Electricity price plans will punish solar users

The implementation of a new fixed charge for prepaid customers in Johannesburg could just be the beginning of proposed electricity price adjustments that would dramatically increase South African solar power users’ bills.

While City Power has angered numerous Joburg residents with its new R230 fixed charge for prepaid users starting from July 2024, many other municipalities — including the City of Cape Town — have already adopted similar fees.

Eskom is also pushing for a radical reform of South Africa’s electricity tariff structures that proposes a more significant contribution from fixed capacity and service charges separate from consumption-related energy charges.

Eskom has argued that these changes will see the average customer paying less or roughly the same as they currently do.

However, higher fixed capacity charges will significantly increase low-usage consumers’ monthly electricity bills, including those with solar power systems.

Most households and businesses with solar power use the systems for backup and to reduce their electricity bills.

While the initial cost of such a system is substantial, the savings in electricity usage gradually help pay off it off.

To illustrate how this works, one can look at the real-world example of a MyBroadband reader living in a middle-class home in  the City of Tshwane.

He currently pays roughly R2,000 per month on a 60-month personal solar loan used to install an entry-level backup solar power system.

It features six solar panels peaking at 3.3kW generation, a 5kW inverter, and 5kWh battery storage.

Before the system was installed, the reader’s household consumed about 300 to 400kWh per month and had an average electricity bill of around R950 per month.

Nearly all of their electricity demand has shifted off-grid, with typically only a constant 20-watt trickle feed required to prevent their prepaid meter from incorrectly reading feed-in.

The cost of the trickle and a few kWh of grid power every month in exceptional periods without sunshine currently works out to around R50.

The six solar panels of the entry-level solar power system

How fixed charge increases bill and return-on-investment period

Factoring in savings, the effective cost of the reader’s load-shedding and power outage protection currently works out to around R1,100 per month or R10,200 per year.

That amount will shrink significantly with the expected electricity tariff hikes over the next few years. In the past three years, the price of electricity has increased by an average of 13.66%.

If that trend continues, the effective cost of the system will work out to R53,030 when subtracting savings from monthly loan repayments over the 60-month term.

That amount would be paid off sometime in the middle of the system’s eighth year of operation.

If this user had to pay an extra R230 per month for a fixed charge, their monthly electricity bill would increase by about 460%.

MyBroadband’s calculations also showed the return-on-investment period for the system would be extended by a year and a half, as shown in the table below.

Pushing users off-grid

It is easy to see how these types of changes could persuade grid-tied solar power users to go fully off-grid.

The RoI period extension is not world-ending, and the user would still save a lot on electricity every month with a solar power system.

However, multiple solar installers have told MyBroadband that investments in backup power are often out of an emotional reaction to Eskom’s poor performance and load-shedding rather than pure facts.

The impression that Eskom is now punishing those same users who were forced to reduce their reliance on the utility due to its failures could be enough to make them justify further spending to take their homes and businesses entirely off-grid.

In addition, Eskom’s proposed fixed tariffs are substantially higher than those of municipalities.

Based on its modelling of the impact of the restructuring, had it been done in 2022, the most common Homepower 4 tariff with 0kWh monthly usage would pay R429 more than their current fixed charge.

The effective cost of the charge goes down as the consumption increases, but the new total bill only breaks even with the old tariffs at 800kWh of consumption.

That is substantially higher than many small and medium-sized households consume.

Eskom’s proposal is highly favourable to large power consumers and punishes low-usage households that do not qualify for indigent subsidies.