost electricity mixed based on South Africa’s impressive solar and wind resources.

This input, along with several others, shows that the previous atmosphere of asceticism has truly given way to a mindset of plenty. Certainly, Eskom’s primary problem in 2018/19, and for the foreseeable future, is not a supply shortfall, but falling demand.

The new reality increases the risks to Eskom’s sustainability. However, it may also be offering some breathing space for the regulator and the country as a whole.

Nersa can avoid awarding increases that will further suppress industrial demand and undermine growth without the immediate threat of power cuts. However, that cannot be the end of the story.

To use this breathing space effectively requires the initiation of an urgent national consultation to chart a roadmap for a sustainable electricity supply industry. The current model is collapsing and having yet another round of tariff hearings, without addressing the structural problems, will be a futile exercise.

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