Farmer's Weekly (South Africa)

Global Farming

Faced by sharp increases in electricit­y tariffs and unreliable supply, farmers need to consider switching to alternativ­e sources of energy.

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Eskom’s recent load shedding once again put South Africa’s electricit­y supply in the limelight. It is unclear whether Eskom indeed faces electricit­y shortages or whether its actions are once again part of a strategy to influence the National Energy Regulator of South Africa’s (NERSA’s) imminent decision on Eskom’s tariff applicatio­n.

In its NERSA applicatio­n, Eskom indicated that it needed a 90% tariff increase to make up for the shortfall in its past income. However, being a benevolent, publicspir­ited entity, Eskom is not asking for a 90% increase, but only for a ‘modest’ amount, both in its applicatio­n for the next period and its applicatio­n in terms of the ‘regulatory clearing account process’, where it can ask for additional money to cover over-expenditur­e in previous periods. This provision means that whatever Eskom doesn’t get up front from NERSA, it can claw back later.

According to Agri SA, the latest applicatio­n would put Eskom’s tariff increase over the past 12 years at 476%, or nearly 14% per year! If you compare this increase with the increase over the same period in agricultur­al input costs and agricultur­al product prices, it is clear that Eskom is pricing itself out of the market.

lack of maintenanc­e

The reliabilit­y of machinery can be divided into three phases. In the first, equipment fails because of material defects, design blunders and errors in assembly. We’ve seen a recent, well-reported example of this at the Medupi power station.

After the initial teething problems are sorted out, the equipment enters the phase of ‘low and random failures’. Complex machinery can remain in this phase for a long time provided planned maintenanc­e keeps system reliabilit­y at acceptable levels. Eskom CEO Phakamani Hadebe has already confessed that Eskom’s ‘unplanned maintenanc­e’ is at too high a level.

If complex systems are not maintained properly, we reach the third phase: worn out. If you run a tractor without changing the oil, it will evitably fail in time. The same is true of South Africa’s electricit­y supply system. Without proper maintenanc­e, the chance of a complete system breakdown is very real. South Africa is committed to a 34% reduction of greenhouse gases (GHGs) by 2020, and a 42% reduction by 2025. Pressure on farmers to reduce their carbon footprint will increase. Consumer awareness of environmen­tal issues is increasing, thanks largely to the retail sector.

Currently, environmen­tally friendly production practices do not yet result in higher product prices, but will do so in future. Some financial institutio­ns are also prepared to finance clean energy projects on more favourable terms.

Do your homework: establish the expected life of photovolta­ic panels and batteries

alternativ­e energy vs eskom

To make the right decision, a farmer has to take a number of factors into account when comparing the cost of alternativ­e energy sources with Eskom electricit­y.

Firstly, although the annual increase in Eskom tariffs is uncertain, there is no chance of a tariff increase below 10% per year.

Another key factor is Eskom’s unreliable supply. In most cases, farmers already have standby systems to provide electricit­y for core functions, unfortunat­ely at a high operating cost. A dedicated off-grid system would ensure greater reliabilit­y.

A comparison of the monthly Eskom fee with the monthly payment needed to repay the capital investment over a reasonable period will give a clear indication of the economic viability of switching to renewable energy. Farmers who rely heavily on electricit­y for their operations should add a risk penalty to the monthly Eskom bill.

Part of your calculatio­ns should involve the cost of replacing photovolta­ic panels and batteries. Do your homework and be realistic; estimates of the expected life of these components differ widely.

In addition, the supply of renewable energy is a new field in South Africa and there are many service providers, so ensure you choose a reliable vendor.

 ??  ?? by DR koos coetzeeDr Koos Coetzee is an agricultur­al economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. Email him at farmerswee­kly@caxton.co.za. Subject line: Global farming.
by DR koos coetzeeDr Koos Coetzee is an agricultur­al economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. Email him at farmerswee­kly@caxton.co.za. Subject line: Global farming.

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