GREENPEACE AFRICA COMMENTS ON ESKOM’S PROPOSED RETAIL TARIFF RESTRUCTURE PLANS

Marked for the attention of Bongani Khonjelwayo and Thabo Tshabalala

Greenpeace Africa (“GPAF”) is an independent environmental campaigning organisation with a vision of “an Africa where people live in harmony with nature in a peaceful state of environmental and social justice”. In South Africa, GPAF campaigns for public and private bodies to take urgent action to address the climate crisis, including advocating for a just transition from fossil fuels to renewable energy and energy efficiency. Our campaign work also stands to protect the constitutional rights and health of affected frontline communities directly impacted by fossil fuel operations.

Greenpeace Africa would like to thank the National Energy Regulator of South Africa (“Nersa”) for inviting the public to share their input on Eskom’s proposed retail tariff restructuring plan. Eskom’s proposed tariff increase has the potential to gravely impact society, standards of living, our environment and our economy.  It is essential that Nersa critically assess Eskom’s application and does not just approve yet another electricity tariff increase without interrogating the more profound implications. The significance of the decisions around how much to increase electricity tariffs and why cannot be overestimated. As a civil society organisation and citizens working towards achieving social, environmental and climate justice in South Africa, Greenpeace Africa’s point of departure will be the environmental and socio-economic impacts of a 32% tariff increase. 

Although renewable energy is now the cheapest form of electricity, Eskom has proven relentless in using coal and diesel as its primary energy source and has been far too slow to initiate a Just Transition away from coal and towards renewable energy. The consumer public has a limited say in its preferred energy source and, as such, should not be held to ransom by Eskom. Over 47% of the South African public is considered energy poor. On average, South Africans spend 14% of their income on energy; however, in the poorest quintile, this figure is 27% (DoE, 2012). Further, the consumer has limited insulation against geo-political factors affecting the volatility of the crude market. 

Greenpeace Africa believes that a 32% tariff increase will materially and very negatively impact the consumer’s rights and is in blatant contradiction to the spirit of the National Development Plan (NDP). Further, tariff increases will compromise universal access to energy and the objective of simultaneously  creating  jobs and reducing inequality and poverty.

A tariff increase threatens to push significant numbers of South Africans into energy poverty and will force them to trade off between their electricity needs and food security. There is no way that South Africans should be penalised so deeply for Eskom’s inability to manage their polluting coal-fired power stations, and their delays in implementing a Just Transition to renewable energy and energy efficiency.

KEY CONSIDERATIONS

1. Eskom cannot be allowed to continue to pass the costs of the failures of our energy utility onto consumers; electricity tariffs have risen by 750% in the past 16 years , each tariff increase Eskom applied for was well above the inflation rate of that year. The proposed 32% tariff increase comes about as South Africans are forced to contend with the worst bout of load-shedding on record without a foreseeable end. Where is Eskom’s accountability for the service of stable, affordable, electricity that it is supposed to provide to consumers? Under no circumstances should consumers be forced to pay more for electricity to pay for Eskom’s inability to manage their coal-fired power stations. 

2. Recognising that South Africa faces record inflation rates brought on by the global pandemic and exacerbated by geo-political conflict, it would not be in the interests of social well-being to introduce a tariff increase as steep as 32%. The looming recession threatens to push more South Africans into energy poverty, forcing many to trade-off between their electricity needs and household essentials like food. A 32% tariff increase would be detrimental not only at a household level but to Small, Medium-sized and Micro Enterprises (SMMEs), which have already suffered dramatically due to Eskom’s erratic power supply. It is apparent Eskom is desperate to recuperate costs for the coal-fired power stations that have been badly maintained, badly constructed and continue to emit massive amounts of pollution and greenhouse gases into the atmosphere, driving both the climate crisis and damaging people’s health from air pollution. Greenpeace Africa has engaged extensively with Eskom and proposed a series of recommendations to transform the utility. Notably to off-load assets, which Minister Godongwana had embraced and should now be implemented. Greenpeace Africa maintains that this is a crucial step to stabilising the utility.
3. Recognising that the multi-year price determination (MYPD) has exceeded its validity period and Nersa has commenced a revision of the MYPD5 pricing methodology, Greenpeace Africa believes that a tariff increase of this magnitude must be rejected and could only be considered when Nersa finalises the MYPD5 methodology.

4. Recognising the mounting calls from civil society, energy experts and politicians alike that the Integrated Resource Plan (IRP) 2019 is in dire need of a review Greenpeace Africa cautions against new investment decisions that are not aligned with taking urgent action on the climate crisis and creating a Just Transition in South Africa. We are already living with the impacts of the climate crisis and desperately need transformation in accordance with global energy trends. The outcomes of the IRP revision will likely have far-reaching impacts on our energy system and in the meantime, the barriers to renewable energy must be removed, both in terms of rooftop solar, and bigger renewable energy investments.

5. South Africa is already experiencing the impacts of the climate crisis through extreme weather events.  The sixth assessment of the Intergovernmental Panel on Climate Change (IPCC) found that climate change is unequivocally caused by anthropogenic emissions and warned that the widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have already occurred. Every increment of warming will contribute to more weather extremes, demonstrating the requirement for increased urgency in addressing the climate crisis. The report asserts that meeting the politically endorsed consensus to limit global warming to 1.5ºC above pre-industrial levels would mitigate the risks of significant climate collapse, but only if rapid emission cuts that bring carbon emissions to net-zero and beyond are implemented immediately. As South Africa’s largest Greenhouse gas (GHG) emitter and the world’s most polluting power company, Eskom has a crucial role in driving a Just Transition. A just transition presents the co-benefit of attenuation of our emissions while providing the social benefits associated with removing the barriers to affordable renewable energy.

6. A retrospective analysis by Meridian Economics revealed that 5GW of renewable energy could have prevented 97% of load shedding in 2021, with the remaining hours solved by battery storage. The findings of this study underscore the necessity for Eskom to prioritise a just transition, and to stop making consumers pay to keep Eskom’s badly built and badly maintained coal-fired power stations from falling apart entirely.  It is critical that Nersa and Eskom enable the removal of the barriers to renewable energy so that we can maximise our renewable energy resources to stabilise our energy system while delivering our commitments to the Paris climate agreement at a higher level.

7. South Africa is overdue for a transition in our energy systems, and we urgently need to redirect electricity policies to meet the standards of the global energy transition and the evolution of the electricity markets.  In the World Economic Forum’s latest Energy Transition Index (ETI), South Africa ranked 110 among 115 nations. The ETI benchmarks countries (scoring on a scale from 0-100) based on the performance of their energy system and readiness for transition to a secure, sustainable, affordable, and reliable energy future. South Africa scored  significantly below the global average of 59; this ranking indicates South Africa’s poor adaptive capacity and stagnation relative to other countries. Our poor energy performance threatens South African society at every level. Greenpeace Africa has laid out a vision for how Eskom could transform. Serious financial and institutional problems, which have steadily worsened in recent years and will continue to worsen without fundamental reforms, mean that transforming the electricity sector is now a non-negotiable. Eskom coal-fired power plants are responsible for around 30% of total GHG emissions in South Africa and it is clear that the utility cannot continue to penalise consumers for its inability to construct, manage or maintain its dead-end coal-fired power stations. 

COST TO SERVE STUDY 

Cost to serve may not necessarily be the most efficient and effective cost allocation method, considering that consumers will be forced to bear the cost of Eskom’s ageing and defective coal fleet. Eskom has neglected to look at the financial implications of its own cost overruns. The Medupi coal-fired power station has escalated in costs from R78bn to R120bn. South Africans should not be saddled with the costs of Eskom’s maladministration. Keeping in line with NDP Critical Action 3. Steps by the state to professionalise the public service, strengthen accountability, improve coordination and prosecute corruption, Nersa must critically evaluate Eskom’s intentions and not reward malpractice. Considering the introduction of Independent Power Producers (IPPs) and a rise in prosumers and municipalities leveraging the feed-in tariffs structures, South Africa is likely to witness increased penetration of distributed energy resources (DRE) in the distribution system; this brings into question whether traditional cost allocation methods will still be valid, due to the different directions of power flow in the distribution system. South Africa’s energy system will quickly transform from one dominated by a central generation unit connected to transmission systems and passive consumers connected to medium and low voltage distribution networks; therefore, it is necessary to develop new methodologies adequate for the new operations paradigm, which enables prosumers and removes the barriers to renewable energy. 

PROPOSED TOU RATES 

Increasing the evening peak to three hours would yield the most significant effects on behaviour change during the night, this could have positive externalities for the mitigation of emissions. Load-shifting may enable Eskom to avoid dispatching gas for peaking purposes, thus reducing hourly emissions of pollutants SO2, CO2, and NOx. However, these could prove costly for municipal distributors servicing low-income households during peak hours, which drive short, sharp morning and evening spikes in electricity consumption in addition to cross-subsidies. 

The fairness of charging TOU rates on customers displaying a constant consumption profile is dependent on the socio-economic position of the consumer. This may prove to be unfair for households that are unable to attenuate their energy consumption patterns due to a variety of social manifestations ie. it is typical for several low-income households to be connected to one meter through informal connections or larger groups of people living in one households

In order to ensure fair and reasonable application of TOU, municipalities must be capacitated with the resources necessary to efficiently signal to customers and to ensure the consumers are adequately educated on energy consumption, energy efficiency, TOU tariffs and measures they can adopt to attenuate their energy consumptions, combined with removing the barriers to renewable energy and allowing feed in tariffs for rooftop solar.

The introduction of TOU tariffs mustn’t be co-opted by Eskom as a means of recovering lost revenue, instead of its intention to recover capacity and reduce the necessity for peaking capacity and alert the consumer to reduce their energy consumption. The time-of-use tariffs must be structured in such a way that it does not affect overall social welfare.

Existing research examining the South African economic sector’s electricity consumption in response to price fluctuations in electricity prices and economic output between 1993 and 2006 does support Eskom’s assumption that price elasticity does not affect consumption; however, this trend was observed at a time of falling real electricity prices; therefore there was no major incentive to reduce electricity consumption.  When real prices started increasing in 2008, the price elasticity coefficient increased markedly in absolute terms. These studies  affirm that aggregate price sensitivity is notably higher when real prices are increasing. While price elasticity estimates remain lower than unity (i.e. relatively inelastic), further price increases may incentivise consumers to substitute alternative energy sources. It is critical that the barriers to renewable energy are removed to allow for rooftop solar as a real alternative, with an effective feed-in tariff, and Nersa should take on the responsibility for ensuring that an enabling regulatory environment for renewable energy is created in South Africa. 

CROSS SUBSIDIES 

Energy poverty persists in the face of these supportive subsidies. Implementation falls short as a result of a myriad of factors, including but not limited to; municipalities’ inability to afford to implementation of the Free Basic Electricity Programmes (FBE), Free Basic Alternative Energy and the Inclining Block Tariff (IBT), the backlog in electrification supports informal connections which render subsidies irrelevant. The FBE is critical in closing energy access gaps; however, this program needs to be expanded to enhance socio-economic outcomes. 

A myriad of measures should be adopted to minimise the burden on subsidy-paying customers; the key among them would  be the expansion of the National solar water heater social programme. The programme has suffered stagnation since 2010 due to technical and institutional challenges.   The programme has also been marred by corruption and maladministration; this was evident by the revelation that of the 87 206 solar geysers procured between 2015 and 2018, 61 000 were delivered, and fewer than 3200 were installed. In addition, there have been reports that 2000 solar panels intended for low-income communities lay wasting away in warehouses accruing additional storage costs. The programme has great potential to equitably provide decentralised access to solar energy and create jobs in the process. Further, the adoption of weatherization programmes- retrofitting low-income households with ceilings and insulation and repairing cracks and holes will improve thermal conditions in the home and consequently improve energy consumption.

RECOVERY OF FIXED VARIABLE COSTS 

We do not believe that the principle of increasing fixed charges to protect Eskom from decline in volumes is in any way a fair and acceptable principle given that volumes may decline due to reasons within Eskom’s control (eg load-shedding and ever increasing electricity prices way above inflation). Consumers cannot be penalised for Eskom’s inefficiency, or its delayed approach to the Just Transition. An enabling environment for renewable energy must be created, which entails limiting fixed charges and facilitating an effective feed-in tariff that enables rooftop solar as part of the electricity mix. We strongly object to increasing fixed charges to protect Eskom from their own negligence. Eskom should be shifting away from coal-fired power stations and instead investing in renewable energy, which is a much cheaper source of electricity.

CONVERSION OF SERVICE CHARGES TO R/POD

Increased service charges that are only aimed at protecting Eskom’s profitability and do not reflect improved services will be strongly opposed. Artificially increasing service charges or fixed charges is absolutely inequitable.

BUSINESS RATE 

The introduction of a subsidy in business rate tariff flies in the face of NDP Critical Action 1: Affordable and reliable electricity is required to grow the economy, raise employment and investment and reduce poverty and inequality. A principle Eskom has seemingly lost sight of, evidenced by their excessive tariff increases and comments by CEO, Andre De Ruyter.  SMMEs have been forced to contend with devastating levels of load shedding, which has had a significantly detrimental impact on businesses and employment figures. Eskom should strive to provide uninterrupted access to electricity before imposing additional tariffs that could potentially squeeze small businesses out, making them unviable. 

HOMEPOWER AND HOMEFLEX

Given the current state of electricity supply in South Africa, and the imperative to shift away from fossil fuels in the midst of a climate crisis, SSEG installations should be enabled and supported, not penalised. Rooftop solar should be seen as an opportunity to improve access to affordable electricity, reduce carbon emissions and stabilise electricity supply. Eskom using this as an opportunity to carve back income is unacceptable. Recognising that investments in the grid are necessary to enable the integration of SSEG, this should be the starting point for assessing the regulatory environment for SSEG. An appropriate feed-in tariff would incentivise consumers to both install SSEG, and feed extra electricity into the grid, with an ability to draw electricity from the grid when needed. However, this does not call for a mandatory homeflex tariff with offset rates for net metering. If consumers are indeed penalised in this way for SSEG, this will create a greater incentive for consumers to invest in off-grid SSEG, which would reduce the possibilities around an integrated, smart metering approach that integrates prosumers and stabilises overall electricity supply. In no way should consumers be penalised for investing in rooftop solar above the necessary costs to integrate SSEG into the grid.

CONCLUSION

Greenpeace Africa urges Nersa to contemplate the objectives of the NDP and the Electricity Pricing Policy in its decision regarding Eskom’s excessive and unacceptably high proposed tariff restructuring. Eskom has lost sight of its mandate to provide affordable electricity, and South Africans should not absorb the costs of Eskom’s maladministration, nor should consumers be penalised for investing in SSEG. In fact, we urge Nersa to take this opportunity to ensure that an enabling environment is created for SSEG/rooftop solar. Eskom must facilitate a just transition away from costly fossil fuels to more affordable renewable energy resources that will provide the co-benefit of providing affordable electricity, while contributing towards our emission reduction commitments as a part of the Paris Agreement.