Eskom says its average price for electricity will need to increase by 16% every year until 2018 - and that is if everything goes right.
If Eskom gets its way, South Africans will on average be paying just over double the current electricity price by 2018, after annual increases of 16% every year until then.
That is the gist of the multi-year price application the parastatal made to the National Energy Regulator of South Africa (Nersa) last week, and made public on Monday. Nersa is expected to pronounce on the application in February 2013, with public hearings before then.
If the regulator grants the increases, power will cost around eight times more in 2018 than it did in 2008, when parts of the country last experienced blackouts as power generation failed to keep up with demand.
A third of the increase will be required to pay for higher coal costs, Eskom said, and another quarter will go to increased operating costs. The rest is made up mostly of making provision for replacing ageing infrastructure and paying current and future debt raised to do so.
But that is based on sometimes conservative assumptions. Eskom believes its payments for coal will increase by no more than 10% every year, and that its employee costs will increase by no more than 6% every year, even as it ever so slightly increases its headcount. A big spike in the cost of coal – which it cannot contain with long-term contracts – or demands for wage increases significantly higher than inflation would play havoc with the numbers.
The increase Eskom requested also did not make provision for the introduction of a carbon tax, and assumed independent power producers would start contributing significantly to power generation over the next five years – even though the process of allowing such outside players into the industry has seen long and consistent delays.
Should the independent producers not develop as the government plans, Eskom said, it will require 20% year-on-year increases.
The 16% increase is based on Eskom's revenue; what users of electricity end up paying will depend on how they buy power and how much they use. From March 2013, Eskom proposes, municipalities and high-consumption home users will pay 13% and 14% more respectively, while industrial and commercial users will pay 21% more. Home users with very small consumption, on the other hand, will pay either slightly less or only around 5% more, after a new tariff system is introduced.
Municipalities have in recent years increased their electricity prices well above the increases levied by Eskom, using the difference to subsidise other services.
The one exception to the general increase is mining company BHP Billiton, which buys power for its smelters at a sweetheart rate under secret contract. That contract will now be put to Nersa for review, Eskom said, although it stopped short of saying negotiations with the company have failed.