Historic underspending on transmission may cost NTCSA dearly

Energy regulator Nersa is set to disallow some of the funds Eskom has applied for in its revenue application for crucial grid expansion, based on Eskom’s historic underspending of allocations for capital projects in its transmission operations.

The only question now seems to be how much will be granted.

Since the utility’s revenue is determined by electricity tariffs, this is one of the factors Nersa will consider when it decides by how much Eskom tariffs will increase in each of the next financial years.

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The capital allocation for transmission was discussed at a meeting of the regulator’s electricity sub-committee (ELS) last week about Eskom’s controversial application for an increase of 36.15% next year, 11.81% in 2026/27 and 9.1% in the final year of the three-year tariff period, 2027/28.

The application has been met with fierce resistance from residential users as well as large power users.

Goverment may ‘limit increase’

Minister of Electricity and Energy Dr Kgosientsho Ramokgopa said electricity is already unaffordable even for middle-class consumers and civil servants. He hinted that government may get involved to limit the increase, without giving any detail. No announcement has yet been made in this regard.

Read: The price of prepaid: City Power vs Eskom

The ELS meeting was open to the public, as is usually the case – but committee members, who had the numbers that Nersa is considering before them, were careful not to let them slip for outsiders to hear. They spoke in broad terms and ended the meeting with certain recommendations to the energy regulator.

The regulator is expected to make a final determination in the coming week.

In considering Eskom’s application, it discussed Eskom generation, distribution and its transmission subsidiary, the National Transmission Company of South Africa (NTCSA), separately.

Considerable discussion went into the NTCSA allocation for capital works for expanding the transmission grid.

The NTCSA’s total application is for revenue of:

• R100 billion in 2025/26
• R115 billion in 2026/27, and
• R155 billion in 2027/28.

It projects that its revenue will increase to R202 billion in FY2020.

That would form part of R446 billion, R495 billion and R537 billion Eskom has applied for for the three years respectively.

In the NTCSA’s application it sets out that the following is needed for capital projects:

Source: NTCSA

This shows the capital budget more than doubling from the current financial year to the next, and again almost doubling over the three years of the tariff period.

These numbers, the meeting heard, are based on NTCSA’s ambitious Transmission Development Plan (TDP) that looks 10 years ahead and was updated last year.

Read: Electricity: Municipalities, grid constraint top 2025 to-do list

Meeting demand

In terms of the plan, 56 000MW of new generation capacity will need to be integrated to the transmission network between 2025 and 2034. That is more than double Eskom’s current installed generation capacity of 48 000MW.

 “To meet this demand, 14 500km of new transmission lines and 210 transformers, providing 133 000MVA of capacity, will be required,” NTCSA interim CEO Segomoco Scheppers said earlier.

Grid congestion is currently slowing down the country’s transition to low-carbon renewable energy as the grid is saturated in the regions with the best wind and solar resources – these being the Eastern Cape, the Western Cape and the Northern Cape.

As a result, there is fierce competition for grid access, and government’s Renewable Energy Independent Power Producer Procurement Program (Reipppp) has had limited success.

Read:
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Projects left stranded

In Reipppp Bid Window 6 (BW6), a total of 23 wind projects were left stranded due to lack of grid connection – and the results in BW7, announced in December, again showed no successful wind projects.

Eskom has suggested that more than 3 000MW of capacity may be freed up by expanding the curtailment framework, but there is little doubt that the sustainable solution is aggressive grid expansion.

From the discussion during the ELS meeting, it was clear that the intention is to disallow a portion of the amount NTCSA wants for capital expenditure.

Nersa chair Thembani Bukula, however, raised concern that “we may cut too deep”, and suggested that the recommendation to the energy regulator about cuts to this portion of the allocated revenue be reconsidered.

Other members supported this.

The meeting heard that Eskom has underspent its capital allocations for transmission by a considerable margin year after year in the past, which raises doubt about Eskom’s ability to scale up its capacity to execute grid expansion.

Read/listen: Power problems: Eskom struggles with grid expansion funding

Asked what has changed for it to perform better during the tariff period, it said the NTCSA being an independent subsidiary after its unbundling from Eskom makes all the difference.

In the past, while operating as a division within Eskom, the allocated money was used by the generation division, which was in crisis, the committee heard.

Facilitating inefficiency

Bukula said if Nersa “cuts too deep”, it would be questioned for allowing independent power producers (IPPs) to develop generation plants while making it impossible for the NTCSA to provide them with grid connections.

The committee decided to reconsider that part of the recommended tariff determination before it is submitted to the energy regulator.

Other matters the committee discussed include the amount Eskom generation applied for for the maintenance of Eskom’s new power stations Medupi and Kusile.

They argued that power stations that are this new should not require that much maintenance, and allowing the full amount Eskom wants would be tantamount to facilitating inefficiency.

It also frowned upon the high staff costs of the generation division and mentioned that a small allocation may be included in the revenue determination relating to arrear debt owed to Eskom.

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Many stakeholders have criticised Eskom’s application for such funds, saying it would place the burden of non-paying customers on those that are regularly paying for the electricity they use, which is inherently unfair.

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