Price of power stuck in a tussle between old and new technologies
Tariff itself should be restructured, Wits University researcher argues
There has been much talk about restructuring Eskom in a bid to steer SA’s largest state-owned company away from disaster.
The sustainability task team, appointed by President Cyril Ramaphosa late in 2018, has reportedly proposed a functional unbundling in which the utility would be split into three parts: transmission, distribution and power generation.
Eskom’s enormous debt burden of R420bn will also have to be restructured, though the government is yet to pronounce on a way forward.
Anthonie Cilliers, honorary research fellow at Wits University, argues there is a need to restructure something else — the tariff itself.
Electricity tariffs are a hot topic. The National Energy Regulator is in the midst of public hearings into Eskom’s proposed tariff hike of 15% annually over the next three years. While electricity users warn of the negative impact of large tariff hikes, Eskom urgently needs more revenue.
The typical power demand cycle in SA has a peak period in the morning and another in the early evening. “So there are expensive periods of electricity supply, or high-value periods, and less-expensive periods or low-value periods,” says Cilliers, who is also national co-ordinator for the SA Network for Nuclear Education, Science and Technology.
Traditionally there has always been cross-subsidisation. For example, the utility may pay a fortune to run diesel generators to keep the lights on at peak hours, but it would compensate this with profits made from electricity sales during lower-demand times of the day.
But that business model goes out of the window with the introduction of renewable power. Technologies with an intermittent nature, such as wind and solar, often supply at times of low demand, or low value, when, technically, Eskom could produce power at a cheaper rate, Cilliers argues.
“In other words, they [renewables] come in expensive during times when cheap electricity is supposed to recover the subsidies from the expensive times. During expensive times they don’t run, so they can’t replace the expensive sources.”
Cilliers sees a restructuring of the tariff as a solution, so that consumers pay the market value of the electricity at the very time it is used.
Eskom already does this, though in a crude way. It introduced “time-of-use tariffs” around 1992 and about 80% of its sales are on one of three such tariffs: Megaflex, Miniflex and Ruraflex. The utility says it is now also in the process of introducing a time-of-use tariff for residential customers — Homeflex — and will submit this to the National Energy Regulator for approval in 2019.
However, Cilliers says this system is no longer appropriate because since the introduction of technologies with more unpredictable power generation patterns, such as wind, the power-supply curve is no longer flat.
What is needed is a tariff structure that is more precise and can bill consumers less at the moment of oversupply and more at the moment of undersupply, he says.
But talk of such a tariff structure may be too late.
New power systems already do not look very much like the old ones. Instead, experts say, modern power systems will prioritise the cheapest new power — wind and solar — and then seek flexible baseload solutions, such as gas, which can fill in the gaps.
Experts on all sides of the argument tend to agree that coal and nuclear baseload does not complement the variable nature of renewable power. But it is these more conventional technologies — increasingly unable to compete on cost — that are ultimately likely to lose out.