‘ESKOM UNBUNDLING WILL COST SA DEARLY’
Power sector restructuring is increasingly regarded as a historical mistake, warn experts
THE changes to the Electricity Regulation Act (ERA) and the push to unbundle Eskom will accelerate the entity’s death spiral and facilitate the continuation of an unsustainable financing model.
This is according to the Alternative Information & Development Centre (AIDC), as concerns mount about high electricity price increases for consumers as a potential consequence of unbundling Eskom.
The National Energy Regulator (Nersa) over the weekend confirmed it had approved the transfer of Eskom’s powers and duties to the National Transmission Company South Africa (NTCSA).
Nersa said at its meeting held on Monday, March 11 that it consented to the “transfer of Eskom Holdings’ powers and duties related to section 34 power purchase agreements (PPAs) with independent power producers (IPPs) to the NTCSA, in accordance with section 21(1) of the Electricity Regulation Act of 2006 (Act No 4 of 2006)”.
This comes on the heels of the National Assembly’s approval of the Electricity Regulation Amendment Bill, which has been viewed by some as a move to open the national power grid for competitive trading, sparking fears it will result in Eskom being privatised.
The bill was passed after it received overwhelming support, with 234 MPs voting in its favour and 25 EFF MPs rejecting it.
The bill seeks to amend the Electricity Regulation Act of 2006 and makes provision for the creation of a transmission systems operator (TSO) to act as a wheeler and dealer when it comes to electricity.
It also strengthens the role of Nersa by empowering it to license entities to operate in the competitive market and giving it regulatory oversight during the period of transition to a competitive market.
In its announcement of the transfer of Eskom’s powers and duties to the NTCSA, Nersa said it further “sanctioned the issuance of a cost recovery letter to the NTCSA for section 34 IPP projects”.
It also amended the IPP’s generation licences to designate the NTCSA as the buyer in terms of section 16(1)(d) of the Electricity Regulation Act, replacing Eskom Holdings in this role. According to the regulator, the NTCSA’s trading licence will be amended accordingly.
“Eskom’s application to Nersa on December 21, 2023 for consent to transfer its powers and duties under section 34 of the Electricity Regulation Act to the NTCSA was a pivotal step in its unbundling process, as outlined in the ‘Roadmap for Eskom in a reformed electricity supply industry’ published by the Department of Public Enterprises in 2019. The transition of the Buyer role for section 34 IPPs from Eskom to the NTCSA is a critical component of this process,” Nersa said.
The Nersa regulator member responsible for electricity regulation, Nhlanhla Gumede, said the approvals were significant in advancing the unbundling process and good for the transformation of the electricity supply industry at large.
“These decisions mark a significant milestone in the unbundling process for the establishment and operation of the NTCSA,” said Gumede.
Meanwhile, experts and civil society organisations were not as enthusiastic, citing concerns about future electricity prices.
Civil nuclear engineer Hugo Kruger said he was sceptical about unbundling, as it had proven to be a “mistake” in countries that had tried it before.
“Wholesale electricity markets are complex to manage. They don’t exist in most of America and only exist in two of Canada’s provinces. Power sector restructuring is increasingly regarded as a historical mistake, in particular because it was followed with criminality in the past. Notably, the Enron scandal in 2001 resulted in there being no more unbundling since then. The other issue is that Eskom has a debt. Who is going to absorb it?
“Eskom had a plan to unbundle in the early 2000s when we had security of supply. They couldn’t figure it out back then. Why would they do it now? The end consumer is likely to pay more. Restructured states in the US and Canada saw tariffs increase for end users,” he said.
The AIDC, which last year made a submission on the Electricity Regulation Amendment Bill advocating that the independent transmission
company set-up process be halted, said their sentiment remained unchanged, citing several concerns. AIDC economic justice programme co-ordinator Dominic Brown said: “We remain critical of the push to create a competitive energy market and the increased liberalisation of the energy sector. The changes to the Electricity Regulation Act and the establishing of an independent transmission grid will enable the increased privatisation of the energy sector.
“The unbundling of Eskom is crucial to the establishment of the national transmission company, which will be compelled to purchase electricity indiscriminately from all energy generators. This will have a direct cost through the purchase power agreements, and an indirect cost related to reduced Eskom sales volumes. Together these will accelerate the Eskom death spiral, and the continuation of an unsustainable financing model. “In a competitive energy market, and given the perpetuation of the full-cost recovery model, to mitigate the acceleration of the death spiral it can be anticipated that tariffs will rise further and remain unaffordable for the majority. The consequences of this will be the continuation of energy poverty in the country.” Last week, portfolio committee on mineral resources and energy chairperson Sahlulele Luzipo clarified that the Electricity Regulation Amendment Bill does not propose the privatisation of Eskom, which the majority of participants in the public hearings said they opposed. Cape Chamber of Commerce & Industry president Jacques Moolman said he was convinced competition in the energy sector was the best strategy for ending load shedding and bringing down the long-term cost of power generation.
“We have been punting all along for the government to allow the private sector to solve problems that stateowned enterprise monopolies cannot do efficiently. Now finally we are seeing a step in the right direction, and we look forward to working with our partners in both the public and the private sector to turn policy reform into an energy-secure future,” he said.
However, Cosatu parliamentary co-ordinator Matthew Parks rejected the bill, saying the union federation was “deeply” concerned about Eskom proceeding with its unbundling, as well as its recent announcements about the establishment of its transmission company.
“Separating Eskom into three utilities will create additional boards and management costs when Eskom can least afford it. It will weaken Eskom’s ability to plan its generation, transmission and distribution investments, or exercise the requisite command and control.
“Workers fear Eskom’s unbundling may be a precursor to its future privatisation and (are concerned about) the impact this may have on jobs and electricity tariffs for working-class communities,” he said.