South Africans will soon say goodbye to cheap electricity, Eskom said in its 2007 annual report released on Thursday.
”The cheap-electricity era is coming to an end, here and in all other markets,” chairperson Valli Moosa warned in his message.
South Africa’s electricity is the cheapest in the world. Citizens pay 28 cents per kWh. Finland, Sweden and Canada are next cheapest, at 48 cents per kWh.
Chief executive Jacob Maroga said the electricity regulator had permitted a 5,9% tariff increase for the period between April 2007 to March 2008. It was 5,1% for the review period.
”However, higher primary energy costs, greater borrowing and bigger capital spending highlight a growing mismatch between currently agreed price increases and prudent forward planning.”
The company’s return on assets dropped to 7,8% from 9,1% in 2006. Increased investment caused the debt to equity ratio to increase to 0,3 from 0,2 in 2006.
Revenue was R40-billion, up from R36-billion in 2006. Profit for the year was R6-billion, up from R4-billion in 2006.
Capital expenditure increased from R10-billion to R17-billion. Net cash from operating activities was R13-billion, up from R12-billion last year.
Sales volume growth of 2,3% was projected and 4,9% growth was delivered.
Eskom’s customer service index — a broad measure of customer satisfaction and service perception — increased from 86,3% in 2006 to 87,1%.
”A creditable performance, given the supply challenges,” the report states.
Moosa said that over 20 years the utility planned to double its electricity-generating capacity. This would involve a ”significant increase” in investment, which could be achieved by Eskom becoming more efficient, capital injection from the government or higher prices.
Over the next five years Eskom would spend R150-billion on increasing its capacity. This would mean doubling the size of its balance sheet in that period.
”To illustrate the scale of this step change, the original total cost of Eskom’s current property, plant and equipment in commission is approximately R113-billion. The cost of building just one major base-load power station in our new expansion programme is about R80-billion,” said Moosa.
On efforts to reduce greenhouse-gas emissions, Maroga said Eskom planned to reduce the coal component of its electricity generation to 70%. Currently 88% of generating mix was coal-fired. This used up more than 100-million tons of coal every year.
Renewable energy production would increase to 2% of the generating mix or 1 600MW through biomass, solar, hydro and wind facilities.
This includes potential imports of hydro energy. The nuclear energy contribution to the national grid would rise to between 13 000MW and 20 000MW over the next 20 years.
Moosa said the utility planned to develop the world’s largest solar thermal power plant capable of generating 100MW, subject to technical and commercial feasibility. Furthermore, a pilot project to harness the power of underground coal gasification has already reached an advanced stage.
Maroga attributed power failures in 2006 and 2007 to higher-than-expected demand, unplanned cuts and, more importantly, a diminishing reserve capacity.
In recent years Eskom’s reserve margin for generation capacity had shrunk to between 8% and 10%, below the aimed-for reserve margin of 15%.
”The margin is tight and will remain so until 2013 when new base-load stations start coming online. The next five to eight years will require a collaborative effort by all stakeholders to minimise the likelihood of power interruptions,” said Maroga. — Sapa