June 22, 2024
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ELECTRICITY

South Africa’s Eskom Seeks Review of Tariff Structures

South Africa’s power utility, Eskom, has applied to the National Electricity Regulator of South Africa (NERSA) to review its tariff structures before opening the country’s electricity market.

Eskom is preparing for the effects of its unbundling, which includes the launch of the National Transmission Company South Africa (NTCSA) in July.

“We’ve learned a lot from our journey on transmission into NTCSA. We will take these lessons on board as we begin the distribution unbundling,” said Eskom CFO Calib Cassim.

Cassim emphasized the importance of aligning with the ERA Bill, which outlines the eventual transition to a market-based transmission system operator (TSO). “It’s important that the regulator is aligned to the ERA Bill, and my understanding is it allows the regulator to implement transition mechanisms,” he stated.

READ ALSO: Eskom to Delay Coal Plant Closures Until 2030

According to Energy News Africa, the focus of Eskom’s new application is to help NERSA clearly separate revenues and costs among the unbundled Eskom entities. This includes determining the allocation of fixed and variable costs.

“Our current cost split is approximately 70% fixed and 30% variable. However, our tariff structure charges more than 70% based on energy consumption and only 30% as fixed costs. This needs to be adjusted, but it cannot happen overnight,” Cassim explained.

Tariffs have been a contentious issue in South Africa, with projections showing that by 2025, electricity costs could be over five times higher than in 2010. Nato Oosthuizen, a partner and renewable energy expert at BDO, noted that Eskom’s frequent above-inflation tariff increases have coincided with declining performance. Reduced demand for Eskom’s electricity from households adopting alternative energy sources and the entry of Independent Power Producers (IPPs) are exacerbating pricing challenges.

A study by South African Reserve Bank economists Zaakirah Ismail and Christopher Wood last year highlighted that Eskom’s rising debt financing costs have made electricity more expensive. They found that Eskom’s finance costs more than doubled in the past decade, while other costs have increased slightly above inflation.

Between 2007 and 2021, Eskom spent R680 billion on major projects with generally poor results, including attempts to return three end-of-life power stations to service, developing two additional peaking plants, and constructing the Medupi and Kusile power stations.

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