If Eskom gets its way, South Africans will on average be paying just over double the current electricity price by 2018, after annual increases of 16% every year until then. If the regulator grants the increases, power will cost around eight times more in 2018 than it did in 2008, when parts of the country last experienced blackouts as power generation failed to keep up with demand.
Eskom said that a third of the increase will be required to pay for higher coal costs, and another quarter will go to increased operating costs. The rest is made up mostly of making provision for replacing ageing infrastructure and paying current and future debt raised to do so.
But that is based on somewhat conservative assumptions. Eskom believes its payments for coal will increase by no more than 10% every year, and that its employee costs will increase by no more than 6% every year. A big spike in the cost of coal significantly higher than inflation would play havoc with the numbers.
The increase Eskom requested also did not make provision for the introduction of a carbon tax, and assumed independent power producers would start contributing significantly to power generation over the next five years. This process of allowing such outside players into the industry has seen long and consistent delays. Should the independent producers not develop as the government plans, Eskom said, it will require 20% year-on-year increases.