HILTON TARRANT: A report has come out from global energy consultancy The NUS Consulting Group on electricity prices, looking at 18 countries around the world.
Chris Yelland of EE Publishers joins us now. Chris, South Africa is in that group of 18 surveyed countries; we come in at No 15. Some would argue we have the 15th most expensive electricity in the world. Others might argue that we are the fourth cheapest. What are your thoughts?
CHRIS YELLAND: I think from the information presented in the article about the study, not having seen the comprehensive study results, if you only survey 18 countries out of several hundred countries of the world, and look at South Africa’s position in those 18, it’s very hard to draw conclusions.
So, looking at this list of countries surveyed, they all appear to be developed countries like in Europe, in Australia and in the United States and North America. And yes, we come No 15 out of 18 countries, but remember those are developed countries. It would really be much more illuminating if we could see our position in the total listed countries of the world. So it may give a wrong picture just looking at this study.
HILTON TARRANT: Perhaps where we’ve moved from and where we are now could indicate something. We have been part of this study for a number of years and we were rock-bottom for a good number of those years.
CHRIS YELLAND: There’s no doubt, and we all know, that South African’s electricity prices have dramatically increased over the last five, six years. I’m talking about several times – like a four, five, six times price increase. So we have faced a massive increase.
We used to be half the price of the next lowest price in the world. So we were not just the lowest price, but we were half the price of the next lowest. So we were very, very low. We are no longer in that enviable position. We are moving up the ranks and we sit somewhere, I guess, in the middle and still increasing. We no longer have the cheapest electricity price in the world.
HILTON TARRANT: Chris, what about municipal price increases? One can only assume – and both of us haven’t really seen the full report, so we wouldn’t have seen the methodology behind this – but municipalities would add a margin on whatever the base cost or the Eskom cost of electricity is.
CHRIS YELLAND: Yes. We published an interesting article on the subject after a presentation by the Regulator. Electricity energy – that means the price of electricity, the energy component from Eskom that the municipalities incur, accounts for something like 70% of the municipal electricity distributor’s cost.
So of course when Eskom increases its price by 8%, 70% of the municipal price will go up by 8%. The other 30% is regulated by the Regulator and it comprises things like salaries, cost of capital, cost of equipment for refurbishing and maintenance, etc. And the regulations allow for a 7% increase on that 30% of the municipal cost.
Overall municipal tariffs are likely, on average, to increase by about 7%, which is somewhat lower than Eskom’s price increase. It is the average municipal increase. Municipalities are often perceived to have extremely high electricity prices as compared to Eskom, but really this is not true and needs further understanding of the situation.
HILTON TARRANT: Chris, just to close off with, the supply-demand picture currently – a bit of a cold snap today as far as winter goes. We’ve had a fairly mild one. Is the picture still finely balanced?
CHRIS YELLAND: Very finely balanced. In the last three or four weeks there have been occasions where Eskom has declared that the supply will not meet demand, and the way they balance supply and demand then is to expose the interruptability contract which they have with BHP Billiton, which effectively gives them a 2000MW buffer, you might say. They are able to reduce demand by 2000MW simply by exercising the interruptability clauses in their contract with BHP Billiton.
So the situation is very critical and I believe if we have a combination of bad weather coming at the beginning of the week on a Monday and perhaps one or two problems of unplanned outages on Eskom’s generation capacity we could go into the situation of blackouts, where Eskom asks various municipalities to shed load. And that is all a matter of statistics and probability if these unfortunate occurrences occur simultaneously.
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