Electricity price warning for South Africans with solar power

Eskom and Nersa’s proposed electricity pricing reforms in South Africa could see many households and businesses with solar power pay substantially more for electricity.

In a recent interview with the Business Times, Eskom chief financial officer Calib Cassim said that the utility wanted an electricity price restructuring that considers its unbundling into three separate entities.

Cassim said Eskom applied to the National Energy Regulator of South Africa (Nersa) to more clearly separate the revenues and costs between the different unbundled Eskom companies — the first of which will be the National Transmission Company of South Africa.

The CFO explained that the regulator must align with the Electricity Regulation Act Bill, which was recently passed by the National Council of Provinces.

One of the major issues Eskom has with the current tariff structures is that 70% of charges are linked to energy while 30% are fixed, when it believes that ratio should be reversed.

Simply put, Eskom wants higher fixed tariffs for grid connections — called capacity or availability charges — and lower effective per-kWh costs.

The power utility has formalised this approach in submissions to Nersa on proposed changes to South Africa’s electricity tariff calculation methods.

MyBroadband previously determined Eskom’s fixed charge increases would lead to 269% to 332% higher bills for Homepower users with 0kWh consumption. That equates to about four times the current fixed fee.

For example, Eskom’s Homepower 4, the most common direct residential tariff, would see its fixed tariff increase from R218 to R938.

That was based on its 2020/2021 financials, but Eskom told MyBroadband the principle has remained the same.

Eskom said a new time-of-use Homeflex tariff would provide an alternative to solar users.

However, households would still need to consume around 1,000kWh of Eskom’s electricity before they start seeing savings over their current Homepower bill.

The charts below summarise what the changes in the relationship of fixed to variable charges would mean for Homepower users’ bills.

If Nersa aligned its pricing methodology with Eskom’s proposals, it would influence fixed tariff determinations for all authorities that buy electricity from Eskom — including municipalities.

From Eskom’s perspective, its proposed heavier weighting of fixed tariffs makes good business sense, as demand for the utility’s electricity has dwindled in the past few years.

Among the biggest reasons for this are above-inflation energy tariff hikes and households and businesses adopting rooftop solar at a rapid pace.

The power utility is keenly aware that it could end up primarily with poor non-paying customers, as former Eskom CEO André de Ruyter has warned, while more affluent households increasingly switch to alternatives.

Critics have often also complained that the power utility’s tariff structure discourages electricity usage, which hurts Eskom’s sales.

Scrapping inclining tariffs

Eskom wants to encourage people to use more as it anticipates moving out of a situation where it has insufficient generating capacity.

In addition to the hiked fixed fees, Eskom wants to scrap the Incline Block Tariff (IBT) structure, a mechanism that sees the price of electricity increase as users reach certain monthly consumption thresholds.

For example, the City of Tshwane’s prepaid tariffs are cheapest below 100kWh of total monthly usage.

The price-per-kWh then increases slightly between 101kWh and 400kWh, again from 401kWh to 650kWh, and becomes the most expensive for consumption of 651kWh or higher.

That favours solar power users, as they generally consume lower amounts of electricity.

By scrapping the IBT, taking both fixed and energy charges into account, the effective price-per-kWh will be reduced.

However, this will only benefit heavy electricity users — including large households and businesses — which tend to be more affluent.

Eskom is effectively proposing to punish smaller households and businesses for augmenting their own supply with self-generation, a decision highly motivated by Eskom’s inability to supply reliable power in the first place.

The fact that the high adoption of private solar has helped Eskom avoid load-shedding in recent months adds insult to injury.

With solar panel and battery prices expected to continue dropping over the next few years, many disgruntled users might decide to go entirely off-grid.

Nersa’s focus on energy charges could also be bad news

Nersa’s Electricity Price Determination methodology (EPDM) has largely ignored Eskom’s proposals.

Nevertheless, Eskom has argued that it could also be bad news for grid-tied solar power users, primarily those who are not as self-sufficient as minimal grid users.

The EPDM is highly focused on tariffs being determined by the costs associated with generating and supplying electricity to specific users.

Its rules could result in solar power users being grouped into a variable user profile that will see them pay five to ten times more in energy charges.

Such an approach would also encourage users to increase their self-generating capacity, but they might be more likely to keep their grid connection for emergencies.