Lets see,Apologies if you feel left out understanding with the graph n shit below.Eskom haven't built a power plant in more than 15 years, and have gotten rid of their skills base, and in the meantime building power plants have become substantially more expensive since the last time they looked. Eskom therefore should get out of the power plant building business, because they do not have the skills to do a cost effective job. They'll be inefficient enough trying to manage & maintain power generation and distribution. contend that Eskom was asleep on the job over the past 15 years, and have covered their annual shortfalls with subsidies from govt with our tax money. Now the govt won't easily subsidise them anymore, due to other pressing needs, and in anycase Eskom keeps surprising the govt by asking for increasingly more, which screws up the govt budget. So Eskom's remaining alternative is to go straight to the taxpayer, via rates, as they have no other way out. Maybe if Eskom was privatised after 1994, we wouldn't be getting these "shocks" now?
The first depicts government's preferred approach to the tariff increase i.e. a compounded 43% increase year on year. This will kill most energy intensive businesses in SA and probably shave a few percentage points off our GDP growth, never mind increasing inflation and interest rates and ruining any chance of you paying off your mortgage,billls etc any time soon.
The grey area depicts the most likely price region (based on volatility and the forward curve for German wholesale power). Clearly the price here is sensitive to the ZAR i.e. if the ZAR strengthens the German power price will look cheaper. Consider that Germany buys our expensive export coal, ships it all the way to Europe and then barges it down the Rhine to their power stations before burning it. And yet the wholesale power price index (Phelix) on the European Energy Exchange (
www.eex.com) is basically where our current power prices are. Don't ever believe the lie that gets peddled that we still have the cheapest power in the world!
Now the interesting bit.... The blue line is what our electricity price should be a**uming Eskom sold power linked to the coal price (as is done in Europe) and they hedged themselves against the current coal forward curve. This line depicts the price a**uming Eskom bought ALL THEIR COAL ON THE SPOT MARKET!!! Which they don't. They actually buy their coal on a much cheaper cost-plus and fixed price contract agreement. THIS ALSO INCLUDES A BUILT-IN 30c/KwH profit margin for Eskom, meaning they would never make a loss based on fuel prices. Far better than linking their power price to something arbitrary such as aluminium.
The price of electricity in Germany is currently at €0.20 a kilowatt hour, which is about R2.00, compared to our electricity cost of 33c (South African cents) ...Wholesale European power for delivery in the next quarter is currently trading around €49.20/MwH or about ZAR532/MwH (see graph) or ZAR0.532/KwH and then finally ZARc53.2/KwH. I am being a little unfair in comparing wholesale European power prices to average grid offtake prices in SA of 33 cents so let's add on ZARc30/KwH for European grid distribution etc. That still makes ZARc83.2/KwH which is still less than Eskom's 'stable' price of 88 cents. Clearly the strong ZAR makes European power prices seem a little lower right now.
