SA sees spike in power costs

South African electricity tariffs are likely to keep rising steeply as the country tries to fund a massive spending programme to upgrade its power network, Public Enterprises Minister Alec Erwin said on Friday.

Africa’s largest economy has suffered a series of power failures over the past couple of years as it struggles to keep up with faster economic growth and rising demand for energy that officials say has outpaced supply.

In response, state power utility Eskom has said it will spend roughly $20-billion over the next five years to beef up infrastructure, including reviving mothballed plants and building new nuclear, coal and gas-fired stations.

Erwin said about half the funding for these projects would have to come from hiking electricity tariffs and the rest via the capital markets.

South Africa has for long enjoyed one of the world’s lowest electricity costs but rising prices have now been cited as a key future driver of inflationary pressures in South Africa’s booming economy.

A senior official in Erwin’s department has mooted double-digit price increases—to the alarm of inflation watchers. However, Erwin said this appeared inevitable in order prevent larger future spikes.

“If we start low now, it means later on we’ve just got to put it up,” he told Reuters on the sidelines of the World Economic Forum on Africa, where he was part of a panel that discussed the continent’s energy outlook.

He said government departments were discussing the “best rate of increase over time” with the National Energy Regulator, which has the final say over tariffs.

“Yes, it will have an impact on inflation, but so will the cost of capital equipment. Everything is rising,” he said.

“We’re having rises in energy costs because new capacity build is more expensive than the old.
We have to recover a large capital expenditure from the tariff.”

During the discussion, Erwin said South Africa would in coming years source as much power as possible from the region, with large power projects kicking off in Mozambique, Botswana and the Democratic Republic of Congo.

He also repeated that nuclear power would become the mainstay of South Africa’s energy base, providing half of the 40 000MW expected over the next 20 years.

South Africa’s major cities have been hit by frequent power failures that have disrupted businesses and prompted authorities to launch a campaign that urges consumers to curb energy use at peak times.—Reuters

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