JSE mulls electricity trading platform

Ann Crotty

The JSE had over the years considered an electricity trading platform and it would set one up if there was sufficient appetite, JSE Limited chief executive Nicky Newton-King said yesterday.

However, she added that trading electricity would involve “quite a number of regulatory issues and would require the commitment of Eskom as well as traders”.

Newton-King’s comments to Business Report followed a query from analyst Chris Logan at last week’s release of the exchange operator’s results.

Logan, who has done extensive research into Eskom’s pricing structure, said that for the current financial year Eskom had budgeted R2.5 billion “to pay certain electricity consumers not to consume electricity”. Eskom has not disclosed what it pays industrial users such as Xstrata-Merafe Chrome and Hernice Ferrochrome for electricity that they choose not to consume.

However, the minister of public enterprises said last year that the rate was determined by agreement with the customer “taking into account the business’s unique operational requirements including among others operational flexibility, fixed cost and Eskom’s requirement of no job losses associated with the electricity buy-back. The agreed rate is within Eskom’s cost of generating electricity within the existing fleet.”

Eskom’s cost of producing electricity varies from 53c a kilowatt-hour (kWh) to R1.40. Based on these figures, analysts estimate that industrial users are being paid close to R1.40 per kWh not to use electricity.

For ferrochrome producers, which are suffering from a slump in global demand, Eskom’s buy-back strategy has helped to cushion their profits.

Logan said the JSE could establish a more transparent market that would reduce costs and increase efficiency in the trading of electricity, which would benefit consumers.

Meanwhile, Eskom has yet to make public the contractual agreements between it and BHP Billiton relating to the supply of electricity to BHP Billiton’s aluminium smelters in Richards Bay. BHP Billiton has warned that publication of the negotiated pricing agreements, required by last week’s Supreme Court of Appeal ruling, could have a negative impact on the competitiveness and sustainability of its aluminium business in South Africa.

The Hillside and Bayside smelters, which are estimated to utilise about 5.7 percent of Eskom’s electricity capacity, employ about 3 000 people, including contractors.

In its 2012 annual report, released yesterday, Hulamin chief executive Richard Jacob noted: “The possible closure of BHP Billiton’s Bayside smelter remains a threat and it would result in the curtailment of Hulamin’s growth potential, as the majority of Hulamin’s export sales would no longer be viable using imported rolling slab.”

He was referring to the possibility of expanding Hulamin’s slab casting capacity in Pietermaritzburg or establishing a new slab facility in Richards Bay but he described those options as unattractive.

“Hulamin has noted the public debate around aluminium and electricity in South Africa and has developed a range of alternatives for the future of slab supply,” he said.

One Hulamin shareholder told Business Report yesterday that the alternatives could include the acquisition, in conjunction with the Industrial Development Corporation, of the Bayside smelter if BHP Billiton decided to close it.