Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
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electricity infrastructure and in energy-efficient industries that will contribute to tomorrow‟s
economy without placing an unnecessary burden on the electricity system.
The application is aligned with the President‟s 2012 State of the Nation address. It outlines a
price path in support of economic growth and job creation, while striving to ensure that
Eskom and the electricity industry remain financially viable and sustainable. It continues the
move towards cost-reflective prices in line with government policy. It supports security of
supply and covers Eskom‟s operating costs. It enables Eskom to service the debt raised for
its new build programme and to build up retained earnings for future expansion. It proposes
to maintain and enhance targeted protection for low-income households and it improves the
transparency of the tariff structure. It aims to give lenders and rating agencies assurance
that Eskom will be able to achieve a standalone investment-grade rating over time.
1.1 Context of application
This application is made in the context of some uncertainty about the course of the electricity
sector and Eskom‟s role within it. According to the DoE‟s IRP 2010, South Africa will need to
build over 45 000MW of new generating capacity between 2012 and 2030 to ensure future
security of supply. This is in addition to the capacity already being built by Eskom‟s capacity
expansion programme, up to 2018/19.
Eskom‟s application is based on the new capacity (only the depreciation and return
component for capacity expansion) up to the significant completion of Kusile power station
and includes the DoE‟s peaker plant and the three rounds of the renewable energy IPP bid
programme pursuant to the determination by the Minister of Energy in terms of the Electricity
Regulation Act. However, the country needs additional capacity beyond this to ensure future
security of supply. This is being addressed by the government as a matter of urgency.
However, it would be irresponsible for Eskom not to highlight the implications of the
additional capacity needs. For illustrative purposes, Eskom has provided the implications of
a scenario that assumes the company will be responsible for 65% and 100% of the capacity
needs projected in IRP 2010. In terms of the 65% scenario, Eskom would have to build an
additional 28 700MW of generating capacity after Kusile has been completed, at a total
estimated cost of R1.8 trillion. The long-term implication is that electricity prices will need to
reach 102c/kWh in real terms (inflation adjusted) by 2030. This would require a 20% average
increase each year for the five years of the MYPD 3 period (2013/14 to 2017/18), followed