Eskom’s 20% uses ‘im­pos­si­ble’ as­sump­tions

CityPress - - Business & Tenders - DEWALD VAN RENSBURG dewald.vrens­burg@city­press.co.za

Eskom’s plans to ask for a 20% tar­iff in­crease for next year as­sumes higher eco­nomic growth than just about any­one ex­pects – and as­sumes a phys­i­cally im­pos­si­ble dou­bling of sales by re­new­able en­ergy in­de­pen­dent power pro­duc­ers (IPPs), de­spite Eskom ac­tively fight­ing against their com­ing on­line.

It also as­sumes that Eskom will get rid of about 4 300 work­ers – 10% of its work­force – by March 2019 by not fill­ing the posts left va­cant when a mem­ber of staff re­tires.

These as­sump­tions make the ap­pli­ca­tion likely to once again re­sult in an enor­mous ad­di­tional tar­iff re­quest later on us­ing the so-called Reg­u­la­tory Clear­ing Ac­count (RCA), which is a mon­i­tor­ing and track­ing mech­a­nism that com­pares cer­tain un­con­trol­lable costs and rev­enues with ac­tual costs and rev­enues in­curred by Eskom.

A con­fi­den­tial draft of Eskom’s planned ap­pli­ca­tion for next year’s tar­iff hike to the Na­tional En­ergy Reg­u­la­tor of SA (Nersa) made its way into the pub­lic do­main this week. It spells out all the me­chan­ics re­gard­ing how the util­ity came to the 20% fig­ure.

Im­por­tantly for most con­sumers in the coun­try, the ap­pli­ca­tion is ac­tu­ally for 27.29% from mu­nic­i­pal­i­ties.

Eskom’s tar­iffs are set by es­tab­lish­ing an “al­low­able rev­enue” to cover costs, which gets di­vided by the ex­pected vol­ume of elec­tric­ity sales.

The five-year tar­iff de­ter­mi­na­tion from Nersa, which ends this year, had made hope­lessly overop­ti­mistic as­sump­tions about growth and power de­mand.

When Eskom failed to sell the amount of power the tar­iff was de­signed around, it re­peat­edly asked to use the RCA to add more tar­iff hikes in the next few years to make up the short­fall in rev­enue.

This new ap­pli­ca­tion is only for one year, pre­cisely be­cause of “chal­lenges faced by Eskom in mak­ing plau­si­ble pro­jec­tions”, reads the draft ap­pli­ca­tion.

The util­ity nev­er­the­less seems to have know­ingly in­flated the rev­enue it will be en­ti­tled to – and the amount of power it will sell.

The ap­pli­ca­tion claims Eskom will in the next fi­nan­cial year buy power from all the projects in the In­de­pen­dent Power Pro­ducer Pro­cure­ment Pro­gramme that have not yet been built.

Eskom’s ap­pli­ca­tion says it will more than dou­ble the power it buys from in­de­pen­dent projects from 7 091 gi­gawatt hours in this past fi­nan­cial year to 17 828GWh in the year to March 2019.

For this, Eskom is ask­ing for an ad­di­tional R11 bil­lion in al­low­able rev­enue – the largest cost el­e­ment in the ap­pli­ca­tion.

Brenda Martin, the chair of the SA Re­new­able En­ergy Coun­cil, said this as­sump­tion was phys­i­cally im­pos­si­ble.

So did Univer­sity of Cape Town Pro­fes­sor An­ton Eber­hard, an ex­pert on South Africa’s elec­tric­ity sec­tor.

“Even if about four IPPs are signed now, none will be pro­duc­ing by the start of the 2018/19 fi­nan­cial year,” he told City Press.

Ac­cord­ing to Martin, if all the out­stand­ing IPP con­tracts were signed this month, they would only start de­liv­er­ing power at the end of 2019.

The re­new­ables sec­tor has been locked in a long bat­tle with Eskom, which does not want more IPPs.

When it comes to the fore­cast for power de­mand, at least one ma­jor as­sump­tion is very wrong – Eskom is still us­ing GDP fore­casts that are hope­lessly op­ti­mistic. The ap­pli­ca­tion, dated this April, as­sumes growth of 1.9% this year and 2.4% next year.

It claims this is an av­er­age of fore­casts from In­vestec, the In­ter­na­tional Mon­e­tary Fund and its own in­ter­nal team. How­ever, it claims that In­vestec fore­casts GDP growth of 2.2% this year – in re­al­ity, In­vestec’s chief econ­o­mist in Jan­uary pre­dicted 0.8% growth.

By over­es­ti­mat­ing GDP, Eskom is al­most au­to­mat­i­cally set­ting the scene for more RCA ap­pli­ca­tions in fu­ture as de­mand falls short of fore­casts.

The Supreme Court of Ap­peal this week ruled in favour of Eskom and Nersa in a case chal­leng­ing the previous RCA, which was brought by a group of busi­nesses in Nel­son Man­dela Bay.

The ef­fect of this is that Nersa can now fi­nally con­sider two RCA ap­pli­ca­tions that Eskom had al­ready sub­mit­ted that ask for an ad­di­tional R43 bil­lion in rev­enue based on short­falls in the 2015 and 2016 fi­nan­cial years.

Another RCA ap­pli­ca­tion based on the 2017 fi­nan­cial year could be made in the next month or two.

Eskom spokesper­son Khulu Phasiwe em­pha­sised that the doc­u­ment was not the ac­tual re­quest to Nersa, but was a pre­lim­i­nary one given to Trea­sury and the SA Lo­cal Gov­ern­ment As­so­ci­a­tion for feed­back.

He said that the work­force re­duc­tion as­sump­tion re­lied only on at­tri­tion, not re­trench­ments.

“Over the years, we have had at­tri­tion of about 5% a year,” he told City Press. “No one will be fired.”

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