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 85 of 144<br />
Low-income households – In economic terms it is more efficient – and more<br />
equitable – to implement targeted electricity subsidies for vulnerable population groups than<br />
it is to address their needs by curbing price increases for all. For MYPD 3, <strong>Eskom</strong> proposes<br />
introducing Homelight 20A, a subsidised single-rate tariff targeting poor customers. See the<br />
Proposal to restructure tariffs chapter for more detail.<br />
4.1 Electricity prices in context<br />
Between the early 1980s and 2007, electricity prices were low and declining in real (inflation-<br />
adjusted) terms. Even though the country needed to build new capacity and attract private-<br />
sector producers, electricity prices were not sustainable or attractive enough to do so. <strong>Price</strong>s<br />
were eventually so low that they failed to cover <strong>Eskom</strong>‟s running costs, while the price of<br />
coal and other requirements climbed at levels exceeding inflation. In 2008/09 <strong>Eskom</strong><br />
sustained a loss of R9 billion, placing its credit rating at risk and forcing it to turn to the<br />
government for support through the fiscus. It had to suspend contracts on the Kusile power<br />
plant for almost a year in 2009/10 out of concern that the project could not be funded.<br />
South Africa cannot run the risk of such events recurring. It needs to build a financially<br />
sustainable electricity industry that is attractive to independent investors and enables <strong>Eskom</strong><br />
to obtain funding for future expansion.<br />
In real terms, electricity prices increased by 78% between 2008 and 2011. This did no more<br />
than bring the price back to about 1978 levels – which was also the time of <strong>Eskom</strong>‟s last big<br />
build programme. At current levels, South Africa‟s electricity prices are still among the<br />
world‟s lowest, even though they are no longer at the bottom of the table.