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
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
Page 84 of 144<br />
Inflation – The National Treasury estimates that the impact of the price increase on the<br />
CPI could be between 0.7 and 1 percentage points. Further, the contribution of electricity to<br />
the inflation basket will be reweighted and, as a result, electricity price increases will<br />
probably have a greater effect on inflation than they have in the past. Electricity price<br />
increases will also have a pronounced knock-on effect on inflation. Businesses that can pass<br />
on price increases to customers will do so, resulting in “second-round” effects that could well<br />
be more severe than the direct impact.<br />
Businesses – Generally speaking, mining and manufacturing will be hardest hit. The<br />
finance and business services sector are considerably less energy intensive than many<br />
other industries and are less likely to be negatively affected. Some sectors are more<br />
vulnerable than others and this could lead to calls for differentiated pricing – in effect,<br />
subsidies. <strong>Eskom</strong>‟s view is that subsidisation is an industrial policy question that must be<br />
addressed by the government, rather than through the electricity tariff process. Similarly, any<br />
subsidies deemed appropriate should be routed through the fiscus rather than the electricity<br />
tariff.<br />
Investment – If the South African economy is inefficient in its electricity use, there is<br />
probably scope for firms to adapt to higher prices by investing in energy-efficient processes,<br />
and the economics of doing so would be attractive. If the economy is already fairly efficient in<br />
its energy use, however, then there is little room for firms to reduce electricity demand<br />
without also reducing their output.<br />
The evidence on current efficiency is mixed. <strong>Eskom</strong> is of the view that price is more effective<br />
at promoting investment into energy-efficiency technologies than incentive schemes or other<br />
factors. And if price levels provide the correct signals, consumers will respond by limiting<br />
electricity use and employing more energy-efficient technologies, reducing demand on the<br />
grid. If the price is set too low, however, or if the migration to cost-reflective prices is done<br />
too gradually, energy-inefficient investment and consumption are likely to continue.<br />
Unchecked, this could result in electricity demand exceeding supply.<br />
Cost-reflective tariffs achieved through a predictable medium-term price path, as proposed in<br />
this application, will attract future investment in industries and businesses that are as<br />
energy-efficient as possible and will not pose an undue long-term burden on South Africa‟s<br />
electricity infrastructure.