SA introduces levy on power from nonrenewable sources

By Christy van der Merwe, Engineering News, 20/02/2008

Finance Minister Trevor Manuel on Wednesday announced the introduction of a new levy on the sale of electricity from nonrenewable sources, at a rate of 2c/kWh.

The levy would be collected by the National Treasury at source from the electricity generator, such as Eskom or any independent power producer (IPP), and was expected to raise about R2-billion in the 2008/9 financial year, and R4-billion a year thereafter.

Frost & Sullivan energy and environment research analyst Cornelius van der Waal said that the levy came as a surpise, but in the long-term would be a good thing. "It is good in the long run for Eskom, although it is an additional burden on the consumer," he said.

It moved Eskom closer to the initial 20% electricity price increase that it requested from the Energy Regulator.

The generator would not be billed on electricity generated from renewable resources such as wind power, solar power, and small-hydropower stations. Coal, gas, diesel, petrol and nuclear power were all classified as nonrenewable, which meant that almost all power generated by Eskom was nonrenewable and would cost more.

The cost would be passed on to the consumer over and above the 14% electricity price increases already implemented by the National Energy Regulator of South Africa.

"The introduction of a new tax is never a popular move. However, this is an instance where we hope that people will succeed in avoiding the tax," Manuel said.

A National Treasury tax policy official explained to Engineering News Online that the levy would not have an effect on poor households receiving free basic electricity. The impact on higher income households was expected to be less than a 5% increase in the monthly electricity bill, while the effect on ‘intensive users' such as industries operating smelters and refineries, was likely to be a maximum increase of 12% on electricity costs.

It was hoped that the levy would promote increased energy efficiency, and lower demand, and particularly promote the uptake of more efficient technologies on the part of energy intensive industries. "Hopefully, customers would cut back and act more responsibly," the tax policy official reiterated.

So as opposed to saving money by cutting down on electricity usage, all things would even out with the introduction of the levy, cutting down usage just meant the consumer would avoid an additional tax.

"Households and businesses who reduce their consumption by 10% or more, would find that this levy does not affect their monthly costs," Manuel stated in his speech to Parliament.

"There are still a number of practical concerns to be considered," a National Treasury official explained when questioned whether private companies cogenerating power to be fed into the grid would have to pay the levy, which was an excise tax, and duty was to be paid at the source of generation.

With the example of Kelvin power station, which was operated by IPP Aldwych International, and power then sold to Eskom, the official said that it was likely that Aldwych would have to pay the levy to the National Treasury, although that cost increase would likely be passed on to Eskom, and ultimately the consumer.

The South African Chamber of Commerce and Industry maintained that "the levy would have a noticeable impact on business and society in general, and these measures will give impetus to any energy saving programmes advanced".