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