Energy News — 29 October 2012

Joahnnesburg – Eskom’s request for a 16 percent electricity tariff increase over the next five years could make power in SA one of the most expensive in the world.

Cornelis van der Waal, energy analyst at global research firm Frost & Sullivan, said SA’s electricity costs had been among the lowest worldwide for a long time. But by the time the increases were implemented, they would be among the highest.

“SA was marketed as a good place to come to do business for investors because of its cheap electricity, but it is now starting to decrease on the global scale as an attractive destination for investment,” he said.

 “In most developed countries you have 4 to 5 percent increases in electricity costs annually. Requests for hikes are not unheard of in developing countries, the problem is the duration of higher increases here – three to five consecutive years – is higher than in any other country in the world.”

Eskom this week requested annual electricity tariff increases of 16 percent over five years, to ensure it could cover its operating costs and new-build expenses. The National Energy Regulator of SA (Nersa) will make a decision by February, after which increases would kick in from April for Eskom customers, and from July for electricity supplied through municipalities.

Since June 2006, the cumulative effect of the tariff increases is that consumers are now paying 142 percent more. And now economists warn that if Nersa accepts Eskom’s request, the increase between 2002 and June 2017 would equal a 580 percent increase.

Van der Waal said the implication was that companies would not be quite as excited to invest in SA, resulting ultimately in fewer jobs being created.

“It is alarming… but we have a choice of either waiting for the government to find money to finance the expenditures on building new power plants, which could take a long time, meaning we could have power failures like Nigeria, or build them now at this cost.”

Another energy expert, Chris Yelland, said South Africans would pay almost six times more for electricity in 2017 than they did in 2008. “Eskom is really caught between a rock and a hard place because I don’t think we can avoid the cost of building new power stations.”

Much like the controversial tolling system in Gauteng, no one was arguing against the need for expansion. The argument was about where the money should come from.

“Eskom is doing exactly as the SA National Roads Agency Limited (Sanral) has done. They borrowed money for the capital expansion, but the entire repayment cost is borne by the user. “It is normal to share financial costs between debt and equity – the money shareholders put in. The problem is the government does not want to put up any equity.”

It was unfair that business had to borrow money, and the consumer had to bear the cost. The government should spread the costs of capital expansions to avoid the possibility of civil unrest, he said.

Source: Saturday Star

Image: van der Waal

 

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