Eskom: more steep tariff hikes

AHEAD: THIS YEAR’S INCREASE IS 15% AND IT’S EXPECTED TO GUN FOR ANOTHER 15% IN 2023

Energy expert says it is simplistic to think this can solve the utility’s problems.

To bring Eskom to cost-reflectivity would have required a tariff jump to 150c/kilowatt hour (kWh) on average, instead of the 134c/kWh applicable from 1 April, says the power utility’s general manager of regulations, Hasha Tlhotlhalemaje.

Eskom hopes to close this gap over the next three years and energy expert Chris Yelland, managing director of EE Business Intelligence, expects Eskom to gun for a further 15% increase in the average tariff in 2023.

The thinking at Eskom is that this would give it the step change it says it needs, whereafter increases would be linked to the consumer price index (CPI) .

The introduction of a carbon tax next year and the connection of more independent power producers (IPPs) selling electricity to Eskom at predetermined prices could, however, result in even bigger increases. In addition, the expected large increases could be less of a solution to Eskom’s woes, experts say.

It could have a big impact on Eskom’s sales volumes as alternative sources of energy become more viable and customers embrace the relaxation of regulations that makes it easier to self-generate power or buy from IPPs.

In terms of the Electricity Regulation Act, an efficient operator is entitled to recover cost, plus a reasonable return through electricity tariffs. It is therefore clear consumers should not pay for wastage and corruption.

Eskom’s view that it has been shortchanged by Nersa has been vindicated through numerous court victories. The corrections after these court rulings have resulted in the current year’s increase growing from 5.22% to 15.63%.

Unless Nersa succeeds with a pending appeal, there is at least a further almost R60 billion compensation that Nersa – and therefore the consumer – owes Eskom. This relates to Nersa’s decision to subtract the three tranches of equity injections of R23 billion per year that government awarded Eskom from 2019/20 to 2021/22 from Eskom’s allowable revenue.

In a court settlement last week, Nersa agreed to add R10 billion of the total of R69 billion to electricity tariffs, which sealed the 15.63% increase.

Carbon tax alone, which Eskom will have to pay from 1 January next year, can add a further five percentage points to tariffs over a financial year. Additional IPP costs are also not included. For 2021/22, Nersa has included R40 billion in Eskom’s allowable revenue for purchases from IPPs.

Yelland says the sharp increases will accelerate the reduction in Eskom’s sales. A view that increasing tariffs can solve all Eskom’s problems is therefore too simplistic, he says.