Eskom wants a massive 32% electricity price hike in South Africa

Eskom has applied to energy regulator Nersa to hike tariffs by 32% on 1 April next year.

In its most recent price determination application to the National Energy Regulator of South Africa (Nersa), Eskom said the tariff hikes would cover emerging costs.

The power utility said that depreciation due to an incorrect asset valuation by the energy regulator, increases in diesel and fuel oil prices, and the cost implications of independent power producers all contribute to its 32.02% application.

The last increase granted to the national power utility was 9.61% for the year 2022. However, Eskom applied for a 20.5% increase.

Nersa has been trying to shift its methodologies in how it determines what Eskom can include in its tariff applications, but these have not been finalised. The regulator has been met with legal challenges from Eskom over the methodologies.

Eskom, meanwhile, is looking to completely overhaul its tariff structure to be more reflective of costs and keep pace with the changing energy landscape. Until these matters are settled, however, both Nersa and Eskom are using the old systems.

Eskom said that in this application, the total revenue as applied for in June 2021 of R335 billion for 2024 and R365 billion for 2025 – remains the same.

The Supreme Court of Appeal ruled that R59 billion of incorrectly deducted equity from the utility can be added back to it through the allowable revenue decisions for each year.

From 1 April, R15 billion will be granted on top of the standard allowable revenue until 2026, then a final R14 billion in 2027.

“The proposal is to allow these recovered amounts to be targeted towards the return on assets for the transmission and distribution network businesses.”

“It also allows for the further migration towards cost reflectivity for the Eskom network businesses. Focus can then be shifted to the generation business in subsequent years,” said the utility.

Diesel

One of the primary drivers of the new price application is the assumption that global factors such as the Russia-Ukraine conflict will continue to make diesel more expensive.

Speaking to the media on Monday (12 September), Eskom chief operating officer Jan Oberholzer said that R7.7 billion had been spent on diesel in the year’s first six months.

“Are we proud of it? No. Do we have money to spend on this? No.”

This is way above the budget, Oberholzer said – it is the entire budget set for the year, six months in. “So we will overspend on diesel this year,” he said.

The power utility’s CEO, Andre de Ruyter, said that the overspending has been due to Eskom having to rely on more diesel than expected to try and avoid load shedding but also due to high global prices.

Eskom said that they submitted proposals to Nersa to restructure tariffs to allow for the allowable revenue allocations to reflect the costs better (unbundled, fixed and variable) included.

“This ensures that customers are more aligned to the actual costs they impose on the system.”

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