Eskom will defend 20.5% electricity price hike

Eskom will defend its application to the National Energy Regulator of South Africa (Nersa) for a 20.5% electricity tariff increase come January, the power utility’s chief financial officer Calib Cassim says.

Responding to questions after Eskom’s interim results presentation on Wednesday, Cassim said that the power utility calculated the increase in terms of Nersa’s Multi-Year Price Determination methodology.

Asked why Eskom needs a 20.5% tariff hike, Cassim said that besides their running costs, the state-owned power utility has to close the cost of capital.

He also pointed to the cost of procuring electricity from independent power producers (IPPs) as a factor driving higher tariffs.

Energy analysts have pointed out that Eskom is currently paying more to procure electricity from IPPs than it costs to generate the power itself.

This is because when Eskom signed the contracts, the renewable power it was procuring was much more expensive than it is now.

Future contracts should be much cheaper than what Eskom currently pays independent renewable energy providers.

With these three factors in mind — operational costs, debt/capital costs, and IPP procurement costs — Cassim said they could defend their application for a tariff increase to Nersa.

Even with a 20.5% tariff hike, Cassim said Eskom would still require government support to the tune of R21 billion over the next two financial years to help service its debt.

Cassim said that Eskom’s reliance on government bail-outs should reduce and ultimately go away when the electricity tariff increases to a level where the power utility can recover its operating costs and the total cost of capital.

Recovering the debt municipalities owe Eskom is part of the plan, stated Cassim.

Eskom posted a promising set of interim results, showing a 4,178% increase in profit from R0.2 billion on 30 September last year to R9.2 billion this year.

However, Eskom said that by 31 March 2022, it expects this profit to be consumed and end the financial year with a R9.1 billion loss.

This is due to increased maintenance, historically lower revenue, IPP procurement, and increased spending on open cycle gas turbines due to the low energy availability factor of its power stations.

That said, if Eskom’s full-year results match its forecast, the R9.1 billion loss would be almost a 52% improvement over its previous full-year results.

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Eskom will defend 20.5% electricity price hike