As South Africans struggle with a week of tax shedding phases 6 and 5, Eskom and the Department of Public Enterprises are urgently buying capacity from independent sources – don’t count on it making much of a difference, however, says Intellidex analyst Peter Attard Montalto.
Speaking to Business Day TV, Attard Montalto said that Eskom is essentially out of options, and that the short-term increase of 1,000 MW being procured to address this week’s load shedding just isn’t enough.
Purchasing 1,000 MW of energy alone is enough to reduce one phase of load shedding, he said, noting that this power won’t come online all at once. He added that the “legal matters” surrounding the procurement are also complicated and involve a lot of administration.
“This doesn’t really help, structurally, to shift the load shedding knob,” he said.
The analyst said the real meat of South Africa’s load shedding solution is contained in President Cyril Ramaphosa’s crisis energy plan, announced when phase 6 load shedding last reared its ugly head.
“There is nothing that can really be added to the crisis energy plan. It was an excellent plan to begin with. The real problem here is that we have to wait,” Attard Montalto said.
“Things will get worse – much worse – before they start to get better. The real challenge is to manage expectations. We will see very long periods of likely phase 6 to 8 load shedding – especially between October and November and around February (2023) before we can really start using the new generation.”
He said things like the 1,000 MW being procured now are important, but the real meat of the crisis energy plan takes time to implement.
“A lot is happening to help in the long term, but in the short term we have to manage expectations very carefully. It’s going to get much, much worse.”
Eskom’s desire to increase rates in 2023 is further exacerbated by Eskom’s desire to increase rates in 2023. The group has filed an application with energy regulator Nersa to increase fees by 32%, which, when added to the court-imposed backlogs, could see prices rise by more than 38%.
This proposed rate hike has been rejected by major metropolitan municipalities, civil action groups and even Nersa insiders, who say consumers can’t afford the hike and shouldn’t be the ones suffering from Eskom’s inefficiencies.
The problem, Attard Montalto said, is that the country simply runs out of options regarding electricity pricing.
He said cost reflective rates for Eskom are 40% to 45% above current levels, and the power company is trying to get there as soon as possible to address its revenue shortfalls, growing debt and operational needs.
Eskom’s original plan was to smooth this out over a number of years, but he said this was thwarted by Nersa, which has prevented larger rises in the past.
However, lawsuits over the years have shown that Nersa acted illegally by preventing Eskom from recovering funds, so now this significant historic ‘backlog’ of raises is coming out all at once.
“For Eskom, there really is no choice – either it will recoup its costs through tariffs, or it will recoup itself through bailouts,” the analyst said. “You can get a zero percent raise, but then Eskom needs a bailout of R80 billion. That is clearly not viable.”
“We are running out of options here and unfortunately, despite it being quite a challenge, we need a very large rate increase.”
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