The “real” electricity price increase expected for 2022

While Eskom has applied for an electricity price increase of 20.5%, the actual jump in tariffs charged by the utility could be around 32.15%, according to calculations by the National Energy Regulator of South Africa (Nersa).

The regulator’s pro forma implementation plans on Eskom’s planned price increases that will take effect from 1 April 2022 have confused South Africans because it differs from the increases the utility has requested.

Eskom’s original price increase only considers the amounts it is entitled to claw back in terms of the Regulatory Clearing Account (RCA).

On that basis, Eskom’s total allowable revenue from its standard customers for the 2022/2023 financial year would amount to R261.9 billion.

That means that the average standard tariff would increase from about R1.34 to R1.61 per kWh — a 20.5% jump.

While this would already be one of the biggest increases in recent years, Nersa’s calculations paint an even grimmer picture.

Nersa used the R261.9 billion Eskom asked for and factored in additional amounts.

The regulator added R14 billion for RCAs that had already been approved, but not realised, for the third multi-year price determination (MYPD3) period.

It also included a further R3.5 billion from the 2019/2020 RCA and R742 million for the Short-Term Power Purchase Programme (STPPP).

In addition, a refund of R23 billion for an amount that Nersa unlawfully deducted from Eskom as revenue was also factored into the regulator’s equation.

The overall impact is that Eskom’s revenue from standard customers would be R302.98 billion instead of R261.9 billion.

Eskom would, therefore, collect around 40-41% more revenue from standard customers than in the 2021/2022 financial year.

Some publications have equated the revenue increase to the standard tariff increase, which has led to the perception that users could be paying up to 41% more for electricity.

However, the actual average standard tariff is based on Eskom’s electricity sales figures for the year.

With forecasted sales of 171,549GWh, Nersa calculated Eskom would have to charge around R1.76 or R1.77 per kWh to reach its allowable revenue, depending on whether the R3.5 billion for the 2019/2020 RCA was clawed back over one or two years.

That would equate to an effective average standard tariff increase of around 31% to 32%.

These figures are shown in the two scenarios Nersa considered, shown in the tables at the end of the article.

Eskom previously slammed the approach Nersa used to calculate these figures.

The utility has insisted that the clawing back of the remaining R59 billion government equity injection that Nersa had deducted incorrectly was still pending in court.

It, therefore, did not anticipate collecting the R23 billion Nersa had already factored into the coming financial year as part of this amount.

Furthermore, it has taken issue with the separation of STPPP-related revenue, as it maintained this was included in IPP revenue.

Eskom reiterated that the 20.5% increase would be what consumers felt in their wallets.