Eskom's proposed 44% hike could undermine renewable energy gains if reticulation issues are not addressed
|Published
By Gerjo Hoffman, CEO at Open Access Energy and Daniel Novitzkas, Chairman at Specno
As South Africa surpasses 150 days of no load shedding (the best streak of stable electricity supply since 2019, Eskom has once again made a return to media headlines, but for different reasons, which may add to the anxiety of South Africans.
The state electricity utility intends to make an application to the National Energy Regulator of South Africa (NERSA) to approve a whopping electricity price increase of up 44% for the next financial year, starting in April 2025.
Eskom’s argument for this increase is predicated on requiring a tariff price that is reflective of the costs to generate, transmit, and distribute electricity. Historically speaking, the beleaguered state-owned entity is rarely granted approval for their exact desired increases; but an increase is granted nonetheless, adding to the financial challenges of the consumer.
Nonetheless, there is no cause for panic. There has been significant policy shifts and progress from government in recent years to liberalise the market, create less dependency on Eskom and reshape the sector, geared towards renewable and sustainable energy solutions.
In June 2021, amid another period of increased loadshedding and energy insecurity, President Ramaphosa announced that the threshold for private generation and selling of electricity without a NERSA-approved license would be increased to 100 megawatts, opening the market for Independent Power Producers (IPPs) and private generators to transmit or wheel through the national grid to consumers, easing pressure on a vulnerable network.
The government’s Energy Action Plan (EAP), launched in July 2022, proposed a few high-level priorities to salvage the country’s ailing grid and manage the worsening supply crisis. These included improving Eskom’s performance, adding new generation capacity, and accelerating procurement of new capacity from renewables through expediting the rollout of projects under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to increase the share of clean energy in the national grid, while also removing red tape around the deployment of new energy projects, especially those from IPPs.
More recently in 2024, we are starting to see the unbundling of Eskom, with the passing of the Electricity Regulation Amendment Act (ERAA) in August that will enable the establishment of a separate Transmission System Operator state-owned entity to be the custodian of the national grid, while the Act establishes a Market Code to encourage a more competitive market governed by clear rules and regulations.
The trend is clear. An embrace of a more diverse energy mix with renewables, sourced from IPPs and private generators, creating a clear pathway to stabilising supply, and driving down the price of electricity for the consumer.
In fact, we have already started to see the benefits of the market becoming more liberalised. In the City of Cape Town, small-scale solar photovoltaics (PV) users are empowered to sell their excess energy back into the City’s grid, allowing them to either offset some of their municipal electricity bills, or if they are already completely self-sustaining, earn a 100% profit.
On top of this, municipalities, as well as private consumers are increasingly gaining more access to IPPs and the products they have on offer. In fact, with the 133 GW project pipeline in the market, IPPs are approximately 30% cheaper than Eskom’s wholesale price, which is typically sold to municipalities, and then passed onto the consumer at an increased rate, for municipalities to cover the costs of distribution and enhance their own revenue.
However, renewable energy is substantially cheaper than the baseload of fossil fuel that has dominated the energy mix up to this point, we must also look at the finer details of the renewable energy value chain to ensure we fully capitalise on its advantages.
Without the correct software, wheelers such IPPs or energy traders who sell directly to consumers, or municipalities who procure directly from wheelers to then sell to consumers, might find themselves in a bind with incorrect billing, leading to profit losses.
A local software company based in Cape Town has already begun groundbreaking work to address this challenge through the development of two software platforms, Amptera and Energypro. Both products serve as highways for transactions between energy producers and buyers, enabling real-time energy transactions, while removing logistical hurdles that can demoralise both consumer and producer from embracing innovative solutions.
Amptera for example has already been implemented by the George Local Municipality in the Garden Route and is currently going through different pilot forms in other municipalities. Both Amptera and Energypro (which is primarily geared to wheelers) can ensure that customers are billed accurately and equip the seller to manage any risks that arise through the transactions.
Products like Amptera and Energypro are the gateways for South Africa to reorient the country’s energy mix by decreasing its reliance on fossil fuel sources and ensuring the success of renewable energy.
Just imagine how municipalities can offer consumers a menu of different IPPs to choose from, creating healthy competition between competitors to offer the best prices. Demand will naturally increase, while municipalities also play an intermediary role and retain their revenue with a revenue-neutral-approach that offers lower prices and greener energy to customers.
Waiting with bated breath for what increase NERSA would grant Eskom year on year can be something of the past. The solutions for finer details that software products like Amptera and Energypro seek to address just need to be embraced by the seller for the full value chain to be realised.
Gerjo Hoffman is CEO at Open Access Energy and Daniel Novitzkas,is the Chairman at Specno.
BUSINESS REPORT