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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1.4.2 Independent power producers<br />
Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
Page 21 of 144<br />
The cost of buying power from IPPs is escalating significantly as the amount of capacity<br />
increases over the MYPD3 period. Forecasts reflect an increase from R5 billion in 2012/13<br />
to R22 billion in 2017/18 being procured from IPPs on the basis of 3725 MW of renewables<br />
and 1020 MW peaking technology from the DoE programmes. For regulatory purposes the<br />
IPP costs are included under the Generation licensee.<br />
1.4.3 Operating costs<br />
Maintenance and human resources make up the bulk of operating costs. Employee cost<br />
increases average 7% over the period, as do overall operating costs. Most of <strong>Eskom</strong>‟s power<br />
stations are in their mid-life and they require substantial spending on maintenance and<br />
refurbishment if their performance is to be sustained and improved. This means that<br />
maintenance costs will continue to increase by more than the inflation rate. The need to do<br />
more maintenance also adds to the challenge of managing an already constrained power<br />
system. The power system will continue to be constrained into the MYPD 3 and there are<br />
costs associated with balancing supply and demand in this context. These include the costs<br />
of demand-side measures to help <strong>Eskom</strong> manage the system in the short term. They also<br />
provide incentives to encourage customers to install technologies and adopt behaviours that<br />
will ensure they use electricity more efficiently on a permanent basis.<br />
1.4.4 Depreciation of assets<br />
Depreciation is set to rise at an annual average 10% over the MYPD 3 period. The<br />
government‟s Electricity Pricing Policy (EPP) requires that <strong>Eskom</strong>‟s assets are valued at<br />
depreciated replacement cost to ensure a cost-reflective price path that minimises price<br />
spikes as infrastructure is decommissioned and replaced. Depreciation of assets currently<br />
under construction is only included in the year in which they are commissioned.<br />
1.4.5 Return on assets<br />
<strong>Eskom</strong> does not fund its capacity expansion programme directly through electricity prices.<br />
Rather, electricity prices shape its income statement and balance sheet, influencing investor<br />
confidence and its credit rating. <strong>Price</strong> provides the basis for <strong>Eskom</strong> to raise the debt it needs<br />
to finance capital expenditure. Only a return on total capital invested is included in the price.