The government will fund embattled electricity producer Eskom to the tune of R60-billion over the next five years, according to national budget documents tabled by Finance Minister Trevor Manuel on Wednesday. At the same time, it will introduce a levy in a bid to get consumers to save electricity.
The R60-billion is earmarked to help fund the utility’s massive short-term expansion plans, which will see the return to service of three mothballed power stations and the construction of two new ones.
Eskom currently operates 26 power stations, with a total generating capacity of 37 761 megawatts, but ageing infrastructure and the government’s failure to anticipate the growing demand for electricity means it is not producing enough power.
In his budget speech, Manuel said that over the next five years, Eskom’s capital expansion plans will amount to R343-billion, of which almost three-quarters will be for power-generation projects.
“The return to service of previously mothballed power stations, [at] Camden, Grootvlei and Komati, will add a combined 3677 megawatts of generating capacity by 2011,” he told MPs in the National Assembly.
Other smaller projects will produce about 2 000 megawatts.
“Two major new coal-fired plants, Medupi in Lephalale and Bravo near Witbank, will each cost in excess of R80-billion and produce about 4 500 megawatts each,” he said.
According to the National Treasury’s Budget Review, the price of electricity in South Africa — just more than 22 cents a kilowatt hour — is “well below comparable prices internationally”. This, it said, is contributing to the “mismatch” between supply and demand.
Further, the current price of electricity is too low to generate appropriate returns on new investment in power generation.
“The current price of electricity is based on an average cost of production,” it said. “The marginal cost — that is, the cost of creating one additional unit — is a more relevant measure for price determination.
“Basing prices on the marginal cost suggests that prices should increase by more than six cents a kilowatt hour to correctly reflect the cost of supplying additional electricity, or by 15 cents a kilowatt hour to reflect the future cost of supplying additional electricity.”
The document said the higher price based on marginal cost would ensure suppliers were remunerated at “correct” levels, which would encourage investment by power utilities and foster more efficient energy use by households and business.
In his speech, Manuel said an electricity levy will be introduced this year.
“In support of the required demand-side response to power-supply shortages, a new levy will be introduced this year on the sale of electricity generated from non-renewable sources, at a rate of two cents a kilowatt hour.
“It will be collected at source from the electricity generator, and is expected to raise about R2-billion in 2008/09, and R4-billion a year thereafter.”
Manuel said he knows the introduction of such a tax is not a popular move.
“However, this is an instance where we hope that people will succeed in avoiding the tax. Households and businesses who reduce their consumption by 10% or more will find that the levy does not affect their monthly costs,” he said. — Sapa
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