Why Eskom needs to increase electricity prices

Eskom has explained that it needs to increase electricity prices to meet the cost of producing the power it provides to South Africans.

Responding to queries from MyBroadband, Eskom said the recurrent equity injections from the government required to keep the power utility running were due to an electricity pricing issue.

“As is evident, Eskom is not recovering the efficient cost of the electricity,” the power utility said. “Thus Eskom is subsidising all consumers of electricity.”

“This is because the price of Eskom electricity is below the efficient cost that it takes to produce that electricity.”

“This explains the further and further debt requirements and equity injections from the government, Eskom’s shareholder,” the power utility said.

Eskom is working with the national energy regulator of South Africa (NERSA) to raise electricity tariffs to a level where it will be able to recover the efficient cost of electricity from consumers, it said.

“This is a migration towards the ‘user pay’ principle, where the taxpayer should not continue to subsidise the consumer.”

Eskom load-shedding probabilities

Eskom has stated that it only expects around three days of stage 1 load-shedding during the 2020 winter season.

The power utility confirmed to MyBroadband that it sees this scenario as the most likely, with an 80% probability of occurring.

“Eskom has considered all possible scenarios in terms of its ability to supply electricity and the possibility of implementing load-shedding, and is currently working with the most likely outcome,” the company told MyBroadband.

“The best-case scenario that we have put forward which we regard as having an 80% probability, currently indicates that there is a probability of three days of stage 1 load-shedding during this winter.”

This scenario is based on unpredicted breakdowns of below 11,000MW.

Energy expert Ted Blom has called into question Eskom’s load-shedding projections, however, stating that South Africa may be headed for unprecedented levels of load-shedding.

Eskom has continually refuted predictions of increased load-shedding as the national COVID-19 lockdown is eased, stating it is prepared for the return to operations of industries.

Blom also disagreed with Eskom’s evaluation of its electricity tariffs, stating that previous tariff increases funded corruption at the state-owned enterprise.

“To date, the public has not benefited one cent from any alleged curtailment of corruption at Eskom,” Blom said.

He warned that the increase in electricity tariffs proposed by Eskom would scare away investors from South Africa’s electricity industry.

Demand projections and municipal prices

“Eskom’s current demand projections are based on all currently known factors, including the staggered reopening of the economy in accordance with the government’s plans,” Eskom told MyBroadband.

“The demand remains significantly lower than what can normally be expected during the winter period.”

“However, we are experiencing an increase in demand as the COVID-19 restrictions are gradually relaxed, but do not expect to have demand levels similar to previous years. ”

The power utility also noted that it is only able to implement price increases that are approved by NERSA, which in turn places requirements on the company.

“Eskom is required to make applications for revenue and the regulatory clearing account,” Eskom said. “Thus this occurs at least on an annual basis.”

“NERSA will make determinations for electricity price increases in accordance with its mandate.”

The power utility also noted that municipalities undergo similar approval processes from NERSA.

“The difference is, however, that municipalities are in a position to allow for surcharges that could in effect further increase the price of electricity,” Eskom said.

Now read: Winter load-shedding – What Eskom expects to happen

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Why Eskom needs to increase electricity prices