The National Energy Regulator of SA (Nersa) announced that power will go up by 24.8% from April, meaning consumers and businesses will have to make drastic changes in the way they consume electricity.
Following this year's increase, prices will go up another 25.1% next year, and 25.9% the year after. The regulator's approved revenue increases of R85 billion, R109 billion, and R141 billion during the three-year period is below Eskom's requested hike of 35%.
This leaves the utility to look at alternative avenues to help fund its R385 billon power expansion plans.
While the increases will have a substantial impact on consumers' and businesses' pockets, analysts say it's a necessary price to pay.
Jon Adams, CEO of local energy firm The Power Company, says the increases are fair to environmental interests, industries and the general public, and give Eskom something to work with.
“If we don't have these sorts of increases, we'll have no power in 10 years' time. We've got to have some pain now to prevent a lot of pain later, because without these tariffs there would be no new power stations.”
He adds that Eskom is likely to look to the open market to make up additional funding for its expansion programme, or put in differential tariffs. “It could also introduce punitive tariffs for using electricity when demand is high.”
Frost & Sullivan's energy programme manager, Cornelis van der Waal, says the increases are less than it anticipated and the way Eskom is structured at the moment means it needs all the funding it can get.
“We're heading into a period where electricity supply is in jeopardy, with potential load-shedding by 2011. It's going to be very difficult for Eskom to complete its build programme.”
He says the utility could look to raise money in international money markets or approach government to make up the shortfall, although the latter is unlikely to be successful, given the R73.7 billion budget deficit.
Business knocks
Companies will take a hit, says Adams, and many big power users will suffer, “but they have not paid the full price for energy, anyway”, he adds. “A lot of people will look to generating their own power and supplementing electricity, as the payback period is now shorter and these options are much more attractive.”
Van der Waal says the increases come as a wake-up call for firms. “The fact is businesses have been paying very little for electricity in SA. While municipalities increase the base price for consumers, on the industrial side, companies have had a jolly time in the past, and Eskom's build programme means there will have to be adjustment and rectifying.”
He says it's a positive move that Nersa has spread the hikes over a longer period, and not instated huge increases upfront. “It will be disruptive for companies, and many will have to look at ways of becoming more efficient, especially those heavy energy users running big data centres.“
Local consultancy sustainableIT says this year's price hike takes an average company's costs from R0.50 per kWh to R0.62 per kWh. “The increases will result in an energy rate in 2012 of R0.97 per kWh for the average company, effectively a 95% increase over three years.”
With energy rates set to spiral in future, the company says it's imperative that organisations look to other avenues to contain costs, with IT being a key element. Intelligent power management of computing environments and the data centre can help achieve aggressive return on investment, it argues.
Ending the chokehold
Chris Yelland, MD of EE Publishers, says the fact that the rates are significantly lower than Eskom was hoping for will put an end to its monopoly of the energy market.
He points out the initial scaling back from consecutive increases of 45% to 35% already required Eskom to cut several generation projects, such as a third coal-fired power station and nuclear plants.
“This means even more pressure for Eskom to give up its stranglehold and allow independent power producers (IPPs) to come to the table, as well as for renewable energy to become more attractive.”
He adds, however, that it will affect consumers, and take a chunk out of disposable income, affecting spending and the economy, as well as hurting industry.
“SA's prices were very low for many years, and this will bring it to a more realistic level, while encouraging energy efficiency. It's a clever price determination that will achieve multirole objectives, encourage the generation of IPPs, and the emergence of renewable technologies.”
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