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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The cost splits are key to determining differentiated prices between the energy and network
components. The returns generated over the MYPD 3 period are split between 67% for
Generation and 33% for the network business.
Table 3: Effect of revenue requirement on MYPD 3 electricity prices
2013/14 2014/15 2015/16 2016/17 2017/18
Eskom requirement for price increase % (nominal) 13% 13% 13% 13% 13%
IPPs requirement for price increase % (nominal) 3% 3% 3% 3% 3%
MYPD 3 price increase % (nominal) - Eskom's application 16% 16% 16% 16% 16%
MYPD 3 price increase % (real) 10% 10% 10% 10% 10%
Nominal incremental price increase for standard customers (c/kWh) 10c/kWh 11c/kWh 13c/kWh 15c/kWh 18c/kWh
Nominal price level for standard customers (c/kWh) 71c/kWh 82c/kWh 95c/kWh 110c/kWh 128c/kWh
Real price level for standard customers (c/kWh) 67c/KWh 73c/kWh 80c/kWh 88c/kWh 96c/kWh
In keeping with the Electricity Regulation Act, Eskom is allowed to recover the following
costs, on condition that they are efficiently and prudently incurred:
Primary energy costs
Operating costs
The cost of paying for (and ultimately replacing) its assets (depreciation of
assets)
A reasonable return on assets.
Together, primary energy and operating costs contribute more than 75% to the total revenue
requirement in 2011/12, decreasing to about 60% by 2017/18. This includes a targeted
R30 billion cumulative savings in operating costs and primary energy due to improvements
in efficiency over the period. Increases in depreciation and the return on assets are the main
drivers of the average price increases because of the need to move to cost-reflective prices.
1.4.1 Primary energy costs
Generation‟s primary energy costs excluding IPPs are projected to increase by an average
of 8.3% a year. Coal is Eskom‟s largest primary energy cost – and indeed its biggest single
cost component overall – and is projected to grow by 10% on average per year over the
MYPD 3 period. The factors driving above-inflation coal cost increases include the rising cost
of sourcing coal from the ageing “cost-plus” collieries tied to some of Eskom‟s power
stations, as well as the increasing competition from export markets such as India and China
for lower grades of South African coal, which in the past had been used mainly by Eskom.