Embattled electricity utility Eskom has made shock adjustments to its revenue application currently before the National Energy Regulator of South Africa (Nersa), which, if approved, would translate into tariff increases that are even higher than the 15% a year hikes sought in its initial application.
Eskom used the first day of the Gauteng leg of nationwide public hearings to unveil several material changes to its sales and production assumptions for the three years covered by the fourth multiyear price determination (MYPD4) submission before the regulator.
The changes, announced by CFO Calib Cassim in Soweto, means that the utility is now seeking yearly hikes of 17.1%, 15.4% and 15.5% for 2019/20, 2020/21 and 2021/22 respectively.
These requested increases do not include the 4.41% upward tariff adjustment already approved for 2019/20, following Nersa’s decision to allow Eskom to recover R32.7-billion, over a four-year period, arising from its adjudication of Regulatory Clearing Account (RCA) applications for 2014/15, 2015/16 and 2016/17.
They also don’t cater for any adjustment that could be made during the upcoming three-year tariff horizon as a result of Eskom’s RCA submission for the 2017/18 financial year. The utility is seeking to recover a further R21.5-billion and is proposing that the amount be recovered by means of a 2.8% additional hike in 2020/21, which would be included in the tariff base until 2022/23.
Eskom’s revised application is based on a lower sales forecast for the coming three years, as well as material adjustments to its production plan as a result of a decision to shut 24 coal units, primarily at the Hendrina, Grootvlei and Komati power stations.
Eskom is now forecasting sales of 210 953 GWh for 2019/20, having previously forecast sales of 215 507 GWh. Likewise, it has reduced the sales outlook for 2020/21 and 2021/22 to 211 012 GWh (216 196 GWh) and 212 007 GWh (218 292 GWh).
Cassim attributed the reduction in the sales outlook partly to a lower export sales forecast, which had been adjusted as a result of lower capacity by some countries in the region to pay for Eskom supply.
Several Nersa panellists questioned whether the weak sales outlook should not, instead, be attributed directly to the strain ongoing electricity price hikes were placing on consumers. Cassim responded that its analysis pointed to demand remaining relatively inelastic, apart from in certain vulnerable sectors, such as gold and platinum mining.
Minerals Council South Africa has warned that the hikes being sought could “render almost all gold operations (95%), representing 96% of gold production, loss-making or marginal in a short period of three years, threatening a total of 98 509 jobs”.
COAL SHUTS & NEW BUILD REVISIONS
Eskom also announced major updates to its assumptions regarding the composition of its coal fleet, the introduction and performance of the Medupi and Kusile power plants, as well as the energy availability factor (EAF) that could be achieved from the downsized fleet.
Manager responsible for generation Brad Ross-Jones told Nersa that, while the initial MYPD4 application assumed that no production would be required from Grootvlei, Hendrina and Komati over the three-year period, Eskom had allocated capital to the plants with the intention of ensuring that 12 units could be returned to service within 12 months.
The revised plan envisaged all three stations shutting down, with the ‘dead-stop dates’ scheduled for all their generating units during the MYPD4 period. No capital expenditure had been budgeted for the plants, which would also be removed from the regulated asset base component of the revenue application.
Nevertheless, the closure decision, together with further delays to the introduction of Medupi and Kusile and a lower EAF, would result in a higher use of the expensive open-cycle gas turbines, including those owned and operated by independent power producers.
The new assumed EAF for the coal fleet was outlined as being 71.5% for 2019/20, 72.5% for 2020/21 and 73.5% for 2021/222, as opposed to 78% assumed in the original MYPD4 application.
ONGOING MEDUPI & KUSILE HEADACHES
Technology GM Dr Titus Mathe reported that the timetable for the remaining Medupi and Kusile units had been extended, while the EAF for both plants had been reduced, owing to serious performance and commissioning problems.
The final completion date for the last Medupi unit had been shifted to November 30, 2019, from May 31, 2019, while Unit 6 at Kusile is still expected to be finalised by June 30, 2022.
Three Medupi units and one Kusile unit were currently in commercial operations, but the units were operating at EAFs of between 60% and 70%, which was well below the 92% target.
Mathe also revealed that during the 2018/19 financial year there had been a total of 87 trips across Ingula, Medupi and Kusile, 66 of which had occurred at Medupi and 18 at Kusile.
Nevertheless, he said Eskom had diagnosed where the problems lay and would be working with contractors to find technical solutions for the main defects over the coming months. Implementing these solutions, however, would take years.
In light of changes to the assumptions, Cassim said the gap in Eskom’s debt-service cover would rise from R50-billion to R71-billion over three years should the increases be capped at 15%. Instead, Eskom required even higher increased to secure total allowed revenue of R219.5-billion in 2019/20, rising to R291.6-billion in 2021/22.