State-owned electricity producer Eskom has confirmed that it has entered into a sales incentive pilot programme with nine large industrial customers in a bid to stabilise sales to electricity-intensive industries.

The two-year sales incentive pilot programme, which commenced on June 1, has the potential to stimulate additional sales of up to 5 TWh and generate revenue of R3-billion over two years, the utility tells Engineering News Online. 

Eskom did not disclose the identities of the customers, but indicated that the companies were in the gold and platinum mining, aluminium, steel, ferrochrome and manganese sectors.

The cash-strapped utility has been hemorrhaging energy-intensive customers over the past ten years, during which industries were forced to adjust both to load-shedding and surging tariffs.

Eskom’s sales to key industrial customers have declined from 90 TWh in 2007/8 to 75 TWh in 2017/18, a fall of nearly 17%. Over the same period, national sales have declined 2%, from 214.8 TWh to 210.3 TWh over 10 years, with key industrial customers currently comprising 36% of national sales, having represented 42% in 2007/8.

Under the pilot programme, dubbed ‘the offer', large customers are incentivised to increase their base sales, compared to a historical baseline, while tariffs and tariff structures remain unchanged.

“The pilot programme is a standard offering to all customers whose current consumption is more than 100 GWh a year. The volume of incentivised incremental sales on offer is limited and applications are evaluated against set criteria and finalised through a standardised contractual agreement,” Eskom explains.

The actual revenue impact will be dependent on the success of the scheme.

Eskom reports that it has discussed the pilot with the National Energy Regulator of South Africa (Nersa), but a formal engagement would arise only should it be permanently implemented, or if a change to the current tariff structure is proposed.

In parallel, Eskom is investigating a new ‘Industry Tariff’ intended to facilitate the stabilisation and growth of sales to electricity intensive industries.

“The case for it rests on the fact that electricity prices contribute significantly to the competitiveness of these industries, coupled with the fact that the closure or cutback of such industries negatively impacts Eskom and the South African economy as these industries also support upstream and downstream industries.”

INDUSTRY TARIFF?
The proposed ‘Industry Tariff’, should it proceed, would essentially involve a shift to more cost-reflective tariffs by recognising the high load factor impact on Eskom’s unit energy cost and minimising cross-subsidy contributions.

The current tariffs charged by Eskom to the large high-voltage customers, such as key industrial customers and metros, contain a number of explicit and implicit subsidies, cross-subsidies, levies, surcharges and special taxes that, in some cases, represent more than 12% of the total cost paid.

“The proposed new tariff is still being consulted on and developed and the optimal mechanism for implementation is to be decided. In principle, the new tariff could also apply to qualifying customers within municipal supply areas; however appropriate agreements would be required to implement this,” Eskom explains.

In addition, the tariff will be subject to other criteria such as assistance with load control should the system be constrained.

“The Industry Tariff is at the early stage of development, but we are engaging with the inter-governmental team established by the Department of Public Enterprises.”

Separately, Eskom has also entered into a Nersa-approved special pricing agreement (SPA) with Silicon Smelters for two years and it reports that the regulator is currently processing a second application.

The Silicon Smelters SPA has resulted in the resumption of ferrosilicon production at the company’s Polokwane and eMalahleni smelters, where production was halted in 2016, largely as a result of higher electricity tariffs.