Eskom’s proposed discount deal for crypto miners questioned

Energy regulator Nersa is expected to soon publish a discussion document for public comment on Eskom’s proposal to sell cheap electricity to crypto miners during the day, when it has a surplus of between 5 000MW and 7 000MW.

However, during a discussion of the proposal at a meeting of the regulator’s electricity sub-committee on 14 September, it became clear that Nersa members themselves still had several questions about the proposal.

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They warned of possible regulatory risks, competition concerns and price discrimination, as well as the possibility that other customers could shoulder the burden.

They also said Eskom should not restrict access to lower tariffs to this particular group of customers.

Surplus power

The proposal stems from a significant reduction in electricity demand during the day, when the sun shines and households and businesses with their own solar systems reduce their reliance on the grid.

The National Transmission Company South Africa (NTCSA) estimates that total rooftop solar generation capacity stood at 9 430MW at the end of August, up sharply from 7 463MW in January.

Crypto-mining operations comprise a number of computers at a site that operate steadily throughout the day and night, with electricity consumption similar to that of many large power users.

The key difference, however, is that crypto-mining operations can be shut down and restarted, or have their electricity consumption rapidly ramped up or down, whereas manufacturing and mining operations generally cannot.

This flexibility could prove very valuable to the system operator, which needs to keep the electricity system stable and balance supply and demand around the clock.

This includes managing the midday lull, when consumers increasingly use solar power instead of electricity from the grid, as well as the evening peak, when demand is high.

It could also help boost Eskom’s declining sales volumes and make use of excess electricity that is currently being dumped.

In addition, it could help Eskom limit curtailment costs, which it pays to generators that are ready to supply electricity but must reduce production due to lack of demand at a certain time.

Read: Crypto miners riding the AI wave are leaving bitcoin behind

Eskom now wants to conduct a two-year, location-based pilot project that would offer discounted tariffs to crypto miners. The contracts would include demand-response obligations for these customers, while Eskom could retain the right to switch off their supply if necessary to help balance the system.

Eskom would have to report on the progress of the pilot to Nersa on a monthly or quarterly basis.

Nersa’s concerns

Nersa members, however, seem sceptical. Acting chair Ria Govender questions why Eskom wants to limit the project to crypto miners.

She cautions that this could constitute price discrimination, which the law expressly prohibits “except for objectively justifiable and identifiable differences approved by the Regulator”.

She says it would be preferable to define qualifying customers according to their load profiles. Any customer that can offer the same flexibility should qualify for the discount.

Govender further says that although Eskom would discount the tariff, it would still need to reflect the true cost of supply.

She emphasises that Nersa would still have to approve the tariff through a separate process.

Full-time regulator member for petroleum pipelines Muzi Mkhize questions whether Nersa has the powers to approve Eskom’s proposal, especially in the absence of a guiding framework like the one drafted by the Department of Trade, Industry and Competition for negotiated pricing agreements (NPAs).

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Nomfundo Maseti, the full-time regulator member for piped gas, cautions against considering tariffs on a piecemeal basis, saying this could lead to unintended consequences.

She points to Eskom’s Retail Tariff Plan (RTP), which Nersa approved as the framework for determining the structure of tariffs, and asks whether the proposal could be accommodated within the RTP.

She further says Nersa must consider the development of a competitive wholesale electricity market. She warns that Eskom’s proposal could raise concerns about market power and undermine competition once the market begins operating.

“It cannot be that Eskom proposes and then Nersa looks at it and only considers the engineering side, without looking at the economic problems that impact consumers and businesses and the functioning of the market,” she said.

Tommy Garner, an executive committee member of the South African Independent Power Producer Association (Saippa), says the issue can be addressed by adjusting the existing time-of-use tariffs.

By reducing tariffs in the middle of the day, when surplus electricity is available, Eskom could stimulate demand. He says the cost of appropriate meters has also come down significantly.

Tariff alternatives

Electricity pricing expert Deon Conradie says there is a distinction between the NPA for large power users and the current proposal.

The NPAs address financial hardship during difficult economic circumstances, while the current proposal aims to absorb surplus electricity.

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He agrees that Eskom should use a pricing signal to increase demand during the day and make it available to all Eskom customers, rather than only crypto miners.

“There are many other customers with the same load profile,” he says.

Conradie also agrees that tariffs must remain cost-reflective and align with the approved RTP. He says Eskom can address the issue through time-of-use tariffs and roll out appropriate meters where necessary.

“The cost of meters is no longer prohibitive and cannot be used as an excuse to refrain from introducing time-of-use tariffs any longer,” he says.