Energy expert on why Eskom should not be granted another tariff increase

JUNE 23, 2015

Energy expert Chris Yelland has revealed the details of his presentation that he will give at Nersa's MYPD 3 Selective Reopener hearing on Tuesday morning, detailing why Eskom should not get a further tariff increase.

The price impact is worse than it seems, explains Yelland in the presentation.

'No budget for Eskom'

“A 12.69% increase came into effect on 1 April 2015,” he will explain at the hearing. “If granted, the extra 12.61% claimed would become effective on 1 August 2015 at the earliest.

“If recovered over balance of 2015/16 (i.e. 8 months) the extra 12.61% becomes 12.61 x 12 / 8 = 18.92%.

“Thus, the price increase from 1 August 2015 to 31 March 2016 will be 12.69 + 18.92 =  31.61%.

“This has not been budgeted by domestic, municipal, agricultural, commercial, industrial, mining customers,” he will say.

"The question of affordability to the economy and to electricity customers has not been considered by Eskom at all," Yelland explains in the presentation. "Many submissions to Nersa will deal with the issue of affordability."

Eskom should pay for its mistakes - Yelland

In MYPD 3, Eskom included costs of electricity from Medupi, Kusile and Ingula from 1 April 2015 to 30 March 2018, Yelland explains. "Due to late completion of Medupi, Kusile and Ingula, Eskom has incurred extra diesel and STPPP costs," he says.

"These extra diesel and STPPP costs must therefore be offset by the LCOE [levelised cost of electricity] savings by not producing electricity from Medupi, Kusile and Ingula," he said. "Yet no mention is made of any cost reduction offsets in Eskom’s application for 'selective reopener' of MYPD 3."

In 2012, Nersa publicly stated its estimate for the LCOE from Medupi as about R0.97/kWh, Yelland will argue.

According to Yelland, based on an average LCOE from Medupi, Kusile and Ingula of R1/kWh, the net claim for 2015/16 is
- Diesel:   R11bn – R5.4bn = R5.6bn net extra diesel cost
- STPPP: R5.4bn – R5.1bn = R0.3bn net extra STPPP cost

"For the 2015/16 financial year, additional diesel costs are probably inevitable, but the relevant offset cost reductions must be taken into account," he said. "However for 2016/17 and 2017/18 there are no doubt lower cost options to unbudgeted diesel."

Inadequate disclosure

Information disclosed in Eskom’s application is "completely inadequate", according to Yelland.

"Every reasonable effort to establish from Eskom the real offset costs, the estimated CTC (including the overnight construction costs, FGD, IDC and outstanding contractor claims) and LCOE, for Medupi, Kusile and Ingula has failed," he explains.

"However Nersa and Eskom have at their disposal suitable resources and data to perform this recalculation very accurately."