[miningmx.com] — WE have long known that the electricity industry is a shambles.
The size of the mess has become much clearer during the countrywide hearings held by the National Energy Regulator (Nersa) regarding Eskom’s application for tariff increases.
The recommendations by Professor Mike Muller from the school for public finance and management at Wits best sum up the predicament, suggesting to the Nersa panel that it tells government it is unable to make a recommendation on the tariff increase, as the policy framework to do so does not exist.
Part of the reason for Muller’s recommendation is a remark by Cabinet spokesperson Themba Maseko, who last Wednesday declared that government was “definitely” considering selling one or more power stations in order to soften the proposed tariff hikes.
The problem is that government has not yet come to any decision. And if such a decision should be taken after Nersa’s verdict on the Eskom application, the Nersa decision would actually be a waste of time, because the sale of power stations would dramatically reduce Eskom’s capital requirements.
Muller’s recommendation was not seriously considered by the panel, but it reflects a growing perception by industry players arising from deep-rooted frustration: that is that, for heaven’s sake, Nersa needs to take the lead in the restructuring of the electricity industry.
The matter has dragged on for more than a decade because government is simply unable to reach any conclusion about the industry and implement it – partly owing to political divisions in the ruling party in that respect and, on the other hand, owing to conflicts of interest for political players who are keeping their fingers in the electricity pie.
That’s why we have this mess, and if someone doesn’t do something about it, it will never be solved.
New legislation
The latest example of government’s lack of resolution is the Integrated Resource Plan published in the Government Gazette on December 31 last year. Government itself decided that no private power producers could be identified before provision had been made for them in the plan.
This decision was taken last year – 18 months after proposals for private generation were hastily called for in an attempt to relieve the electricity crisis.
At that time various prospective private power producers devoted a great deal of attention, time and money to drawing up plans and submitting them to Eskom.
But by the middle of last year it dawned on the country’s electricity authorities that Eskom was unable to enter into contracts for purchasing electricity from private generators – firstly because its tariffs were too low and it would have to sell the electricity at a loss, and secondly because it did not make economic sense for the utility to buy electricity from its competitors.
Complex new legislation was published, ordaining that a new authority (which still does not exist) would buy electricity from private power producers.
But an integrated resource plan was needed to determine how much the new authority should buy from private producers and how much Eskom itself would generate and distribute.
It took six months to publish this plan.
When it eventually saw the light of day, it ran to three-and-a-half pages. It is valid for three years and makes no provision for private power producers other than renewable energy sources.
A prominent member of the Energy Intensive Consumer Group, which comprises Eskom’s 34 largest clients, last week declared the situation a total disgrace and conclusive evidence of the new Department of Energy’s total incompetence.
Ray of light
A properly integrated resource plan is a crucial document for a country with an industrial economy. It is needed to balance energy needs and supply. To do so all players – in other words consumers and electricity suppliers – must be continually consulted.
But no-one was consulted about the plan published on December 31 2009. When Energy Minister Dipuo Peters was asked about it, she said there had not been time to consult anyone, but undertook that over the next three years the plan would indeed be a product of consultation and that discussions in this regard would begin in January this year.
Meanwhile Nersa is expected to decide on the steepest electricity-price increase in the country’s history on the basis of a plan on which no consultation was held.
And, as Muller says in his proposal, the plan can probably be contested in court and declared null and void because of the absence of consultation.
But there is a ray of light: the National Energy Response Team (Nert), which came into being after the January 2008 crisis, met in December for the first time since the general election last April, apparently at the instigation of Trevor Manuel, the minister in the presidency charged with the new Planning Commission.
And, according to observers who were present, it seems as if Manuel’s commission will assume responsibility for the integrated resource plan.
This will be a step in the right direction, but it’s still far removed from the critically required restructuring of the electricity industry.
The current model, which is completely vertically integrated with one player responsible for generation, transmission and distribution, is an anachronism.
But no one is thinking about what should replace it.
– Sake24.com
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