May 17, 2013
Monopoly on power must endBack
Cogeneration|Eskom|Frost|PROJECT|Projects|System|South Africa|Ancillary Services|Cogeneration|Energy|Energy Charge|Energy Mix|Energy Production|Energy-charge Component|Power Producers|Cogeneration|Cornelis Van Der Waal|Eskom|South Africa
© Reuse this
Since the National Energy Regulator of South Africa (Nersa) decided to grant Eskom an 8% increase, instead of the requested 16% average increase a year over five years, new project development will prove to be one of the biggest challenges in Eskom’s long-term planning, he says.
Eskom admits on its website that the introduction of private-sector generation has multiple benefits. “It will contribute greatly to the diversification of the supply and nature of energy production, assist in introducing new skills and capital to the industry and enable the benchmarking of performance and pricing,” states the utility.
Eskom further states on its website that its application for revenue over five years translated into an average price increase of 13% for its needs and 3% to support the introduction of IPPs into the country’s energy mix, amounting to 16%. “This is a nominal price increase of 67c/kWh from the current average of 61c/kWh in 2012/13, to an average price level of 128c/kWh in 2017/18,” says Eskom.
The approved 8% tariff increase, which was implemented by the utility on April 1, implies that there will be an increase on the homelight 20A customers consuming up to 350 kWh/m, which will be equivalent to an inflation of 5.6%.
The average price increase for all other residential customers with homelight 60A and homepower will be 8%. Nersa points out in a report, released on February 28, that this will be in line with the third multiyear price determination (MYPD3) Eskom control period, which runs from 2013-2017.
All tariff cross-subsidies, both received and paid, must be shown transparently. These subsidies pertain to affordability subsidies, low-voltage subsidies and historic electrification and network subsidies in large power customer urban tariffs.
Nersa also notes in the report that the use-of-system charges must be based on the cost-per-voltage level for all large power customers. Where there are low-voltage subsidies, these must be transparently shown as a low-voltage subsidy charge.
The report explains that the reliability and service charge covering the cost of providing ancillary services, embedded in the energy charge, must be unbundled for large power tariffs. “The environmental levy charge must be included in the energy-charge component of the tariff and not shown separately. Eskom must ensure that alternative tariff options, other than time-of-use tariffs, are available to municipalities that have a predominantly residential load mix,” the report further states.
The overall costs have increased by 178.60% from the last year of the MYPD2 (2012/13) to the first year of the MYPD3 (2013/14). Some of the reasons provided for the tariff hike are the funding of electrification, new connections and an increase in customer-service costs to improve revenue collection in Soweto.
In the absence of proper justification for the increases and project list, Nersa said it limited the increases to inflation-related increases and expected capacity expansion for the MYPD3 control period, resulting in an adjustment of more than R47-billion.
MYPD3 Control Period
The cost of basic natural resources used to produce electricity, including coal, water, biomass and sorbent, which excludes the IPPs, will increase at an average of 8.6% a year for Eskom requirements and by 10% a year once IPPs are incorporated, highlights Nersa.
“Eskom’s operating costs increase by an average of just more than 8% a year. These costs include the maintenance of existing plant and employee costs. Eskom currently has more than 44 000 people on its payroll and this will increase to 45 500 over the MYPD3 period. Most of Eskom’s power stations are in their midlife and require substantial spending on mainte- nance and refurbishment if their performance is to be sustained and improved,” outlines Nersa.
“This means that maintenance costs will continue to increase at a higher rate than that of inflation. Depreciation is set to rise at a yearly average of 10% over the MYPD3 period as we phase in the depreciated replacement valuation method as per government’s Electricity Pricing Policy,” Nersa explains.
Eskom points out that it is crucial that the private sector plays a role in dealing with the future electricity needs of the country. This will reduce the funding burden on government; relieve the borrowing requirements of Eskom; and introduce generation technologies that Eskom may not consider as part of its core function, which may play an important role in the future electricity supply options, particularly off-grid, dis- tributed generation, cogeneration and small-scale renewable projects.
“Given Nersa’s decision, Eskom would still like to remain the baseload supplier in the country. Therefore, it is important for Eskom to maintain its plans for projects such as those for capacity expansions. However, Eskom must find and secure ways to fund these projects, as a lack of funding is limiting its progress,” Van der Waal concludes.
Edited by: Tracy Hancock© Reuse this Comment Guidelines
Other Electricity News
Updated 16 minutes ago Work on the 2 067 MW Laúca hydropower station, in Angola’s Kwanza riverbed, has started. The country aims to have the facility commissioned by the end of 2017, says Angolan State-owned power utility Empresa Nacional de Electricidade de Angola (ENE) international...
Updated 16 minutes ago The use of biofuels, as a renewable-energy source, presents the potential for numerous environmental, energy security and efficiency benefits to the South African economy, says law firm ENSafrica senior associate environmental law division senior associate Andrew...
Recent Research Reports
Steel 2014: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2014 report provides an overview of the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon steel and stainless...
Projects in Progress 2014 - First Edition (PDF Report)
This publication contains insight into progress at the delayed Medupi and Kusile coal-fired projects, in Mpumalanga and Limpopo respectively, as well as at the Ingula pumped-storage scheme, which is under construction on the border between the Free State and...
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
This Week's Magazine
Updated 14 minutes ago The Electronic Systems Laboratory (ESL) of the Department of Electrical and Electronic Engineering at Stellenbosch University is strongly reaffirming its position as one of South Africa’s leading centres for satellite technology and expertise. It is currently...
Updated 14 minutes ago The world’s lowest-cost diesel-electric locomotive is not made in China, but in Pretoria, at RRL Grindrod Locomotives’ newly upgraded 30 000 m2 plant. The company’s locomotive pricing is “more competitive than any other original-equipment manufacturer (OEM)...
Updated 14 minutes ago The South African Defence Review 2012, released to the public at the end of last month (despite the year given in its title) recommends the creation of the post of Chief Defence Scientist. This official would be responsible for the management of defence technology...
Updated 14 minutes ago AltX-listed engineering technology company Ansys has been awarded an R188-million contract by Transnet to supply integrated dashboard display systems to the freight rail utility’s locomotives. Black-owned and controlled Ansys developed the bespoke integrated system...
Updated 14 minutes ago South Africa’s sole nuclear power station Koeberg, which is located in the Western Cape, breached a major operations milestone on April 4, which marked the thirtieth anniversary of Unit 1 having been connected to the grid. Eskom, which operates the two-unit plant,...