HomeIndustry SectorsFinance and PolicyEskom: Consumers could face 25% annual electricity hike, warns analyst

Eskom: Consumers could face 25% annual electricity hike, warns analyst

Price increase
Eskom: The power utility has been battling to keep the lights on for South African electricity consumers due to the lack of funds

On Tuesday, a civil society conference in Johannesburg focussed discussions on South Africa’s current electricity situation, where the warning circulated that the country could face the reality of a 25% annual electricity tariff increase.

Eye Witness News reported that energy and mining analyst and former director of coal contracts at Eskom Ted Blom told unions, NGOs and resident associations from across the country that the current electricity crisis was mainly due to collusion.

Unregulated tariff structure

According to Blom, South African electricity consumers are purchasing power from the state-owned power utility Eskom at a price double of which the Anglo-Australian resources company BHP Billiton paid the power utility in Mozambique, located on the southeast coast of Africa.

Blom said that consumers paid between ZAR0.80 and ZAR1.20 per kWh while BHP Billiton was only charged ZAR0.40 per kWh, Eye Witness News reported.

Blom said: “If you run a notional model on Eskom’s normalised price increases from 1994, it should not get to a price of above 40 cents a kilowatt, the excess cost is what we are paying for corruption and inefficiency.”

Identifying the problem

Blom claimed that the resources company was not at fault. He continued: “Billiton is paying below 40 cents but that price moves every month because it’s indexed.”

Blom stated that Eskom was colluding with the National Energy Regulator of South Africa (Nersa): “I firmly believe Nersa lost its teeth years ago.”

According to Eye Witness News Eskom’s war room members were expected to make final submissions on Wednesday and Nersa would take the stand on the last day of the conference.

Earlier tariff hike

In March, Eskom confirmed an electricity tariff increase of 12.69% for direct consumers with effect from 1 April 2015 and 14.25% for municipalities from 1 July 2015 which Nersa approved in November 2014.

Eskom said that its financial status was due to past non-cost reflective tariffs.

The utility also said the delay in recovery of eligible expenditure does not allow the power company’s balance sheet “the ability to pre-fund further costs that are necessitated by a constrained power system such as short term power purchases from independent power producers and municipal generators and the increased use of open cycle gas turbines.”

Eskom said these restrictions are pushing the energy provider to seek alternative solutions for the review of tariff increases for the 2015/16 financial year.

In April, the power company named and shamed the top 20 defaulting municipalities who were indebted to it by an estimated ZAR3.68 billion ($323 million) for the bulk supply of electricity. Since this announcement the company has recouped over ZAR54 million ($4 million).

The Third Multi-Year Price Determination (MYPD3)

In April, Eskom submitted its proposal to Nersa for for the selective reopening of the Third Multi-Year Price Determination (MYPD3) for the 2015/16 to 2017/18 period.

According to Nersa, the parastatal’s selective reopener application requires a cost recovery of ZAR32.9 billion for Open-Cycle Gas Turbines (OCGTs) and ZAR19.9 billion for the Short-term Power Purchase Programme (STPPP).

The STPPP involves Eskom contracting private generating capacity on a short-term basis.

According to Eskom’s application, the selective reopener will result in a total price increase of 25.30% for 2015/16. This will consist of the 12.69% approved by the energy regulator, the 10.10% selective reopener for OCGTs and STPPP, and a 2.51% increase in the environmental levy by ZAR0.02c per kWh, NERSA explained in a statement.

Ashley Theron
Ashley Theron-Ord is based in Cape Town, South Africa at Clarion Events-Africa. She is the Senior Content Producer across media brands including ESI Africa, Smart Energy International, Power Engineering International and Mining Review Africa.