It costs six to seven times to build a new fossil-fuel power station compared to the average cost of existing power station per megawatt of capacity, says Eskom’s annual report released last week.
“Present electricity prices are un-sustainably low. Prices are based on Eskom’s low depreciated asset base, valued at historical net book values,” the report says, adding that the reality of the cost of new capacity would have to be reflected in the future pricing of electricity.
Price increases agreed by the National Energy Regulator of South Africa (Nersa) are 5,1%, 5,9% and 6,2% from next year to 2009.
Despite continued growth in electricity demand and the urgent need for new capacity to be built, Eskom’s sales were up just 0,8% in 2006, compared to 2005.
Eskom spokesperson Fani Zulu says the small increase results from the 2005 winter being warmer than that of 2004, lower gold production because of the stronger rand and depressed ferrochrome prices which led to temporary smelter shutdowns.
Chief executive Thulani Gcabashe says Eskom has moved into new territory: “We are moving from the comfort zone of having surplus electricity over the past 20 years to a sustained period of building new capacity to satisfy the higher demand for electricity that accompanies strong national economic growth.”
Electricity sales for the year topped R36,6-billion, at an average selling price of 17c a kilowatt hour, generated at an average total cost of 13,99c a kilowatt hour.
Eskom says its multi-year price agreement with Nersa gives it a 1% real price increase over the next three years.
“This will not compromise South Africa’s competitive advantage of being the lowest-cost global producer of electricity.”
The multi-year “incentive-based methodology” for price increases replaces the rate-of-return methodology that provided an 11,1% in 2006 before tax.
The 2007 price adjustment is for a 7,3% increase on a real basis before tax, or 5,1% after tax.
Price increases for 2007 to 2009 will vary in line with consumer inflation as measured by CPIX (consumer inflation less home mortgage costs).
Eskom aims to invest R97-billion over five years to upgrade capacity. It says independents, which can supply 30% of new capacity, are expected to invest a further R9-billion.
The more efficient management of the supply chains aims to save R490-million during 2007, part of R7-billion in savings over the next five years.
During the year Eskom exceeded electrification targets by connecting 106 968 new customers, bringing the cumulative total to 3,3-million, said Gcabashe.
“By year end, 98% of municipalities and 84% of qualifying customers were participating in the free basic electricity initiative.
“Two million households are now benefiting from this project, although we acknowledge there is still much to do to ensure all qualifying consumers receive their free monthly electricity.”