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 18 of 144 (Inglesi-Lotz and Blignaut, 2011). The implication is that South Africa needs to invest more into new generating capacity, at considerable economic cost. For purposes of this discussion the economic effect of the proposed increases can be grouped into five broad categories: Inflation – It is estimated that the proposed tariff increases could add between 0.3 and 0.6 percentage points to the inflation rate, but this could increase to between 0.7 and 1 percentage points with the reweighting of the consumer price index (CPI) basket and additional knock-on effects. Economic growth – Studies commissioned by Eskom indicate that the overall impact on the economic growth rate will be relatively muted, though some sectors will be affected more than others. Sectors – Generally, mining and manufacturing will be the hardest hit. There may be calls for differentiated pricing (subsidies) to support vulnerable sectors. Eskom supports the principle of support for such sectors. However, its view is that subsidisation of selected industries is an industrial policy matter to be addressed by the government, rather than through the tariff process, and that any subsidies should be routed through the fiscus. Investment – Price is more effective at promoting investment into energy-efficiency technologies than incentive schemes or other factors. If price levels provide the correct signals, consumers will respond by limiting electricity use and employing more energy-efficient technologies, reducing demand. Cost-reflective tariffs achieved through a predictable medium-term price path, as proposed, will attract future investment in energy-efficient companies and will not pose an undue long-term burden on electricity infrastructure. Households – Eskom supports the principle that targeted protection for low-income households should transparently be provided for in the tariff structure, but these cross-subsidies should be managed. 1.4 What is Eskom applying for? Eskom‟s revenue requirement up to 2017/18, based on its operating costs, primary energy costs, depreciation and return on assets, translates to price increases of 13% for each of the five years, for Eskom‟s needs, plus 3% to support the introduction of new IPPs, giving a total
Overview of Multi-Year Price Determination 2013/14–2017/18 (MYPD 3) Page 19 of 144 of 16%. It includes the Eskom capacity expansion (returns and depreciation) up to the substantial completion of the Kusile power plant, the DoE Peaker Plant (1020MW) and all three rounds of the renewable energy independent power producer (IPP) bid programme (3725MW). This is a price increase of 67c/kWh from 61c/kWh (2012/13) to 128c/kWh (nominal in 2017/18) and amounts to a revenue requirement of approximately R1.09 trillion. Table 1: MYPD 3 revenue requirements up to substantial completion of Kusile Table 2: Licensee returns Eskom‟s revenue requirement is broken down between Generation, Transmission and Distribution. These revenues are converted into cost splits that are used as inputs into the tariff design process (detailed in Part 2). In providing the cost splits, the following principles were utilised: Recovery of licensee own costs Returns earned by licensee on replacement asset basis Depreciation on replacement asset basis Corporate overheads allocated using the revenue allocation proportions Efficiency targets allocated to licensees using the operating costs as a basis for allocations 2013/14 2014/15 2015/16 2016/17 2017/18 MYPD 3 Return 7 271 14 643 31 187 51 878 81 885 186 864 Eskom primary energy 62 328 65 368 69 657 75 330 82 266 354 949 Independent power producers - primary energy 5 189 13 302 18 043 20 143 21 042 77 719 Depreciation 30 792 34 631 37 076 39 669 43 218 185 385 Integrated demand management 2 941 2 709 1 862 1 966 3 612 13 090 Operating costs 44 857 48 952 54 934 59 346 61 478 269 568 Eskom revenue requirement (Rm) 153 378 179 604 212 758 248 332 293 501 1 087 574 2013/14 2014/15 2015/16 2016/17 2017/18 MYPD 3 Generation 4 505 8 604 19 632 34 578 54 507 121 826 Transmission 988 1 886 4 467 8 475 14 360 30 175 Distribution 1 440 2 445 4 982 8 469 13 009 30 345 Regulated returns (Rm) 6 934 12 934 29 081 51 521 81 877 182 347 Southern African energy and other 338 1 709 2 106 357 8 4 517 Eskom returns (Rm) 7 271 14 643 31 187 51 878 81 885 186 864
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 17: 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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Operating efficiencies target Overv
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Overview of Multi-Year Price Determ
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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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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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