Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
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Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
Page 13 of 144<br />
electricity infrastructure and in energy-efficient industries that will contribute to tomorrow‟s<br />
economy without placing an unnecessary burden on the electricity system.<br />
The application is aligned with the President‟s 2012 State of the Nation address. It outlines a<br />
price path in support of economic growth and job creation, while striving to ensure that<br />
<strong>Eskom</strong> and the electricity industry remain financially viable and sustainable. It continues the<br />
move towards cost-reflective prices in line with government policy. It supports security of<br />
supply and covers <strong>Eskom</strong>‟s operating costs. It enables <strong>Eskom</strong> to service the debt raised for<br />
its new build programme and to build up retained earnings for future expansion. It proposes<br />
to maintain and enhance targeted protection for low-income households and it improves the<br />
transparency of the tariff structure. It aims to give lenders and rating agencies assurance<br />
that <strong>Eskom</strong> will be able to achieve a standalone investment-grade rating over time.<br />
1.1 Context of application<br />
This application is made in the context of some uncertainty about the course of the electricity<br />
sector and <strong>Eskom</strong>‟s role within it. According to the DoE‟s IRP 2010, South Africa will need to<br />
build over 45 000MW of new generating capacity between 2012 and 2030 to ensure future<br />
security of supply. This is in addition to the capacity already being built by <strong>Eskom</strong>‟s capacity<br />
expansion programme, up to 2018/19.<br />
<strong>Eskom</strong>‟s application is based on the new capacity (only the depreciation and return<br />
component for capacity expansion) up to the significant completion of Kusile power station<br />
and includes the DoE‟s peaker plant and the three rounds of the renewable energy IPP bid<br />
programme pursuant to the determination by the Minister of Energy in terms of the Electricity<br />
Regulation Act. However, the country needs additional capacity beyond this to ensure future<br />
security of supply. This is being addressed by the government as a matter of urgency.<br />
However, it would be irresponsible for <strong>Eskom</strong> not to highlight the implications of the<br />
additional capacity needs. For illustrative purposes, <strong>Eskom</strong> has provided the implications of<br />
a scenario that assumes the company will be responsible for 65% and 100% of the capacity<br />
needs projected in IRP 2010. In terms of the 65% scenario, <strong>Eskom</strong> would have to build an<br />
additional 28 700MW of generating capacity after Kusile has been completed, at a total<br />
estimated cost of R1.8 trillion. The long-term implication is that electricity prices will need to<br />
reach 102c/kWh in real terms (inflation adjusted) by 2030. This would require a 20% average<br />
increase each year for the five years of the MYPD 3 period (2013/14 to 2017/18), followed