Nersa gives Eskom nod on smelters Refiring plants saves 3 600 jobs

THE NATIONAL Energy Regulator of South Africa (Nersa) has approved Eskom’s application for a two-year incentive pricing package for the Silicon Smelter plants in Polokwane and eMalahleni.

Eskom made its case for a negotiated pricing agreement to Nersa earlier this year after Silicon Smelters, which is owned by global silicon metal and silicon-based alloys producer, Ferroglobe, asked the power utility to supply electricity at an “appropriate” price for the company to reconsider its decision to cease silicon production at its two sites.

Ferroglobe stopped silicon production in South Africa at the end of June last year and attributed the move to weak global demand and prices, as well as uncompetitive cost production relative to the group’s global silicon metal portfolio.

Nersa last week confirmed that the regulator had approved the application in August. The regulator said it would release the reasons for its decision in due course.

The application comes amid Eskom’s declining sales to the industrial and mining sectors. According to a presentation by the Energy Intensive Users Group of Southern Africa (EIUG) at the recent Nersa hearings on Eskom’s application for a 19.9 percent increase tariff application, Eskom’s sales to the industrial and mining sectors were down 14 percent compared to the levels in 2011.

“This is due mainly to industrial and mining capacity shutting either permanently or temporarily, or moving offshore. Unfortunately, without immediate and sustainable intervention, it is unlikely this downward trend will change,” EIUG chief executive, Xolani Mbanga, said at the hearings.

According to a Nersa consultation paper on Eskom’s application for the incentive pricing package, the power utility expected surplus capacity to peak at 14 000MW within the next few years, “yet currently their sales are down and this places an added burden on the consumer, because it pushes the electricity prices up.

“The challenge is that on the one hand, there are energy intensive industries that are struggling to survive and on the other hand, Eskom is experiencing a surplus of capacity and needs to sell more electrical energy to cover its fixed costs,” Nersa pointed out in the consultation paper.

The company told Eskom that it needed the negotiated pricing agreements for it to reconsider its decision to exclude production from South Africa in its global production plan for 2017/18, in order to keep the local plants open.

The approval of the incentive pricing package would entice the group to include production from South Africa in a revised production plan.

The company said in the face of the pressure on the silicon metal price, it had negotiated electricity prices in a number of jurisdictions.

This, it said, placed pressure on its South African subsidiary to remain competitive within the group.

The consultation paper said silicon metal producers around the world were facing difficult conditions as silicon prices were at their lowest levels.

The pricing agreement was also meant to save 3 600 jobs that would be lost if the companies ceased operations.