Power prices 'will triple in next decade'
March 11, 2008
By Justin Brown
Johannesburg - Electricity prices will triple over the next decade as consumers are forced to pay for Eskom's heavy investment in new generation and transmission capacity to meet surging demand.
Stephan Dolk, NUS Consulting Group SA general manager, said yesterday the price of electricity would double in four years and triple in 10.
NUS specialises in market pricing research in the electricity, gas, water, petroleum and telecommunications industries.
The NUS estimate compares with a forecast made in August 2006 by Exxaro Resources' predecessor group, Kumba Resources, that it would take 20 years for South African power prices to triple.
Dolk said: "Eskom definitely can't fund its expansion programme by increasing prices by [only] 5 percent or 6 percent every year. There is only so much that they can borrow without their credit rating coming under pressure."
For power prices to double by March 2012, there need to be three consecutive increases of just more than 20 percent starting from March next year. For prices then to triple by March 2018, prices have to increase by an average 7 percent over six years starting in March 2012.
The National Energy Regulator of SA has granted Eskom a 14.2 percent increase in electricity prices in the year to March next year compared with the 18.7 percent it was seeking.
Eskom's application for a price increase of 17 percent from April next year was made before the utility's move to buy 45 million tons of coal for as much as R11 billion to replenish its depleted stockpiles.
Eskom will spend R300 billion on generation capacity over the next five years and will lay out R1 trillion by 2025.
Eskom also faces a rapid increase in input prices due to the weakening of the rand, as much of the material as well as boilers and turbines used in the new power stations will be imported.
Andrew Etzinger, the Eskom spokesperson, was not available to comment.
A NUS survey of 14 countries last April found that South Africa had the cheapest electricity supply costs at 3.56 US cents (29c) per kilowatt-hour. Denmark was the most expensive at 22.89c per kilowatt-hour.
Bronwyn Wilkinson, a BHP Billiton spokesperson, said a tripling in electricity prices would affect BHP Billiton to a "certain degree". BHP Billiton operates three aluminium smelters in southern Africa supplied by Eskom. Electricity costs account for about a third of an aluminium smelter's costs.
Robert Valdmanis, a spokesperson for Rio Tinto Alcan, said the group, which plans to build a $3.25 billion smelter at the Coega Industrial Development Zone in the Eastern Cape, confirmed the group was expecting a "substantial increase" in electricity prices.
Songezo Zibi, a spokesperson for Xstrata, the largest producer of ferrochrome, said a tripling of local power prices would result in a substantial increase in production costs.
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