Farmers warn of power grid exodus

A body representing the agricultural sector is up in arms over the decision by the energy regulator to effectively give Eskom the green light to charge more for electricity, and has suggested that farmers could be forced to move off-grid en masse.

Agri Western Cape said on Thursday that consumers could not be expected to keep carrying the cost of a power supplier with a broken business model.

“The demand for electricity in the agricultural sector is basically inelastic. Farmers can do little to reduce ... costs of electricity, which can account for up to 20% of direct costs in the short term,” said Agri Western Cape CEO Jannie Strydom.

Strydom said electricity costs rose faster than inflation in the past decade but product prices did not rise accordingly. This contributed to the cost squeeze in which agricultural producers found themselves.

The National Energy Regulator of SA (Nersa) last week approved R13.2bn of Eskom’s R27.3bn regulatory clearing account (RCA) application, which will have implications in terms of future tariff hikes. The application was for 2018/2019 and based on Eskom’s calculation of compensation needed for revenue shortfalls and cost overruns compared with those used by Nersa for its tariff decision. The RCA is a means for Eskom to claw back uncontrollable costs incurred that were not taken into account when Nersa made its tariff decision.

In terms of Nersa’s methodology to evaluate Eskom’s RCA application, it assesses qualifying allowed revenue and qualifying allowed expenditure against actual revenue and expenditure, as well as performance incentive-based adjustments.

At public hearings in eight provinces in February, strong opposition to Eskom’s application was voiced. The Minerals Council SA said revenue shortfalls and cost overruns were the result of mismanagement.

Nersa spokesperson Charles Hlebela said last week that Eskom’s how-and-when plan to recover the approved amount had still to be decided.

“The percentage tariff increase will be determined with the approval of the implementation plan,” he said.

Eskom said it had suffered a R5.5bn revenue shortfall, but Nersa approved only R2.4bn of this. For primary energy costs, such as coal and open-cycle gas turbines, Eskom claimed R16.8bn, but Nersa approved R11.4bn. Of the R1.7bn claimed for other primary energy, such as water use, R1bn was approved. Nersa did not approve any of the R4.8bn claimed for other costs.

Strydom said the financial effect of an electricity tariff increase — as well as issues such as load-shedding during peak production times, which put enormous pressure on the agriculture sector — forced the sector to explore alternatives.

In its presentation to Nersa, Agri Western Cape said it was not convinced the request for a further amount of about R27bn was necessarily correct.

“There are simply too many things in the application that are unclear and that indicate in Agri Western Cape’s opinion that Nersa and Eskom are not on the same page.”

Strydom said this was clear from the different views on how capital expenditure should be accounted for and the effect on cash flow; big differences between approved and actual diesel consumption; huge variations between approved and actual energy (coal) costs; unrealistic expectations on retrenchment of workers; and similar RCA applications still to be dealt with for the previous three years that had led to legal proceedings.