South Africa’s new electricity plan — including price hikes when Eskom’s grid struggles and a 10-year price forecast

The Department of Mineral Resources and Energy this week published the Electricity Pricing Policy Review for public comment, following approval by President Cyril Ramaphosa’s cabinet.

The 124-page document outlines the government’s approach to determining electricity tariffs in South Africa in light of the generation market being opened up to private power generators in the coming years.

It also makes provision for establishing a separate independent transmission company under Eskom, which will facilitate electricity transmission via different providers.

The move is expected to help resolve South Africa’s electricity crisis, as Eskom’s decades-old coal power stations struggle to keep up with demand and a shift towards greater reliance on renewable energy sources is realised.

Energy expert Chris Yelland told eNCA that creating this transmission company is a step towards a competitive, diversified generation sector where different generators, not only Eskom, had equal access to the grid.

“It facilitates bilateral contracts between generators and users of electricity, it facilitates the trading of electricity, and it also is there to establish a new electricity market in South Africa where trades can take place between buyers and sellers,” Yelland said.

Independent Power Producers already supply over 6,000MW of electricity to Eskom via solar and wind plants. Under the new legislation, their electricity will be carried through an independent transmission company.

In terms of electricity pricing under the new regime, the policy emphasises cost-reflectivity; in other words, consumers should pay a tariff in-line with the amount it costs to provide their electricity.

The policy states that electricity tariffs should reach cost-reflectivity within five years of coming into effect, except for specific tariff categories that will be cross-subsidised, such as those for disadvantaged households.

The document states that in addition to the standard range of products, there should also be certain special electricity products and prices, including:

  • Curtailable and interruptible rates offering repayments/rebates to customers to reduce consumption in very high demand periods or where there are capacity constrained periods.
  • Critical peak pricing tariffs with certain periods having very high tariffs, such as when the system’s reliability is threatened, and lower tariffs in other periods.
  • Real-time pricing products with rates provided ahead of time (usually hourly or daily).
  • Short-term flexible products and services to meet supply and demand.
  • Green energy tariffs to encourage customers to support green technologies in the energy market.

The National Energy Regulator of South Africa (Nersa) has already started reviewing the electricity pricing methodology that guides the annual tariff hikes it grants Eskom.

It also focuses on cost-reflectivity and has advocated segmenting customers according to their usage habits.

According to Nersa, solar users with Eskom as backup are more expensive to serve because they use grid power during peak demand.

The implication of the regulations would be that consumers who use their own solar panels for electricity during the day would pay over 1,000% more for grid power than customers with more consistent usage, like mines and factories.

Eskom has warned that this approach was not feasible, as it was impossible to detect which users were drawing electricity from which power stations at any point in time.

Instead, it has proposed a fixed capacity charge for almost all electricity users to account for the extra cost of servicing self-generators.

10-year price forecast

Another point government’s new policy advanced was broad support for the publication of a long-term price outlook to give customers the ability to prepare their budgets accordingly.

“The price forecast should cover two aspects — namely the average national price of the entire value chain up to the point of sale to municipalities, as well as the average municipal price to each municipality’s consumers,” the policy stated.

The price forecast should be for no less than ten years and should be updated frequently to signal the overall expected trend in electricity prices.

“Ideally, the forecast should show the contribution of generation (all of its major sources inclusive of SOE-owned and independent/privately-owned), transmission and distribution to the forecast price level for some representative notional customers.”

The policy added the forecast should be treated as indicative and would not be binding.

Embedded below is the full pricing policy document published for public comment.

Review of the Electricity Pricing Policy of 2008

Now read: Municipalities could stand in the way of private power

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South Africa’s new electricity plan — including price hikes when Eskom’s grid struggles and a 10-year price forecast