May 17, 2013
Monopoly on power must endBack
Africa|CoAL|Cogeneration|Consulting|Eskom|Frost|PROJECT|Projects|Resources|System|Water|Africa|South Africa|Ancillary Services|Cogeneration|Energy|Energy Charge|Energy Mix|Energy Production|Energy-charge Component|Maintenance|Power Generation|Power Producers|Power-generation|Service|Services|Environmental|Cogeneration|Cornelis Van Der Waal|Eskom|Power|Water|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 (150 word limit)
Other Electricity News
Updated 5 hours ago China appears to have been routinely underestimating output from its sprawling steel sector, with official figures for last year alone 40-million tonnes below a key industry estimate - an amount equivalent to Germany's entire annual production. Beijing has vowed to...
Recent Research Reports
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
This Week's Magazine
South Africa remains an important manufacturing and export platform for Ford Motor Company, says executive chairperson Bill Ford. However, he adds that other countries on the continent are “becoming interesting”, and that the US carmaker is casting its net wider for...
Germany’s Max-Planck-Society (MPG) and the Max-Planck-Institute for Radio Astronomy (MPlfR) are investing €11-million (about R150-million) into South Africa’s MeerKAT radio telescope array programme. The money will be used to design, build and install S-band radio...
Infrastructure spend in sub-Saharan Africa will grow from $70-billion in 2013 to $180-billion by 2025, says PwC capital projects and infrastructure Africa leader Jonathan Cawood. This is one of the findings of PwC’s Capital Projects & Infrastructure report on East...
Private-owned defence and aerospace manufacturer Paramount Group and the Ichikowitz Family Foundation unveiled its Anti-Poaching Skills and K9 Training Academy in Magaliesburg last month.
The inclusion of Bluetooth to provide sub-three meter accuracy and heightened functionality for users is one of the ways to change existing wireless networks into engagement networks. An engagement network differs from common wireless networks in that it enables the...