The National Energy Regulator of South Africa (Nersa) has approved an electricity tariff increase of 18.65%.
This comes after Eskom asked the regulator to approve a 32.02% price increase in its annual tariff application. The increase will kick in on 1 April 2023.
Nersa also approved a 12.74% increase that is set to take effect from 1 April 2024.
Despite the amendments, Eskom said its total revenue as applied for in June 2021 — R335 billion for the 2023/4 financial year and R365 billion for the 2024/5 financial year — remained roughly the same.
Eskom had initially applied for a 32.66% increase, but revised it downwards after certain assumptions in its original application changed.
The state-owned power utility said it needed the extraordinarily high increase due to the following factors:
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- Depreciation of 10.67% due to Nersa overvaluing Eskom’s assets in its 2023 price adjustment decision, particularly assets in its generation business.
- The utility’s primary energy costs are expected to increase by 7.8%, the majority of which is due to increased diesel and fuel oil prices and higher usage of these products for Eskom’s open-cycle gas turbines (OCGTs).
- The cost to procure electricity from independent power producers would increase by 9.05% due to more reliance on private power, including for emergency generation.
- Nersa approved revenues of R318 billion for the 2023/4 financial year and R352 billion for the 2024/5 financial year.
In considering Eskom’s application, Nersa raised concerns over the power utility’s high usage of emergency generating capacity, specifically its diesel-burning OCGTs.
Members of the regulator’s electricity subcommittee also raised concerns over Eskom’s declining energy availability factor (EAF) at its coal power stations, increasing coal burn rate, and higher startup oil costs.
“Its coal burn rate is increasing, and yet we have a declining output from those plants,” noted regulator member Nhlanhla Gumede in a specially-convened meeting on Thursday.
Gumede holds an engineering degree in extractive metallurgy and MBA from Wits.
He is the former chair of the board of PetroSA, and previously served as a technical advisor to the Minister of Energy in addition to various other high-level advisory roles.
Regarding Eskom’s declining EAF, Gumede said they must consider whether the utility would use an increased budget to improve performance or simply rely on OCGTs, despite the economic impact.
Gumede said the regulator is caught “between a rock and a hard place”.
Approving Eskom’s application as-is would hit paying electricity customers hard during already-tough economic times.
However, if Nersa enforces a reduced OCGT budget on Eskom, it will be accused of budgeting for increased load-shedding.
Nersa CEO Nomalanga Sithole said all these factors were balanced in making the decision.
Sithole said they are satisfied the decision has been taken in accordance with the relevant law and Multi-Year Price Determination Methodology.
“The decision has been checked against legality and rationality principles,” she stated.