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South Africa's electricity pricing structures are as cl...

Business Maverick

POWER TRIP (PART FOUR)

South Africa’s electricity pricing structures are as clear as mud

According to the Eskom tariffs and charges booklet, municipal increases are calculated on the Eskom financial year, but in terms of the Municipal Financial Management Act, it is applied only in July of that year. (Photo: Dean Hutton/Bloomberg via Getty Images)

Comparing customer accounts across the power utility, local councils and everything in between is helluva complicated. It’s all relative to where you live, what time electricity is consumed and whatever other sundry expense it takes to balance the budget of bureaucracy.

Read Part One, Part Two and Part Three of Daily Maverick’s Power Trip series

The National Energy Regulator of South Africa (Nersa) approved Eskom’s allowable revenue rise from standard tariff customers to be 8.76% in March for Eskom’s direct customers, which was implemented on 1 April this year, and 6.9% for municipalities, which was implemented on 1 July.

According to the Eskom tariffs and charges booklet, municipal increases are calculated on the Eskom financial year, but in terms of the Municipal Finance Management Act (MFMA), it is applied only in July of that year. This means for the first three months of the new Eskom financial year, the local authority tariffs from last year still applied. It also means that for the coming year (2020/21), the municipal tariffs have a higher increase of 15.63% that will apply. 

“The municipal increase of 6.9% is calculated to ensure that on average with the first three months at a higher rate, and the last nine months at the calculated rate, that the revenue received equals an increase of 8.76%. Therefore, in order to ensure an average of 8.76% for the Eskom financial year, this meant a lower increase for the last nine months,” it states.  

Next year April the average standard Eskom tariff will increase from the current 116.72/c kWh to 128.24 – an increase of 9.8%.

But Eskom charges its customers – read local authorities – different charges, at various different levels, depending on the circumstances and the distance from its power stations.

According to Eskom tariff documents, “All customers (generators and loads) are required to make a contribution towards Eskom for the provision of new or additional capacity or for direct services rendered to a customer such as, the provision of service mains, the installation of equipment in the customer’s substation, for the taking of any special meter readings, for reconnection of the supply after disconnection and for additional work done for the customer by Eskom. These charges are referred to as ‘standard charges’ and are raised in addition to the standard tariff prices.”

So it’s complicated, it’s all over the place and it differs from user to user: any meaningful comparison by the layperson with his neighbour is almost impossible. 

And it is also only part of the story. Cue the municipal standard rates and increases approved by Nersa, which are indicated here.

But local governments also have some other powerful mechanisms in their legislative arsenal to add to the bill. These include being able to add an array of tolls and levies to existing electricity tariffs, which they can use to increase their revenue, and/or cross-subsidise other services they have to provide to their constituency.  

The City of Cape Town can levy a consumption and a service charge on a business in Muizenberg, for example, while the City of Johannesburg allows for charges on a resident in Midrand, which includes a network surcharge per kWh, a service charge and another fixed network charge.

A recent electricity tariff benchmark study indicates that Eskom’s standard price of providing electricity to the South African people is still one of the lowest in the world. It also shows that municipal electricity rates far exceed Eskom’s. 

According to the study, at a rate based on a $/kWh, Eskom’s price ranks in at 0.07, while top of the log contenders Germany, Belgium and Italy come in at 0.33, 0.28 and 0.27, respectively. Fellow emerging markets India and China come in at slightly higher 0.08, followed by Brazil and Turkey at 0.13 and 0.15, respectively. 

At an average consumption of 800kWh a month, the City of Tshwane’s tariff is 13% higher than the Eskom standard rate (currently 116.72c/ kWh). Ekurhuleni’s is 18% higher, Cape Town’s 25% and Johannesburg’s 25%.

According to Eskom spokesperson Sikonathi Mantshantsha, the power utility is only responsible for tariff setting to its direct customers –  the municipalities – and the price paid by municipalities to Eskom is their purchase cost, comprising Eskom energy, retail and networks services provided up to their point of connection. 

Municipalities, in turn, add their own distribution (network costs), retail costs and an allowable profit margin.

“Each municipality has its own unique cost structure and customer base and depending on this, will have different tariffs from Eskom,” he says. 

“Municipalities follow a process to consult on their tariffs and these tariffs are approved by Nersa. Eskom cannot and does not get involved in the setting of municipal tariffs,” he adds. 

The South African Local Government Association and Nersa did not respond to questions about how and why individual municipal tariffs are set.

But it doesn’t take too much scratching around to find the heaviest of hands among the country’s 200 or so municipalities that purchase electricity for distribution from Eskom. Sol Plaatje Local Municipality, which falls under the Frances Baard District Municipality of the Northern Cape and includes the diamond mining city of Kimberley, has the highest tariffs out of all municipalities.

It is important to note that it is impossible to do a like-for-like tariff and profile comparison because the profile and makeup of Sol Plaatje’s customer base is unknown. 

When comparing the Sol Plaatje tariff with Eskom’s Homepower 16kVA, the breakeven is in this case still at a high consumption level around 3700kWh and the Sol Plaatje tariff is on average 20% more expensive up to the breakeven level and 43% more expensive at the lowest level.

Eskom has different residential tariff options, depending on size and average consumption. The comparison was done for Sol Plaatje residential tariff compared with the Eskom residential tariffs, Homelight 20A, Homelight 60A and Homepower 16kVA.  The following table shows the residential tariff rates.

What Business Maverick noticed is that Sol Plaatje and Homepower 16kVA have a basic charge as part of their tariff structure, while the Homelight tariffs do not have a basic charge. Having a fixed basic charge causes a tariff to be more expensive at lower consumption levels.

Compared with Homelight 20A, the Sol Plaatje tariff remains more expensive, irrespective of the consumption level due to the fixed component in their tariff. Compared with Homelight 60A breakeven is only achieved at over 4,000kWh, which is way in excess of an average residential customer’s usage. 

The following table shows the Sol Plaatje business tariff rates compared with the Eskom Business rate 1 (25kVA) tariff rates. 

What is apparent is that the Sol Plaatje tariff has a lower basic charge than the Eskom tariff, but higher energy rates that have an inclining block structure and are different for winter and summer.  

Eskom, however, has the same rate through the whole year with a higher fixed charge than the Sol Plaatje tariff. On an average value for the year, the Sol Plaatje tariff is also cheaper for the business user than the residential user. 

In comparison with Eskom Megaflex and Miniflex tariffs, which depend on the size of the energy pipeline at low consumption levels (low load factor), the Sol Plaatje tariffs are on average higher than the Eskom Megaflex and Miniflex tariffs:  

  • For load factors less than 40%, the Sol Plaatje tariffs are on average 86% higher.
  • For load factors between 40% and 70%, the Sol Plaatje tariffs are on average 67% higher.
  • On average Sol Plaatje tariffs are 50% higher than the Megaflex and Miniflex tariffs.

It can be concluded that at all consumption levels, Sol Plaatje’s residential tariffs are the most expensive compared with that of Eskom. The variance can be more between 40%-200% for consumption less than 100kWh. 

Doug Kuni, an energy expert, says that almost 80% of local municipalities use this funding model. 

“The right of municipal supply is entrenched in the constitution, so nobody can take away the rights from the local government. And despite Nersa setting the basic electricity rate, the MFMA and PFMA [Public Finance Management Act] allow for them to add all kinds of levies and tolls to raise revenue over and above that, and to subsidise their other services. 

“The new generation regulations that were gazetted by the Minister of Energy a fortnight ago will allow municipalities to purchase directly from independent power producers, and it will be very interesting to see how they choose, as it will be very difficult for these onsellers to find energy prices cheaper than Eskom,” he adds. 

Meanwhile, Nersa put forward its intention to overhaul the outdated methodology used to determine the electricity tariff. DM/BM

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All Comments 5

  • There are NERSA guidelines on allowable margins, which SolPlaatjies clearly breaches at 90%. All municipalities should be compelled, along with their tariffs and before applying to NERSA, to publish their margin per tariff category. They are afraid to do this because it will prove that they are in breach of the Energy Regulation Act, which compels licensees to use tariffs that are cost-reflective, non-discriminatory and realises a reasonable margin.

  • Why this fixation with charging people with low load factor more? For context, a 50% load factor means a business must run all its equipment at the same time for 12h a day 365 days a year. That is not normal. The moment a business adds solar, even while its actual internal load factor remains the same, the council sees a lower load factor and makes more money. If a business improves its energy efficiency, the council makes more money. There is only one rational tariff and that is a Time of Use tariff with regulated markup over Megaflex.

  • Yes , reminded again how little we pay , in $ terms !
    Yet that is based on the Escom price I guess .
    So from 116c /kwh , I pay 200c /kwh .
    I pay the muni 84c/kwh .
    Roughly , 75 % more !
    Makes a big difference to that list above !

  • Johan

    It’s fairly obvious. If you only use electricity occasionally but want the full supply when the sun goes down or your generator breaks down, you’re expecting that ESKOM will have a generator standing there, just ready to provide for you. Who is going to pay for it while it is NOT working? Please don’t ask me, I am paying ESKOM to supply my relatively regular consumption which they can plan for.

    This is why Andre de Ruyter was warning the other day that, if there is a massive switch to intermittent renewables, there will have to be an availability charge to pay for all that standby generation capacity. There is magic solution – providing a reliable supply of electricity will cost you. And if too many people try to game the system by treating the public supply as a ‘backup’ they will have to pay for the privilege.

  • Mike : simply NO! A consumer with solar on ToU tariff pays the same availability fees and peak demand fees as a user without solar. The only difference is the kWh energy consumption. Both paid for the generation and in most cases we pay about double what Megaflex imposes on notifier and peak demand. Load Factor does not in ToU impose any cost on a licensee – it is amply recovered. A low load factor user is in FACT far more profitable to a licensee than a high load factor user, as the councils recover a larger margin on kVA than they do on kWh.

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