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 17 of 144<br />
to adjust to higher prices, but there are limits to the extent to which this can be done. This<br />
application seeks to find a practical, sustainable path to achieve cost reflectivity over the<br />
medium term.<br />
Paying a fair and reasonable price for electricity<br />
This revenue request is based on cost components that are subject to intense scrutiny by<br />
Nersa to ensure that they are incurred prudently and efficiently.<br />
On average, the costs on which this application is based escalate at a rate slightly higher<br />
than inflation. This is largely due to input costs (such as primary energy) over which <strong>Eskom</strong><br />
has no control. The tight supply-demand situation has resulted in <strong>Eskom</strong> using more<br />
expensive generation options including open-cycle gas turbines and demand-side measures<br />
to ensure it can balance supply and demand. This has had an adverse impact on costs.<br />
<strong>Eskom</strong> remains committed to being as efficient as possible and has, despite these<br />
influencing factors, committed to savings of R30 billion over the MYPD 3 period. Its ability to<br />
achieve this target is supported by the R4.5 billion in savings that it posted for the 2011/12<br />
financial year.<br />
1.3.1 Economic effects<br />
The country cannot afford the economic costs of not having a secure supply of power, and<br />
this depends on the electricity industry being financially sustainable. <strong>Eskom</strong> is acutely aware<br />
that the proposed tariff increases will have some short-term negative effects on the<br />
economy, and particularly on more vulnerable economic sectors and on poorer households.<br />
In the past, cheap power attracted investment, particularly in energy-intensive industries<br />
such as aluminium and steel smelting. At the same time, there was little or no financial<br />
incentive for companies to invest in energy-efficient technologies. Consequently, the<br />
economy‟s energy intensity more than doubled between 1990 and 2007, while that of the<br />
Organisation for Economic Cooperation and Development countries increased by only 10%