Tag Archive | MYPD

Eskom looks at cutbacks, maybe rebates

Eskom reviews whole process of rebates…

eskomEskom has placed its energy efficiency rebates for businesses and homes on hold pending a review of financial constraints after being with left with , the spokesperson says, a shortfall of R7.9bn when granted the third Multi-Year Price Determination (MYPD) period until 2018. All this compared with the R13.09bn it sought.

The review to curb on costs would affect new projects that were to be implemented in the next financial year and a review is being conducted on present rebates.

Cannot maintain “aggressive” style

As part of a programme of cutbacks, new general manager Andrew Etzinger has confirmed that the lower-than-applied for funding meant that Eskom could not sustain such an “aggressive programme” at the same levels whilst, he said the group was in discussions with government on alternative funding models.

Etzinger stated that the benefits of current integrated demand management (IDM) programmes were obvious and such interventions had assisted with the country’s power situation. With savings of about 3 600 MW since inception, the IDM programmes have established capacity in megawatt equivalents, to an average power station. Without those savings, South Africa would have been in daily load shedding since 2008, Etzinger said.

Energy targets outlined

In the MYPD2 period, Eskom spent R5.4-billion on the current IDM interventions and achieved savings of 1 200 MW over the three-year period. For the current financial year, Eskom is aiming to achieve savings of 379 MW through energy efficiency interventions and is targeting 240 MW in the next financial year. Hence the cut backs, he said.

Eskom says, “The residential mass roll-out was the largest contributor to demand savings in the 2013 financial year. The programme is based on a free bulk roll-out of a “basket of technologies”, focusing on replacing inefficient lighting and implementing energy saving technologies and load control devices in the residential sector.”

Since inception in October 2011, about 245 projects have been registered for the standard offer, realising demand savings of 118 MW and energy savings of 478.6 GWh. More than 4 800 projects have been registered for the standard product programme, which started in January 2012, realising demand savings of 122.7 MW and energy savings of 555 GWh.

Presumably Eskom with its current statement means that any new programmes will not be started and it will review current arrangements.

Etzinger stressed, however, that while the IDM interventions were temporarily on hold, Eskom would continue to benefit from the savings achieved through the projects that are implemented on an ongoing basis with agreement with the parties involved.

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Eskom taking SA “to the edge”- says EIUG

EIUG says review of Eskom strategy necessary….

eiuglogoMike Rossouw, chairman of South Africa’s Energy Intensive User Group (EIUG), says South Africa has reach a “tipping point” in terms of electricity prices and that not enough attention is being given by government to the potential effect of damage to productive sectors of the economy with consequent risk of demand contraction and revenue collapse.

Writing in the Business Day, Rossouw, who represents major groupings of large power consumers such as paper and pulp, motor vehicle and steel manufacturers, called for a review to consider urgently new technology innovation in power sources; the validity of a substantial, expensive and inflexible nuclear programme and much more investigation into alternative fuel options such as gas.

Casualties ahead

EIUG stated it represents some 44% of the total electricity demand in South Africa and Rossouw complained that already the country has had to watch its ferrochrome industry lose its place as world leader to China in the last few years because of “global ineffectiveness on the electricity pricing issue”.

Foundries are shutting down, he said, and he blamed government for its lack of “an holistic approach in dealing with Eskom’s price application.”  He said that South Africa “cannot afford to get this one wrong” and called for NERSA and the minister of energy to take into account an investment and operating climate that should have more regulatory certainty.

”Government through NERSA must extend affordability to industry on power issues and accordingly the state must re-think its position on the effects of Eskom’s 16% hike per year for five years on the economy”, he said.

Looking back

Rossouw noted that the Eskom application will take the price of electricity “to about 128c/kWhr, an overall increase of a huge 540% over a 10-year period to 2017 with prices have already increased by some 200 % since 2007.

“Electricity cannot be treated as a source of revenue nor as a vehicle that allows municipalities to recover their losses”, he said. “10% increase is a figure that is enough to allow Eskom to continue viable operations”.

Calling for less “bulking up of Eskom’s balance sheet to meet rating agency expectations”, Rossouw stated that Eskom’s MYPD(3) application to NERSA contains only “limited disclosure” but, nevertheless, NERSA, he says, does in fact have access to the full story and maintained that the regulator should react by balancing affordability against the Eskom capital expansion programme.

In the article, he repeated the call that much that much more attention should be given by DOE to what appears to be a “highly inflexible nuclear power generation programme” and “more investigation carried out into alternative fuel options such as gas.”

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Eskom MYPD electricity call is to sustain ratings

 Eskom stands by its MYPD3 asking price…….

Brian Dames, CEO, Eskom, on their Multi-Year Price Determination (MYPD 3) application to the National Energy Regulator of South Africa (NERSA), told parliamentarians of the trade and industry portfolio committee that price increases were necessary. He said that on one hand they had to have a respectable balance sheet to obtain development money whilst on the other hand, Eskom was coming from a background where investment activity had been inactive over the years.

“To keep the lights on”, Dames said, “there is now a cost.”

Electricity currently below cost

He said that because of historical reasons, electricity was currently charged at below cost-reflective levels and was not sustainable. Electricity prices needed now to have a “transition to cost-reflective levels to support a sustainable electricity industry that had resources to maintain operations and build new generating capacity, guaranteeing future security of supply.”

Dames said that Eskom had also recently issued an “interim integrated report” for the six months ended 30 September 2012 setting out a contextual review of the company’s overall performance from 1 April 2012 and in the light of this had presented the NERSA application.

He said that the current MYPD 2 was ending and consequently Eskom had to submit such an application to NERSA to determine the country’s electricity price adjustment for 2013/14.

However, this time Eskom was proposing a five-year determination for MYPD 3, running from 1 April 2013 to 31 March 2018, which would ensure a more gradual and predictable price path for households, businesses, investors and the country as a whole.

Eskom’s five-year revenue request translated into average electricity price increases of 13% a year for Eskom’s own needs, plus 3% to support the introduction of Independent Power Producers (IPPs), giving a total of 16%, representing a total price increase from the current 61 cents per kilowatt-hour (c/kWh) in 2012/13 to 128c/kW h in 2017/18.

Balance sought between needs of Eskom and poor

The impact of the price increase on the economy had been considered in addition to guidance from the President’s State of the Nation Address in which he requested Eskom to consider a price path which would ensure that Eskom and the industry remained financially viable and sustainable, but which remained affordable especially for the poor. Dames said he believed that Eskom’s application achieved an appropriate balance.

In addressing the impact of price increases, Dames said that Eskom believed that poor households should be protected from the impact of electricity price increases through targeted, transparent cross-subsidisation in accordance with a national cross-subsidy framework.

A failure to achieve cost-reflective prices would sooner rather than later impact on South Africa’s economy and its growth prospects, he said.

MPs query what electricity giant has as objective

A number of opposition MPs disagreed and queried the entire cost-reflective process used by Eskom, saying that the tariffs proposed by Eskom rather posed a dangerous threat to economic growth and the future of business in South Africa, as well as job creation.

Whilst Eskom wanted a 4% targeted return in the medium term and 8% in the final year, they said, JSE majors had returned on average 6.6% per year in the last ten years. They asked if Eskom was attempting to build a balance sheet that compared with global corporates just in order to get loans.

The main thrust of certain opposition MPs queries was the sacrifice in growth rate, damage to business development, to job creation. ANC MPs complained of the effect on the poor.

Paul O’Flaherty, finance director at Eskom, said that the only sources of funding available to Eskom were debt; equity injected from Government and operating profit from its revenue. Eskom had requested for an additional equity injection from the state but that was not forthcoming leaving generation of debt to them and raising enough operating profits from its revenue.

He said in terms of depreciation factors on the figures shown, such was regulated by Nersa and that there was no way of getting around the fact that Eskom had to pay its way. According to the cash flow predictions, a trillion rand of revenue would be needed to pay for primary energy costs, employee costs and demand side management, repairs and maintenance.

Eskom must be seen as viable entity for capital programmes

Eskom’s capital program over the next five years included finishing the Kusile power station repayments, plus a further R360bn in debts, which meant that R200bn had to be raised from the market. This had to be done against a successful balance sheet. Eskom got investment status because of Government uplifting, he said. It had to show its cash metrics were moving towards a more sustainable company, he said.

Dames added that Eskom required on its equity a higher return than the sovereign because of the risk involved and in terms of the cost of debt in a normal environment and that the cost of Eskom borrowing was more expensive that the sovereign borrowing. The cost of debt had been arrived at by Eskom working with NERSA as well by as KPMG and the costs included in the MYPD 3 application were appropriate, in his opinion.

Mohamed Adam the legal representative at Eskom said on questions relating to the impact of price increases on the manufacturing sector, that the impact of price increase on the economy had been considered in addition to ensuring that both Eskom and the industry remained financially viable and sustainable, but which remained affordable especially for the poor. There was a threshold at which Eskom would also face which amounted to a tipping point if prices were too low.

Unbundling of Eskom not an option

In conclusion, Mr Dames said that the submission of the MYPD 3 application was the beginning of a public process and he rejected MPs suggestions that Eskom was a monopoly that should be broken up.    He said that any unbundling of Eskom accompanied by the introduction of private participants would fail to bring in lower prices since higher returns would be needed by private generators and distributors.

As to whether Eskom would be willing to supply certain municipal customers,  Dames said that local authorities had a constitutional right to supply the customer within their jurisdiction and  Eskom was unable to supply a number of municipal customers anyway based on their relation to the network. Also municipalities would lose revenue.

Dames said that the growth rates in the MYPD 3 submissions were lower than those required in the New Growth Path and the National Development Plan and whilst the energy reserve margin might be held in the immediate future, it would disappear if new generation capacity was not brought on line after the completion of Kusile and if there was growth. The current build programme did not address all the capacity needs of South Africa into the future.

EIUG figures do not reflect current picture

Dames, in addressing the claim by Energy Intensive Users Group (EIUG) that Eskom’s costs of maintenance were higher than they should be, said a considerable quantity of EUIG’s comments were based on inaccurate figures.

Much in the way of numbers quoted by EIUG were based upon “aspirational targets achieved during the 1990s when Eskom’s power stations were a lot younger”, it was said. The constrained power system now existing did not now allow for such philosophical assumptions. There was a balance which Eskom now needed to strike in practical realities as far as keeping the lights on was concerned.

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Eskom prepares for showdown with regulator on tariff increases

Eskom’s CEO Brian Dames still remains tight-lipped on exactly how much the state utility will be asking for in electricity tariff adjustments upwards in its third multi year price determination period (MYPD) application to the National Energy Regulator (Nersa) next month, although an “unofficial” release is circulating that a figure of 14.6% over each year for five years is on the cards.

Confirming that Eskom acknowledged that the cabinet clearly expected “moderation”, the utility says it has “taken on board” the idea that an application for a period longer than the three years under the current MYPD needs to be projected, this suggestion also being made to the minister of energy by the relevant portfolio committee of the department of energy’s budget vote response and it’s presentations on future energy reserves and cost.

However, finance director Paul O’Flaherty, who also addressed the public enterprises committee recently on the subject of financing the current Eskom infrastructure development, has said next month’s MYPD application will also be in the a context of its R340bn investment programme which will attract to Eskom an interest bill of R120-billion over a five-year period.

This five year interest period has by necessity to be brought into the discussions with Nersa, he said, and will mainly account for the need to consider extend the MYPD over a longer period. O’Flaherty referred to the fact that Eskom’s ability to raise the capital and to handle long term debt was inextricably linked to South Africa’s sovereign rating.

 

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Eskom to bring up electricity increases again with Nersa

Downgrading would damage Eskom’s ability to meet infrastructure targets………..

Finance director Paul O’Flaherty of Eskom told parliamentarians on the public enterprises portfolio committee that electricity tariffs that were truly cost-related and this had to be borne in mind by the public if Eskom were to complete its R385bn power generating construction programme.

He told MPs that his organisation needed tariffs to reach a level of 90 cents per kilowatt hour in real terms by 2017 if Eskom was to pay its debt.   “We are at 60 South African cents at the moment and in real terms we need to get that up to 90 cents”, he said. According to a report in Business Day (26 June), National Treasury has received the Eskom proposal.

Each year Eskom has to approach Nersa, the electricity regulator in South Africa, for any tariff increases, usually mid-year, and O’Flaherty said Eskom hoped this year it would be able to extend the multi-year price determination (MYPD) period to five years from three to get financial certainty, and secondly to cover production costs when it approached Nersa this year.

He said erratic tariff determination over the five years leading up to 2010 saw the Kusile power plant project put on hold because Eskom “would not have been a going concern. The MYPD needs this sort of time frame for financial reasons”.

He said, “We need to constantly remind [the consumer] that Eskom has to have cost-reflective tariffs in order that our investment grade rating is sound. As we sit, we have raised R180bn in debt and we need to get to R300bn.”

He reminded parliamentarians that a good credit rating would prevent Eskom going the path of Sanral, where, he said, Moody’s had downgraded the road agency.

“I’m pleased to announce”, he said, “that 77% of our funding for Kusile is completely secured and the rest has been identified.”    However, the question of Eskom remaining a ‘going concern” covering its production costs was the issue now being faced, he noted.

O’Flaherty warned MPs that eventually, from an Eskom point of view, it had to “come  down to a further serious tariff rate discussion with Nersa” but he would not respond to MPs questions as to what tariff rate it was that he was referring to and what tariff rate it was that Eskom wanted.

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Fuel,oil,renewables, Public utilities, Trade & Industry, Uncategorized0 Comments

Energy department plans more electricity for the poor

Ompi Aphane, deputy director general of department of energy (DOE), told parliamentarians that his department was acutely aware of the fact that South Africa needed energy security for development of the country and to reduce economic deprivation amongst the poor. However he said his departmental budget had been cut, resulting in a number of departmental objectives being abandoned.

A total of 3.4 million households did not have electricity, he said, and 1.2 million of these were in informal settlements around the country. This meant about 12.5 million people did not to have access to energy as is commonly understood. Ompi Aphane was addressing the NCOP’s select committee on economics and consequently his overview stressed provincial and rural targets.

The percentages of households without electricity were: Eastern Cape 20%, the Free State 6%, Gauteng 21%, KwaZulu-Natal 24%, Limpopo 10.5%, Mpumalanga 6.5%, North West 5.5%, Northern Cape 1.5% and the Western Cape 5%.

Aphane said that Development Bank of South Africa have joined the DOE on a rand to rand basis with electricity development in municipal areas where help is needed to overcome some of the issues, he told MPs. These arrangements were at MOU stage but, nevertheless, negotiations with certain municipalities was underway and planning going ahead.

Dr Wolsey Barnard of DOE (Inep-BPU) said that that it needed centralised buying power to bring down the costs of equipment supplied to make equipment such as transformers available at lower prices to smaller municipalities and IPPs. A more innovation approach to centralised procurement was needed, he said.

Returning to the overall picture, Ompi Aphane said South Africa had to remain competitive in terms of electricity pricing in order to attract investment and DOE remained conscious of the fact that the country had to be totally able to finance its R3trillion energy/electricity programme which included all power stations and national grid wiring and transmission systems.

The  main objectives for DOE were the planning and establishment of new electricity generation capacity in South Africa; the running of the multi year price determination process (MYPD) through to 2030 to establish electricity prices; to monitor all Eskom construction; the establishment of the independent market operator system (ISMO) bringing in independent electricity generation producers and to focus on the electricity distribution network as it applied to the rehabilitation of municipality systems and distribution.

On nuclear energy, Aphane told the select committee on economic development  that the IAEA review of South Africa’s nuclear needs was about to be finalised and hopefully ratified and  approved; all processes being for peaceful purposes, including the important applications in the food chain and health curative areas. Radiation monitoring at main ports of entry was a current project of DOE, he said.

Nuclear issues were subject to “scaremongering”, he said and DOE was fully aware of the need for full national debate on the issue and community awareness programmes. Amendments also were needed under the Nuclear Regulator Act which had to be approved by cabinet and provisions’ made for the withdrawal of the safeguards function from the nuclear operating body, the Nuclear Energy Corporation and pass this to independent governance of the regulator, NERSA.

Other legislative changes ahead were proposals to amendments to the National Energy Regulator Bill; the Electricity Regulation Amendment Bill and the ISMO Bill. Draft legislation on nuclear waste issues was with cabinet, Aphane said.   The DOE energy policy and planning programme also had the objective of monitoring the effectiveness of the Increasing Block Tariff (IBT) designed to cushion the poor from rising costs in terms of the true cost of production. The programme planned to extend the IBT to cover prepaid meters in more municipal areas.

Bio-ethanol blending values had to be established and a debate commenced on exactly what were break-even bio fuel price structures if development was to be seen in this area. On energy renewables, Aphane said that a “template” had to be found for a renewables annual report so that progress and development could be measured.   A wind energy awareness campaign was being planned and the solar water heating implementation was well underway with over half a million solar water heating units so far installed.

Nevertheless, returning to his opening remarks, DOE reported that still 12.5 million individuals remained without electricity.   Inroads were being made and next year a further 70,000 municipal connections were expected and 111,500 Eskom connections were planned but price increases in the materials used, or “hardware” were escalating.

On non-grid solar home systems, the total installed to date since the start of the programme was 48,230. The provincial breakdown had been 10,385 in the Eastern Cape, 29,705 in KwaZulu-Natal and 8,140 in Limpopo.

In future, non-grid electrification programmes were not only to be implemented in what was known as “concessionary areas” but on a limited basis in Southern Cape, Northern Cape and Eastern Cape areas where sunlight was more reliable. The target of 10 000 home systems for the current year had been achieved.

The DOE concluded that South Africa’s electrification policies were still valid but different strategies of implementation, particularly as far as climate change was concerned, were needed in the area of renewables.

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