Eskom Asks the National Energy Regulator of South Africa for a Total 16 Percent Tariff Increase Over the Next Five Years
Power parastatal Eskom has asked the National Energy Regulator of SA (Nersa) for a total 16% tariff increase over the next five years.
The utility is asking the regulator for 13% for each of the five years for its own needs, plus 3% to support the introduction of Independent Power Producers (IPPs).
The current Multi-Year Price Determination, MYPD 2, comes to an end in March 2013.
Additionally, the power parastatal is proposing that there be a five-year determination for MYPD 3, running from April 1 2013 to March 31 2018. The previous determinations, for MYPD 1 and MYPD 2, have been made over a three-year period.
"Eskom’s five-year revenue request translates into average electricity price increases of 13% a year for Eskom’s own needs, plus 3% to support the introduction of IPPs, giving a total of 16%," said Eskom chief executive officer Brian Dames said on Monday.
The increase represents a total price increase from the current 61 cents per kilowatt hour in 2012/13 to 128 cents per kilowatt hour in 2017/18. This would include targeted savings in operating and primary energy costs.
"We need increase to cover costs… secondly we have a growing economy and we have to invest in our future," said Dames, adding that they must also take into account maintenance work, financing for new capacity, participation of IPPs and striking a balance to protect the poor.
Eskom recognized the energy pressures the country faced.
"In this application, we worked hard to strike a balance," said Dames, who was optimistic that the five-year tariff path would also help give certainty to investors.
"Coal and operation costs have been contained in the application," he said of the energy source that played a big part of Eskom’s input costs.
The request will add up to "just over a cumulative R1 trillion over five years".
The application was based on new capacity, up to the completion of the Kusile power plant and also included the Department of Energy’s peaker plant (a power plant that generally runs only when there is a high demand) of 1 020 megawatts and the renewable energy IPP program that caters for a total 3 725 megawatts of renewable capacity.
Public hearings for the application are expected to be held in January 2013.
Eskom, said Dames, had turned a new leaf since the last tariffs were determined in 2009. Back then, the parastatal had been granted a 25% tariff increase over a three-year period.
As part of the application, Eskom modeled scenarios showing the pricing implications of new build beyond Kusile, in terms of the government’s Integrated Resource Plan 2010, which indicated average increases of 20% over the MYPD 3 period. However, this additional capacity was not included in the tariff requested from the regulator.
Eskom said that for historical reasons, electricity was currently charged at below cost-reflective levels and that was not sustainable.
Eskom also announced that it would soon be submitting an application to Nersa to look into the special pricing agreements which Eskom has with BHP Billiton relating to the aluminum smelters in KwaZulu-Natal.
The special pricing agreements link the price the smelters pay for electricity to the dollar price of aluminum and were entered into in the 1990s when Eskom had surplus generating capacity, which is no longer the case.
Commenting on the submission, Standard Bank senior economist Thabi Leoka said that the request showed a good number.
"It’s a good number; it is similar to the 2012/13 one," she told SAnews.
Asked if the public would be able to absorb the tariff should it be approved, she said: "If we look at growth and consumer behavior, consumers are struggling and the tariff will have an impact on disposable income," she said, adding that the outlook for growth and employment was not "rosy".
In March, the regulator approved a reduced tariff increase of 16% down from the original 25.9% approved in the MYPD 2.
At the time, Public Enterprises Minister Malusi Gigaba said the lower tariff was a result of combined efforts by government and Eskom to reduce the impact of higher electricity tariffs on the consumer as well as the economy, without compromising the utility’s ability to keep the lights on and ensuring its long-term financial sustainability.
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