The City of Johannesburg (CoJ) has the most expensive consumption charges for electricity to industrial clients, apparently causing factories to re-locate to cheaper municipalities or consider shutting shop.
According to an analysis by energy services company RTC Control Systems, Johannesburg’s electricity – through its City Power – costs more than double the price charged by Eskom.
The analysis compares the electricity costs of a “typical” plastic factory under Joburg’s most appropriate tariff structures for large customers, to what it might pay in other metros or when plugging directly into Eskom.
The comparison uses real electricity usage statistics from one of RTC’s clients. By comparison to Johannesburg’s 100% premium, the analysis shows the premium over Eskom’s price at a mere 8% in the Nelson Mandela Bay Metro, while Durban customers pay a 17% premium.
In 2008 Joburg charged a premium of around 30% over Eskom, according to RTC MD, Leon Barkhuizen, who adds that prices levelled against industrial and commercial customers have increased by over 250% in the last five years.
Several experts told Moneyweb the exorbitant prices being charged by Johannesburg are “unsustainable” and “outrageous”. They add that electricity is a “cash-cow” used to cross-subsidise other operations.
As a result, major industrial clients are considering either shutting their operations or relocating their factories to areas supplied directly by Eskom.
With around 2 000 different tariff structures at the various municipalities around the country it is extremely difficult to compare municipal electricity prices directly, says Eric Solot, a member of the South African Association of Energy Services Companies and MD of Alpha Power Solutions.
However, “what is definitely sure is that the most expensive power in the country is City Power, followed by Tshwane then Ekurhuleni. The cheapest power you can get is (from) Eskom,” he says.
“I know for a fact that people are relocating out of the city,” as a result of Johannesburg’s industrial prices to areas supplied directly by Eskom or to cheaper municipalities, says Solot.
Electricity expert, Chris Yelland asks “why should Joburg charge such outrageous prices… In the end Joburg is a competitive business; if it doesn’t charge the right prices business will go elsewhere.”
Typically there are three major components to a customer’s electricity charge says Yelland.
The first is a flat rate service charge, the second a per Kilowatt Hour (kWh) consumption charge and the third is a monthly maximum demand charge which is calculated based on the customers peak electricity usage.
Johannesburg however, is unique in that it is the only municipality to charge a so-called “reactive energy” charge which is based on the efficiency at which a customer uses its electricity, according to Solot.
While the reactive energy charge is relatively minor for a large factory, Solot says the maximum demand charges for Eskom are much lower than for Johannesburg. “Demand charges in Johannesburg are about eight times more expensive in Johannesburg than for Eskom.”
Barkhuizen adds that Johannesburg, through its City Power, is it’s the only municipality in the country that considers May to be a winter month.
“Although Johannesburg buys at summer tariffs they sell at winter tariffs for the whole month… Its blatant theft in my book, it’s absolutely fraudulent”.
Winter tariffs are “far higher; approximately 40% to 50% more expensive”, than summer tariffs, according to Llewellyn Curlewis, of Energy Audit Strategy who notes that the City is the only metropolitan to charge Winter tariffs for four months of the year as opposed to the three months charge by other municipalities.
Despite repeated attempts, City Power did not respond to requests for comment.