Eskom: Additional steep tariff hikes wanted to achieve cost-reflectivity

Even with the 15.63% tariff hike to be applied on April 1, Eskom considers its electrical energy tariffs to be removed from cost-reflective.

To convey it to cost-reflectivity would have required a tariff leap to 150c/kilowatt hour (kWh) on common, as a substitute of the 134c/kWh relevant from April 1, says Eskom’s normal supervisor Laws, Hasha Tlhotlhalemaje.

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This interprets to a rise of 29%.

Eskom hopes to shut this hole over the following three years and power professional Chris Yelland, MD of EE Enterprise Intelligence, expects Eskom to gun for an extra 15% enhance within the common tariff in 2023.

‘Step change’ 

The considering at Eskom is that this could give it the step change it says it wants, whereafter will increase could be linked to the patron value index (CPI) .

The introduction of a carbon tax subsequent 12 months and the connection of extra impartial energy producers (IPPs) promoting electrical energy to Eskom at predetermined costs might nevertheless end in even larger will increase.

As well as, the anticipated massive will increase might be much less of an answer to Eskom’s woes, specialists say.

It might have a dramatic influence on Eskom’s gross sales volumes, as various sources of power develop into extra viable and residential, industrial, and industrial clients embrace the comfort of rules that makes it simpler to self-generate energy or purchase from IPPs.

When it comes to the Electrical energy Regulation Act an environment friendly operator is entitled to get well its value plus an inexpensive return by way of electrical energy tariffs.

It’s due to this fact clear that customers mustn’t pay for wastage and corruption.

Eskom has been at loggerheads with power regulator Nersa for years and its view that it has been shortchanged has been vindicated by way of quite a few court docket victories. The courts have discovered that Nersa failed to stay to its personal methodology and acted irrationally in figuring out Eskom’s tariffs since 2014.

The corrections following these court docket rulings have already resulted within the present 12 months’s enhance rising from the 5.22% Nersa earlier decided to the 15.63% as introduced.

Additional will increase

Except Nersa succeeds with a pending attraction, there may be no less than an extra nearly R60 billion compensation that Nersa – and due to this fact the patron – owes Eskom.

This pertains to Nersa’s choice to subtract the three tranches of fairness injections of R23 billion per 12 months that authorities awarded Eskom from 2019/20 to 2021/22 interval from Eskom’s allowable income.

In a court docket settlement final week, Nersa agreed to provisionally add R10 billion of the whole of R69 billion to electrical energy tariffs, which sealed the 15.63% enhance.

Precisely what the long run tariff path will probably be stays to be seen.

Eskom’s present tariff interval ends on March 31 subsequent 12 months and it has not but submitted its software for the following three years – the fifth multi-year value willpower interval (MYPD5).

Moneyweb has learnt that carbon tax alone, which Eskom must pay from January 1 subsequent 12 months, can add an extra 5 proportion factors to Eskom tariffs over a full monetary 12 months.

Extra IPP prices are additionally not included.

Buying from independents

For 2021/22 Nersa has included R40 billion in Eskom’s allowable income to pay for energy purchases from IPPs.

Eskom has no management over the tariffs at which it buys electrical energy from IPPs, as that is predetermined by the Division of Mineral Assets and Power. These prices are merely handed by way of to customers in electrical energy tariffs.

The quantity will enhance as extra IPPs are anticipated to achieve industrial operations and additional add to the 150c/kWh Eskom says it must be sustainable.


On the presentation of its annual outcomes for 2019/20 Eskom confirmed how its gross sales had dropped since 2015 – in stark distinction with its sharp enhance in income.

Supply: Eskom

Yelland says the anticipated sharp will increase will solely speed up the discount in Eskom’s gross sales volumes.

A view that rising tariffs can remedy all Eskom’s issues is due to this fact too simplistic, he says.

Prospects throughout the board will more and more search for options.

Nersa’s electrical energy subcommittee has not too long ago really helpful the approval of a licence for Gold Fields to assemble its personal 40 megawatt (MW) era plant and lots of of Eskom’s different massive energy customers will comply with, Yelland says.

Personal-generation licence threshold

Municipalities have been given the inexperienced mild for personal era and direct energy purchases, and in his State of the Nation Address President Cyril Ramaphosa introduced that the edge of 1MW for the onerous licensing of era vegetation will probably be lifted.

If business’s name to carry it to 50MW succeeds, it might end in 5 000MW of latest era capability impartial of Eskom, latest analysis exhibits.

Yelland says Eskom has no possibility however to downscale era and fully reinvent its enterprise.

Compelled to search for options

David Mertens of the Affiliation of South African Chambers says the 15.63% enhance is already an enormous shock to enterprise. He agrees that this and additional will increase will pressure customers to search for options and will probably be counterproductive for Eskom.

Mertens expects a discount of round 5% in gross sales volumes however says massive energy customers must decide if they’ll actually develop into impartial at a price decrease than that of Eskom’s energy.

He warns although that if Eskom’s energy provide stay unreliable, even value limitations will not be sufficient for purchasers to stay reliant on Eskom, as safety of provide is paramount for them.