Expect electricity prices to double in the next five years, says former Eskom consultant

 ·12 May 2022

Former Eskom consultant Matthew Cruise expects electricity prices to double in South Africa over the next five years as the state power utility continues to struggle to keep the lights on.

Cruise, the former consultant, and current campaign manager for solar provider Hohm Energy, told Relifwe Moloto at CapeTalk that while Eskom has forecast roughly 61 days of load shedding over winter, given how many days in May have already been load shedded, that figure appears optimistic. Already, the 61-day figure equates to load shedding roughly every third day.

The consultant predicts that the price of electricity will double over the next five years, as will load shedding. Cruise said that in 2021, the National Energy Regulator of South Africa (NERSA) hiked electricity prices by an average of 17.9%. He said this will take place every year – “you will have a more than inflation-based increase for Eskom…and then the municipalities will also want an increase,” he said. In 2022, the average increase in electricity is 17.1%.

Cruise said that if you have an average increase of 15% over the next five years, “it actually effectively doubles the price of electricity”. “If you are paying R2,000 for electricity now, you may be paying R4,000 in the next five years.”

Load shedding and renewables

Cruise told the radio host that there isn’t enough energy capacity coming online to cover that going offline. He said that despite announcements of 2,500 MW of renewable energy coming online, as much as 8,800 MW from traditional power stations is set to come offline. He added that the energy supply from the renewable systems is not 2,500 MW consistently, often operating at only 20% efficiency.

Renewables such as solar only offer power during the midday peaks, whereas, South Africa’s peak energy usage is in the evening, said Cruise.

Deep-seated issues

And while Eskom pins its hopes on some offline generating units returning to operation in the coming months to stave off rising power demand, analysts point to deeper, more entrenched problems within government departments that are holding the entire energy sector back.

Capacity issues at Eskom this week forced the power utility to implement daily load shedding during evening peak hours when demand was highest.

The utility said that the national electricity grid remains constrained, with an elevated risk of load shedding over the winter period, particularly during the morning and evening peaks.

During the next few weeks, however, it expects to return to service two units at Kusile Power Station, and Koeberg Unit 2 is expected to return by the end of June 2022. These three large generation units will add approximately 2,500MW to the power system.

But South Africa’s energy problems extend beyond the immediate shortfall in supply, say Stuart Theobald and Peter Attard Montalto, analysts at Intellidex.

In two separate op-eds penned by the analysts, they outlined the massive problem faced by the country’s energy sector: namely that it does not have enough power to meet demand, while any processes launched to rectify this are subsequently mired in political and economic blockages.

Theobald pointed to the government’s renewable energy independent power producers’ programme (REIPPP), which has effectively hit a roadblock, as the poster-child for this ongoing problem.

“The ground-breaking REIPP programme came to life in the Zuma era, but has floundered under Ramaphosa. Having been the one bright light in the energy sector, it is dimming, despite the electricity crisis being as severe as before,” he said.

The obvious symptom of the dysfunction, Theobald said, is that not one project in the REIPPP has reached financial close since the fourth bid window that was conducted in 2015, with the financial close for many projects delayed by coal interests to 2018.

“All projects procured since — especially the urgent ‘risk mitigation bidding round’ that included Karpowership’s floating gas generators, and the fifth bid window — have so far failed to reach financial close, the point at which all contracts are signed and construction can begin,” he said.

This glaring hole in new energy procurement was echoed by Attard Montalto, who noted that there is a serious procurement and market failure occurring “that is not sinking in” with those in government.

The analyst warned that load-shedding risks being extended long into the future as a result.

Theobalt and Attard Montalto pointed to the government as being the key stumbling block, where the Department of Mineral Resources and Energy is not aligned with the Department of Trade and Industry (DTI) and National Treasury on procurement goals.

Five projects are not hitting a financial close because they cannot meet localisation targets set by the DTI – largely because South Africa does not have the necessary skills or capacity to meet them.

“Under minister Ebrahim Patel, the localisation agenda has been pushed far more aggressively, but without the insight required to understand what is possible,” Theobald said. “This is the main reason for the delay in closing projects for the fifth bid window — the various successful bidders cannot all simultaneously procure enough to meet the localisation targets.”

“During the delays, commodity prices have soared making many projects unprofitable, so they won’t be able to get funding. It is a mess. And now the sixth bid window is open with bids expected to be submitted in August,” he said.

According to Attard Montalto, this stalemate has locked South Africa into its current energy crisis, with no real plan or political will to get the country out of the rut.

“We are chasing our tail…locking in future procurement to the same mistakes,” he said.

“The lack of movement by Eskom on smaller procurement opportunities – due to a lack of action by the department of mineral resources & energy and the Treasury – or the inability for any player to push forward with fast, radically different procurement methods like feed-in tariffs, all means we are locked into the current situation,” he said.

Read: Eskom gives hope – despite increased risk of load shedding in the coming months

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