Eskom's costs have risen, but SA plants still in 'lowest quartile'

3rd December 2009 By: Terence Creamer - Creamer Media Editor

Power utility Eskom's chief officer: generation, Brian Dames, acknowledged that Eskom costs had risen sharply in recent years, but insisted that the utility's facilities were still operating in the lowest-cost quartile globally.

Speaking at a conference organised by trade union Solidarity, he said that this reality was confirmed in a recent cost benchmarking exercise concluded for Eskom by McKinsey & Company. Further, plans had been put in place to moderate the rate of cost increases to around 8% a year over the next three years.

However, economist Mike Schussler argued that Eskom's costs were out of control and that, while South Africa should have the lowest priced power, owing to its primary energy advantages, it was headed in the direction of being the world's most expensive.

Meanwhile, independent energy analyst Andrew Kenny displayed figures showing that generation costs at a number of coal and nuclear plants in the US had already fallen below those being achieved by Eskom.

Eskom's latest tariff application would raise nominal prices from 33c/kWh to 82c/kWh, which would sustain South Africa as one of the lowest cost suppliers of industrial power. But Dames admitted that South Africa's residential tariffs were no longer anywhere near the cheapest - an issue that should be interrogated, he said.

Schussler concurred, noting that local households were already paying US11,6c/kWh as compared with US14c/kWh in America. But he questioned the logic of continuing to subsidise large industrial customers, whose prices were some 37% of what the average residential consumer pays. In the rest of the world, big users pay about 75% of what small consumers pay.

"The average municipality household paid around R365 a month in 2008, while Eskom customers paid an average of R124 a month," Schussler said, adding that electricity prices also varied markedly from one municipality to the next, with residents in Greater Kokstad paying over R1,50/kWh, while residents in Ba-Phalaborwa were paying less than 60c/kWh.

Eskom's application would have a negative economic impact, but Dames called for a long-term perspective to secure South Africa's electricity supply future.

"There is no easy way out," Dames averred, adding that the 35% tariff increase each year over a three-year period would translate into an average yearly increase of 16c/kWh.