Nersa warned South Africa was on a path of de-industrialisation as current electricity price increases were not sustainable both for consumers and suppliers. Photo: Reuters
Nersa warned South Africa was on a path of de-industrialisation as current electricity price increases were not sustainable both for consumers and suppliers. Photo: Reuters

Power price threatens key sectors of economy

By Dineo Faku Time of article published Jul 3, 2020

Share this article:

JOHANNESBURG – The National Energy Regulator of South Africa (Nersa) yesterday warned South Africa was on a path of  de-industrialisation as current electricity price increases were not sustainable both for consumers and suppliers. 

Nhlanhla Gumede, the full-time member of the regulator, said the average cents per kilowatt-hour had jumped to 89.13 in 2017 from 17.91 in 2006 and threatened the viability of key sectors of the economy.  

Gumede said as the price of electricity increased, demand had declined. 

“Are we going to spiral or arrest it? It will not just be enough to arrest the price spiral, we need to find ways to reverse it,” he said.

Gumede said South Africa was de-industrialising primarily due to electricity concerns.

“If you look at sectoral energy demand, demand is dropping from the key sectors, which are major consumers of electricity. 

"The same applies to mining. It is clear that we are de-industrialising,” said Gumede, adding that the residential sector was increasing demand for electricity.

“We are growing the sector that is problematic for the electricity grid. The residential sector should be off-grid,” Gumede said.

Gumede said the mining industry had been one of the biggest casualties of the electricity price increases as electricity had become a significant cost driver for the platinum group metals, gold and chrome mining sectors, raising a question of sustainability. 

He also raised concern that while South Africa was endowed in vanadium and manganese resources, it had lost market share to China in terms of ferrochrome smelting due to electricity costs.

“From what I understand, conversations have already begun with the Department of Mineral Resources and Energy that this situation is going to get worse. 

"Most of the smelters are indicating that at current prices they are left with no choice but to close,” Gumede said. 

He said China has grown in terms of being a ferrochrome producer on the back of South Africa’s endowment, referring to exports of chrome concentrate.

“Unfortunately, when we export unprocessed chrome, we export jobs. 

"When you see trucks on the N4 transporting chrome, they are exporting our jobs, we are exporting our economic growth,” said Gumede. He called for regulatory certainty in terms of prices.

“Regulatory certainty whether you are a consumer, you should be able to predict where your costs are going to go, and attach risk to that as you assess your investment,” he said.

Referring to the thorny relationship between Nersa and Eskom, Gumede said the fights between the parties were about methodology.

“We are fighting about the output of models and methodologies that should have been changed a while back.  

"We are using outdated methodologies to set prices. We are not moving with the times. 

"We should focus our energies on changing the approach,” said Gumede.

Nersa suffered a blow when the high court reviewed and set aside its decisions on Eskom’s regulatory clearing account (RCA) submissions for the financial years 2015 to 2017. 

The judgment meant that Eskom would now be in a position to recover prudent and efficient costs that were incurred in these financial years.

Gumede said the court case had been damaging.

“Kids from the same family, instead of sitting around the table as a family we take our fights to courts. There are no winners, only lawyers are winners,” said Gumede. 

Nersa suffered a blow when the high court reviewed and set aside its decisions on Eskom’s RCA submissions for the financial years 2015 to 2017. 

The judgment meant that Eskom would now be in a position to recover prudent and efficient costs that were incurred in these financial years.

BUSINESS REPORT

Share this article:

Related Articles