earthlife africa jhb mypd2 submission

Earthlife Africa JHB MYPD2 Submission

Table of Contents

1. Kusile & Equity

2. Eskom Costs

3. Eskom Generation

4. Eskom Revenue

5. Free Basic Electricity


Recommendation 1: Funding for Kusile should not be in the MYPD2 period as cheaper forms of CAPEX currently exists.

Recommendation 2: Private equity in the public electricity sector should not be considered a source of funding as it is contrary to the public good.


““...equity is the most ...equity is the most expensive form of funding, expensive form of funding, which will have an adverse which will have an adverse impact on tariffs in the long impact on tariffs in the long

run.”run.”--Eskom


Costs

• Eskom's costs may be set too low

• Oil & coal projections may be too low

• No indication of a plan to reduce risk

to liquid fuel volatility

• Externalised costs ignored

• Continued reliance of fossil fuels


Recommendation #3: NERSA examines Eskom's vulnerability to oil prices and its possibly erroneous assumptions of predicted oil pricing. Eskom cannot be allowed to claim costs for OCGT if it does not take reasonable steps to mitigate (i.e. alternative sources of peak power, hedging, future contracts, etc.) volatility and increases above and beyond assumed.

Recommendation #4: Energy efficiency is cheaper than OCGT (either used as peaking or supplementary base load) and this should be given priority over OCGT.


Recommendation #5: NERSA to examine water and coal issues at Medupi before granting tariff increases. A rigorous examination would be well within the ambit of the Regulator.

Recommendation #6: NERSA examines Eskom's coal figures in light of long-term trends.

Recommendation #7: NERSA includes the externalised costs of not complying with the Air Quality Act 2004 into the costs of coal-fired generation, as mandated by the White Paper.


""An increase in export prices will An increase in export prices will also result in capital allocation also result in capital allocation

towards the export market which towards the export market which will further delay the opening up will further delay the opening up

of new coal mines for Eskom of new coal mines for Eskom supply."supply."--Eskom


Recommendation #8: NERSA to mandate that R&D costs should be spent on renewable energy, energy efficiency and smart grid technology.

Recommendation #9: NERSA to make public the details of Eskom's R&D costs.

Recommendation #10: NERSA to recognise that Eskom can internalise externalised costs and that, having done it in terms of road maintenance, that it continues this practise in other cost categories.


Recommendation #11: NERSA to ensure that Eskom, for the MYPD2 period, maximise imports into South Africa as an alternative to new generation, as this would smooth out CAPEX and reduce the need for high annual increases.

Recommendation #12: In conjunction with tariff reform, NERSA must examine the financial viability of Eskom's balance of payments with regards to import and export prices.


Recommendation #13: Given that high carbon emissions represent a major risk (not only to Eskom but to South Africa as a whole), NERSA should require Eskom to formulate a urgent mitigation strategy and not grant revenue that is contrary to mitigation measures.

Given the low probability of CCS being available soon enough to mitigate carbon emissions, Eskom has no choice but to expand its generation mix and stop building coal-fired power stations. The only practical and cost-effective manner is to invest heavily in renewable technologies and energy efficiency.


"One of the plants we are "One of the plants we are building is CCS ready, building is CCS ready,

although to be quite frank no although to be quite frank no one really knows what that is one really knows what that is

at the moment."at the moment."--Steve Lennon, Eskom


Generation

• Serious cost overruns

• CAPEX R84bn to R385bn in 3 years!

• Medupi R60bn to R120bn!

• Kusile R85bn to R111bn!

• DSM limited despite being cheapest

option.


Recommendation #14: On the basis of financial sustainability, prudence and cost-effectiveness, NERSA should not base any tariff increases on any form of nuclear CAPEX.


Recommendation #15: NERSA to reform tariff system so that energy efficiency is attractive for Eskom.

Recommendation #16: Industrial tariffs (especially for SPAs and International End Users) to rise significantly in order for energy efficiency measures to become economically attractive.

Recommendation #17: The Regulator examines the PCP in order to prevent it become a liberalised energy market, thus under-cutting the power and purpose of NERSA.


"The capital cost of the DSM "The capital cost of the DSM programme...is significantly programme...is significantly lower than any supply-side lower than any supply-side

option."option."--Eskom


Revenue

• Tariff system is broken

• 2009 losses include R9.541bn on

aluminium and foreign currency linked

embedded derivatives

• Eskom selling below cost of

production


Recommendation #18: Eskom abolishes its current practice of selling below the average cost of production; i.e. NERSA should use Eskom's average cost of production as the minimum tariff for all customers (including SPAs and Export), excluding Free Basic Electricity.

Recommendation #19: NERSA to publish the entire contracts of industrial users, SPAs and export arrangements.

Category

Redistributers 769.00 0.01763% 88,345.00 41.12% 20,579,000,000.00 38.36% 0.2329 0.2763 -0.0434 -3,830,723,500.00

Residential 4,223,708.00 96.85167% 10,392.00 4.84% 5,552,000,000.00 10.35% 0.5343 0.2763 0.2580 2,680,690,400.00

Commercial 47,603.00 1.09156% 8,642.00 4.02% 2,732,000,000.00 5.09% 0.3161 0.2763 0.0398 344,215,400.00

Industrial 2,935.00 0.06730% 54,815.00 25.51% 11,887,000,000.00 22.16% 0.2169 0.2763 -0.0594 -3,258,384,500.00

Mining 1,144.00 0.02623% 32,177.00 14.98% 7,439,000,000.00 13.87% 0.2312 0.2763 -0.0451 -1,451,505,100.00

Agriculture 84,329.00 1.93370% 4,913.00 2.29% 2,249,000,000.00 4.19% 0.4578 0.2763 0.1815 891,538,100.00

Traction 509.00 0.01167% 2,918.00 1.36% 869,000,000.00 1.62% 0.2978 0.2763 0.0215 62,756,600.00

7.00 0.00016% 3,525.00 1.64% 978,000,000.00 1.82% 0.2774 0.2763 0.0011 4,042,500.00

3.00 0.00007% 9,123.00 4.25% 1,356,000,000.00 2.53% 0.1486 0.2763 -0.1277 -1,164,684,900.00

Number of Customers

Percentage of Total

Customers

Consumption in 2009

(GWh)

% of Total Consumpti

onEskom Revenue

2009

% Revenue

from electricity

sales

Eskom Revenue 2009 R per kWh

Eskom Average

Total Cost per Unit Sold (R/kWh)

Differential between Revenue and Total

Cost

Profit/Loss (Revenue/Average

Cost per Unit), Rands

International Utilities

International End Users

Eskom Average Costs vs. Revenue 2009. (Derived from pg. 228 of Eskom's 2009 Annual Report)


““The year-end valuation of these The year-end valuation of these contracts – embedded derivatives contracts – embedded derivatives – resulted in an accounting loss of – resulted in an accounting loss of R9,5-billion. They are clearly not R9,5-billion. They are clearly not

sustainable."sustainable."--Bobby Godsell, ex-Eskom


““they are problematic not only in they are problematic not only in price, but also because they price, but also because they

impose an accounting uncertainty impose an accounting uncertainty on Eskom that makes proper on Eskom that makes proper strategic management of its strategic management of its resources very difficult.."resources very difficult.."

--Bobby Godsell, ex-Eskom


Recommendation #20: Taxes from Eskom to be reinvested into Eskom's renewable build, energy efficiency and/or FBE.

Recommendation #21: That the level of debt be raised through Government loans.

Recommendation #22: NERSA to set Eskom's rate of return to 0%.


Free Basic Electricity

• Vital for poverty eradication

• Earthlife is in the process of finalising

research and will share with NERSA

• Eskom's proposals are inadequate

and shameful


Recommendation #23: A minimum of 200kWh per month of FBE.

Recommendation #24: The best option is a national step-block tariff with a free allocation and without means testing and limited connections (i.e. 60amp instead of 20amp).


Recommendation #25: No tariff increases should be granted without a meaningful FBE that will realistically protect the majority of the population from tariff increases.

Recommendation #26: Pre-paid metres must be optional and not forced on to poor households.


Conclusion

• NERSA cannot grant increase as too

much is wrong with Eskom's

submission

• Tariff reform, RE CAPEX, and FBE

are all required

earthlife africa jhb mypd2 submission

Documents

south africa

mypd2 period

costs of coal

eskom supply

eskom costs3

eskom generation4

eskom revenue5

details of eskoms rd