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

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Overview of Multi-Year Price Determination 2013/14–2017/18 (MYPD 3) Page 14 of 144 by a 9% average increase per year for the next five years (MYPD 4) and about 5% average increase per year thereafter. The results of the 100% scenario are similar and include an additional 2 700MW of capacity but the price path is the same. Eskom would like to emphasise that electricity prices will have to go up to this extent even if the additional IRP 2010 generating capacity is allocated to one or more parties other than itself. The key issue for the company is that, although its revenue application only considers new capacity up to the substantial completion of Kusile power station, and includes the DoE Peaker plant and the renewable energy IPP bid programme; this should not create the impression that long- term security of supply has been adequately addressed. Nersa needs to consider the pricing implication of additional capacity beyond Kusile and reach a decision on how to address these implications at this stage. If these issues are not addressed now, Eskom may have to apply to reopen the MYPD 3 application once policy decisions have been made. The dilemma Eskom faces is that the government may decide to allocate a bigger or smaller portion of IRP 2010 capacity than the assumed 65%. This makes it impossible to predict Eskom‟s exact revenue needs if the IRP 2010 requirements were to be included in this application. Unfortunately, the MYPD 3 process cannot be delayed any further. Given the circumstances, Eskom can do one of the following: Include all IRP 2010 requirements in the MYPD 3 application. The advantage of this approach is that all the country‟s needs would be catered for. However, by making such assumptions, Eskom could be criticised for overstepping its mandate. Moreover, there would be no regulatory basis for Nersa to allow such costs until further determinations are made by the Minister of Energy. Most importantly, the final decisions regarding the timing, costs and type of technologies to be used could result in a different price path. . Exclude all requirements for capacity beyond Kusile and the renewable energy IPP bid programme. The advantage is that the revenue Eskom requests will be based on decisions that have already been made and that have a definable scope. However, this approach may do a disservice to the shareholder and the public by understating what is necessary to ensure security of supply over the longer term. Eskom has decided that it will try to achieve both objectives – that is, ensure that South Africa is made aware of its future capacity needs and the pricing implications, while being
Overview of Multi-Year Price Determination 2013/14–2017/18 (MYPD 3) Page 15 of 144 clear about Eskom‟s revenue requirements based on decisions already made. It will do this by presenting its revenue requirement taking into account the substantial completion of Kusile power station as well as the DoE Peaker Plant and renewable IPP bid programme, and outlining, in a transparent manner, the cost impact of Eskom implementing 65% or 100% of the capacity requirements contemplated in IRP 2010. In this way, Eskom‟s revenue needs will be addressed and the implications of future policy decisions will be transparent. As contemplated in terms of Section 42 of the Municipal Finance Management Act (MFMA) (2003), Eskom has submitted its proposed application to the National Treasury and organised local government for comment. Eskom has received their input and has taken it into account in finalising its application, as discussed in the next chapter, The MYPD process. Eskom has also considered the government‟s inflation targets and other macroeconomic policy objectives. This is discussed in the chapter, Balancing out the effect on the economy. The steps Eskom has taken to be more efficient are discussed in Moving towards a sustainable electricity industry. 1.2 Why are price increases necessary? Electricity prices currently do not cover the full cost of producing electricity. This is not sustainable, especially in light of the fact that the country needs to build additional generating capacity – over and above what Eskom is currently constructing – to support future economic growth and social development. Electricity prices need to transition to cost- reflective levels to support a sustainable electricity industry that has the resources to maintain operations and build this new generating capacity, so guaranteeing future security of supply. 1.2.1 Moving towards a sustainable electricity industry Electricity powers our world. South Africa‟s economy needs a reliable, stable electricity supply to support economic growth. The costs of producing electricity are rising as South Africa‟s existing electricity infrastructure ages and the costs of inputs such as coal increase. The electricity industry also needs to expand to meet the country‟s development needs. Without sufficient electricity to accommodate growth, the country‟s economy will stagnate, resulting in less investment, fewer jobs and a lower quality of life for all South African citizens – especially the most vulnerable members of society. This requires a sustainable electricity
Page 1 and 2: Part 1 Revenue Application: Multi-Y
Page 3 and 4: Overview of Multi-Year Price Determ
Page 5 and 6: EXECUTIVE SUMMARY Introduction Over
Page 9 and 10: ESKOM PROFILE Overview of Multi-Yea
Page 13: Overview of Multi-Year Price Determ
Page 21 and 22: 1.4.2 Independent power producers O
Page 31 and 32: Price path: Funding: Other: Overvie
Page 37 and 38: 2 THE MYPD PROCESS Key points Overv
Page 39 and 40: Electricity Pricing Policy Overview
Page 41 and 42: Accomplishments during MYPD 2 Overv
Page 43 and 44: Base case application Overview of M
Page 59 and 60: Environmental levy Overview of Mult
Page 63 and 64: Table 17: IPP projects (costs and e
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Overview of Multi-Year Price Determ
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Cost of cover Overview of Multi-Yea
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Operating efficiencies target Overv
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3.5.2 Carbon tax Overview of Multi-
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Table 34: Eskom’s funding over th
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Weaknesses: Overview of Multi-Year
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Phasing in price increases over fiv
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INVESTMENT GRADE RATIOS CAPACITY AN
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Simplify tariff structures Modify s
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7 CONCLUSION Overview of Multi-Year
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Transmission Overview of Multi-Year
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Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

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