Eskom will avoid “price shock” with tariff hikes – De Ruyter

Eskom on Tuesday announced it will increase electricity tariffs by more than 15% on 1 April 2021.

The increase follows a settlement with the National Energy Regulator of South Africa (Nersa) after Eskom requested the High Court to order the execution of a previous decision that allowed the utility to recover incorrectly deducted Government equity support for the financial year 2021/2022.

The latest court order stated that an amount of 5.44c/kWh would be added to the average standard tariff for Eskom customers, making the aggregate standard tariff for Eskom customers 134.30c/kWh.

Nersa had mitigated in order to avoid Eskom being allowed an additional R23 billion in revenue as originally ordered, which could have lead to an increase of 21%.

Nevertheless, the reduced price hike is still more than four times the average rate of inflation for 2020.

This comes after Eskom CEO André de Ruyter earlier this week said the utility was working with Nersa to ensure its planned tariff increases don’t come as a shock to customers.

During a recent episode of FMF’s The Free Marketeers web series, De Ruyter elaborated more on Eskom’s plans to reduce load-shedding, increase its operational reliability, and improve finances.

De Ruyter said that one of the essential parts of its turnaround was improving Eskom’s income statement, which is currently under pressure.

“We were able to report a very modest profit for the first half of the current financial year, but that profit is not going to be sustained,” he said.

“So we will again be this year reporting a substantial net after-tax loss, and this is something that needs to be rectified,” De Ruyter stated.

He maintained cost-reflective tariffs were required to address Eskom’s revenue shortfall, as the quantum of electricity Eskom sold had for a fairly long time remained flat, which Eskom attributed to a lack of growth in the economy.

According to benchmarking that the utility had done internationally “on a number of fronts”, it was absolutely convinced that Eskom’s electricity price was below the norm.

Cost-reflective tariffs

The issue of cost-reflective tariffs has been the subject of a number of legal disputes that Eskom has had with energy regulator Nersa.

The end result of multiple court matters was that Eskom was granted permission to raise electricity prices over the next three years, with the first price hike set for April 2021.

De Ruyter said Eskom was making good progress in negotiations with Nersa for price increases.

“We will be able, I believe, to address the electricity tariff increase issue in a way that does not cause a price shock to the economy,” De Ruyter said.

“We are at idem [in agreement] with Nersa that what we want to avoid is a sudden large increase in the cost of electricity that causes distress to households and businesses.

“What we are going to try and do within the confines of the regulatory system is to have a phased approach to this,” he added.

De Ruyter emphasised that the amounts on the bill that a business or homeowner would get differed from Eskom’s actual electricity selling price. These bills would include the additional charges that municipalities or other distribution authorities charged.

He submitted that those charges would in instances vary from justifiable, to very high, and above the norm.

Eskom not opposed to home solar

De Ruyter also responded to what he described as a “narrative” that Eskom was opposed to domestic solar installations.

This comes after the utility recently proposed a new capacity charge for those who had grid-tied home solar systems which still use Eskom’s power as backup.

De Ruyter stated that this view was not correct, and elaborated more on the reasoning for the new tariff.

“If you want to use Eskom as your virtual battery, then unfortunately we are going to have to charge you for that because it costs us to have that available for you to tap into whenever you need,” De Ruyter said.

“We have to keep available a very large infrastructure of power stations, transmission lines, distribution infrastructure, and we have to pay people and maintain our stockpiles for giving that consumer the luxury of being able to tap into the grid and save on the expense of not having to buy an outsized battery installation,” De Ruyter said.

“We do need to have a tariff dispensation that supports the various risks that are apportioned across the value chain and that ensure there is no free-riding taking place by people who don’t want to invest, for good reason, in those large battery arrays,” De Ruyter stated.

“That really is the purpose of this change in tariff. It’s not aimed at inhibiting the installation of solar panels. We welcome it, we think it’s a good thing.”

De Ruyter said that Eskom supported the President’s announcement in SONA that government will look within the next three months into lifting the cap on so-called embedded or self-generation without a licence from 1MW to 15MW.

“We think in principle it’s a good thing, We hope it will unlock investment in generation capacity. It will certainly go some way to bridging the generation shortfall we’ve got,” De Ruyter said.

Now read: How to get free basic electricity from Eskom

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Eskom will avoid “price shock” with tariff hikes – De Ruyter