Ministry struggles to balance electricity proposals with public need for clear, supportable solutions

The draft Electricity Pricing Policy and the Electricity Regulation Amendment Bill are supposed to unbundle and modernise the industry and set policy to balance cost-recovery with affordability, but need more work

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30/03/2022 07:45:06

Ministry struggles to balance electricity proposals with public need for clear, supportable solutions

Electricity regulation and pricing affects all consumers but officials do not make enough effort to ensure that proposed policies and legislation are sufficiently understandable for the public.

This undermines the public participation process.

Not only may this reduce the fitness of the ensuing policy and legislation, it leaves the public with limited understanding of a crucial industry in which public buy-in is essential.

The electricity supply system is in chaos, and is the source of much public anger. Consumers experience massive disruptions, due to load shedding, “load reduction” and power cuts due to system failures, theft, vandalism and mismanagement. This affects everyone. Prices are hiked higher and higher every year, effectively making electricity a luxury item.

Issuing technically complex, clumsily drafted proposals for updated policy and legislation, with the minimum public participation period, does not help demystify the sector or encourage public support.

OUTA has made two submissions to the Minister of Mineral Resources and Energy on 25 March, one commenting on the draft Electricity Pricing Policy and the other commenting on the Electricity Regulation Amendment Bill.

Both documents were issued for comment by the Minister in February.

At the time, the Cabinet explained these documents as part of overhauling the electricity sector. According to Cabinet, the draft Electricity Pricing Policy provides general pricing principles, wholesale energy and transmission pricing structure, and distribution and retail pricing structure; this policy seeks to balance affordable tariffs for low-income consumers with cost-reflective tariffs for other consumers. According to the Cabinet, the Electricity Regulation Amendment Bill aims to broaden the regulatory framework for the electricity supply industry, align this with international best practice, provide for the establishment of a Transmission System Operator and a licencing framework for power generation, transmission, distribution and trading.

OUTA’s comments on the Electricity Pricing Policy

  • The policy is focused on cost recovery but with little acknowledgement that energy must be affordable for all.

  • This policy will affect every South African energy consumer – including those who can’t afford electricity currently – but it is a highly technical document written in a cumbersome way that makes it difficult to use.

  • The drafting is sloppy, with mistakes and lack of clarity in the document.

  • The electricity system must be financially viable, but also geared towards prudent and efficient costs.

  • The policy should ensure that energy related environmental impacts – such as costs of pollution, climate-related levies, waste-disposal and decommissioning costs – are included in the cost of electricity.

  • The policy needs to be designed to avoid situations like the prohibitively expensive Karpowership 20-year “emergency” supply deal, for example, by not allowing long-term contract prices to rise beyond inflation.

  • The policy should be able to accommodate consumers who install their own generation and want to feed back into the grid, rather than penalising them, which will likely drive them off the grid entirely.

  • Charges must be transparent and understandable.

  • Municipalities should not be allowed to add levies onto electricity tariffs to subsidise other services.

  • Costs of keeping the system stable and performance information must be transparent and available in real time.

  • The system operator is required to keep the lights on 24/7, so should be responsible for back up and thus build in fixed downtime for independent power producers (IPPs), rather than expecting all IPPs to have their own generation back up.

  • Customers should be refunded when there are power cuts.

  • Electricity suppliers and consumers should not be disadvantaged by geographical remoteness, so these costs should be carried by the national consumer base.

  • Tariffs should be focussed on providing an affordable and reliable service rather than investor or generator profits.

  • OUTA supports the annual publication of a multi-year price path.

  • A fresh approach is needed on electricity subsidies for the indigent, such as providing solar water heaters and panels to poorer households instead of using lifeline tariffs, to give them better energy security at possibly lower cost to the state.

  • Tariffs should incentivise energy efficiency.

  • The policy should be redrafted to move it away from a conservative system and the use of outdated sources, and instead gear it towards a futuristic energy system. It should then be reissued for public comment, along with a roadshow to better explain it to the public.

OUTA’s comments on the Electricity Regulation Amendment Bill

  • OUTA broadly supports the intention to align the law with the intended restructuring and unbundling of Eskom and to liberalise the electricity supply and distribution industry, and the encouragement of self-generation, embedded generation and distributed generation, as this will help reduce reliance on Eskom and municipal distributors and reduce the burden on Eskom.

  • The bill helps clarify the intentions of government in respect of the unbundling and restructuring of Eskom, the creation of an independent transmission system operator, the establishment of a diversified competitive generation sector, day-ahead electricity, balancing, capacity and ancillary services markets, embedded, distributed and self-generation, co-generation, wheeling and trading.

  • OUTA believes that restrictive policy, legislation and regulations should be modernised to enable consumers to become part of the electricity supply solutions, encouraging more people and businesses to invest in their own systems.

  • The bill is poorly presented, with the numerous cross references making it difficult for the public to understand the implications of the changes and comment, and a need for more clarity and consistency in the definitions of terminology.

  • Discretionary powers of the Minister and the National Energy Regulator should be limited to the maximum extent possible, and more work is needed on this.

  • OUTA supports opening-up of distribution and transmission networks to the wheeling of power from distributed generators to off-takers, in one-to-one, one-to-many, many-to-one and many-to-many wheeling configurations, between both related and unrelated parties. Clauses in the bill restricting this should be removed or amended.

  • There is still too much red tape in connection with opening up the industry, for example, in connection with wheeling and registering embedded generation.

  • A national wheeling tariff framework is needed to enable players to develop cost-reflective  and fair wheeling tariffs.

  • OUTA strongly opposes the current efforts by the South African Local Government Association (Salga) towards enabling the municipalities to gain exclusive executive authority over all electricity distribution and reticulation, including in areas supplied by Eskom and other licenced distributors.

  • OUTA opposes the addition of a new regulated activity by NERSA, namely the licencing of generation and transmission construction activities.

  • The failure to include energy storage in the bill is a concern.

More information

A soundclip with comment on these submissions by OUTA’s Brendan Slade is here.

The draft Electricity Pricing Policy is here and OUTA’s submission on this is here.

The Electricity Regulation Amendment Bill is here and OUTA’s submission on this is here.

Picture: OUTA