South Africa’s State Owned Energy Utiltiy Applies for a 32.02% Tariff Hike Citing Hike in IPP Costs

News Flash

  • As a result of a court order issued in July 2022, the National Energy Regulator of South Africa (NERSA) is in the process of consulting on Eskom’s Multi-Year Price Determination (MYPD) 5 revenue application for FY2024 and FY2025.
  • In accordance with NERSA MYPD methodology, Eskom is required to provide any updates on changes in conditions and environments that impact various cost elements of the revenue requirements.
  • The total revenue as applied for in June 2021 – R335bn (FY 2024) and R365bn (FY 2025) remains the same. Changes are made within the cost items as required with an off- set in the return on assets. 
  • The price increase being applied for is 32.02% for FY 2024, and the decision will be implemented on 01 April 2023. 

The key changes include the following from the previous update (January 2022):

  • Increases in Eskom primary energy costs – combination of costs related diesel price increase and volume increase
  • Removal of arrear debt related costs – in line with NERSA decision for FY 2023, where other customers do not contribute to gap created by non-paying customers
  • Removal of carbon tax related costs – due to announcement by Minister of Finance of impending legislative changes to postpone carbon tax liability to beyond FY 2025
  • Increases in independent power producer (IPP) costs – mainly due to increased emergency IPP procurement
  • Slight increase in sales volumes
  • Further reduction in average energy availability factor for Eskom power stations of 59%

Related news: Situation critical in South Africa as Eskom implements stage 6 loadshedding

The following assumptions have not changed from original application

  • Operating costs
  • Depreciation
  • Value of regulatory asset base
  • Capital expenditure

The price increase being applied for is 32.02% for FY 2024, and the decision will be implemented on 01 April 2023. The key contributors include:

  • Depreciation of 10.67% – due mainly to an incorrect regulatory asset base valuation by NERSA in its FY2023 its decision, (substantially in the generation business),
  • Eskom primary energy of 7.85% (of which the majority, 6.09% is due only to increase in diesel and fuel oil prices as well as volume increase in OCGT fuel)
  • IPP cost increase of 9.05% (due to further energy being sourced from IPPs including emergency procurement)

The price increase for FY2025 being applied for is 9.74% with IPPs contributing 5.39% to this.

More information on Eskom’s update of the FY 2024 and FY 2025 revenue application can be found on Eskom’s website HERE  

Author: Bryan Groenendaal

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