Yesterday Nersa announced their decision on the electricity tariff for the period 2010 to 2013. This is generally referred to as the MYDP2 period, the average increase was announced as an about 25 percent which is 24.8 percent per annum over the MYPD2. The Department of Energy has considered the Nersa determination and would like to respond in the following manner.
From the outset I must reaffirm that we respect the independence of Nersa as an economic regulator for electricity, piped gas and petroleum pipelines. In arriving at their decision Nersa has eliminated the uncertainty of the past few months since the Eskom application was submitted.
We were informed that it was a difficult decision to arrive at given the political, social and economic implications of their decision. I wish to take this opportunity to thank both the old and incumbent Nersa board members and their support staff for the hard work that has gone into this process.
Eskom initially started by requesting 146 percent increase, after engagement with the various stakeholders this figure went down by 45 percent, this is an indication of an effort that has gone into minimising the increase.
Regarding the Nersa decision itself, I wish to put it into perspective in relation to our policies. My department has a responsibility to ensure energy security given the critical role played by energy generally and electricity in particular in our economy. Without energy security we cannot achieve the levels of economic activity that are necessary to create new jobs.
It has been almost 20 years since we commissioned the last base load power station as a country and our electricity supply demand balance remains precarious as we enter 2010.
The need for new capital investment in the sector is beyond debate, and inevitably this exerts upward pressure on tariffs. A sustainable electricity sector must be accompanied by an economically efficient tariff regime. Our wholesale tariff is well renowned for being below an economically sustainable level leading to an economy that is wasteful and not energy savvy.
Whilst this has been a key aspect of our industrial policy in the past we need to ensure that we efficiently recover the cost related to providing power to the sector that is largely responsible for driving the demand.
The time has now come to consider energy intensity in the relative context of the jobs that we can create in comparison to other less energy intensive industries.
The days of a country with the lowest price and abundant power that we took for granted are behind us. As the tariffs rise we must also not forget the social economic reality. We are not callas to the plight of the poor and we have a responsibility to cushion them from the adverse impact of increase energy costs.
We know that Nersa’s decision is aligned with our policy objective of protecting the vulnerable in our society by providing an inclining block tariff structure for municipalities and also capping the increase for this sector. For example if you use more than 600 units per month then you are liable to pay a higher charge as a domestic user.
In order to provide for the subsidy for lower income domestic customers as required by the electricity pricing policy, Nersa’s determination suggests implementation of a residential inclining block rate tariff concurrently with this price increase. The structure of the inclining block tariffs together with the average cents per kilowatt and percentage price increases.
We implore municipalities to keep the increases for the domestic sector in alignment with the Nersa determination. The domestic sector should not experience any increase above 15 percent, whilst the average tariff will rise by about 25 percent over the MYPD2 this is not the case for domestic users because the increase will be below that.
One of our policy objectives is to diversify the energy mix away from coal. Through the introduction of renewable energy, energy efficiency and demand side options. Historically this has been very difficult to achieve given the relative cost of alternative energy sources to coal.
Rather than continue to build more coal fired power stations it has become critical to exploit the upside due to the energy efficiency interventions in the electricity sector. And the Nersa determination has given this opportunity a fresh imputes. Energy efficiency not only helps to balance the electricity supply-demand equation but can you imagine the number of new jobs we could create out of this new and improved possibility? As we speak, we have about 400 MW of electricity potential that can be harnessed from cogeneration with the likes of sugar, paper and petro chemical industries. We have traditionally discarded this waste heat, given the cheap electricity.
South Africa is one of the countries that work hard to conclude the Copenhagen Accord; we therefore have a responsibility to mitigate greenhouse gas emissions. As a developing country we cannot continue to increase greenhouse gas emissions when there are cleaner options available to us. This brings me to another policy objective that we have pronounce, the introduction of none utility generators or independent Power Producers.
Our ability to fund the capital investments necessary to keep up with a sophisticated economy like we have in South Africa is limited. We need to leverage the ability of the private sector to provide timeous capital investments alongside our national utility.
Renewable energy and the practical manifestation of our policy aspiration to generate about five percent of our electrical energy from clean sources will also get a new boost as tariffs increase; even more job opportunities will be created in this space.
One of the most exciting projects that we have initiated is the introduction of the solar water heating on a massive scale. Solar water heaters will be used to the residential sector en mass, the concern about the adverse impact of rising electricity tariffs on the poor will be counteracted by the decline in monthly electricity bills as households displace electricity and use our abundant solar resource to heat water. This is a positive that derives from the Nersa decision because the solar water heaters are funded from the tariff.
We must therefore look at the Nersa determination in the context of the possibilities that it creates rather than the negatives that could result. While steep increases in electricity tariffs are not desirable, we believe that the positives of this decision outweigh the negative.
Thank you.
Enquiries:
Bheki Khumalo
Cell: 082 773 2388
Issued by: Department of Energy
25 February 2010
