Eskom has proposed a sweeping overhaul of its electricity pricing design, saying the current model is outdated and no longer fit for purpose in a changing landscape marked by a wave of solar panel installations.
The proposal, submitted to the National Energy Regulator of SA (Nersa) in September for approval, calls for the scrapping of the so-called inclining block tariff, which charges households less for the first 600kWh of electricity and progressively more for additional usage.
The proposal was designed to cushion poorer households, ensuring they could afford their basic electricity needs. According to Eskom the tariff has been successful in lowering the cost of electricity for the poor. However, with more affluent households installing solar panels and using less electricity from Eskom, they too benefit from the lower rates.
Incentivising energy efficiency and moving towards alternative sources of energy further resulted in the loss of revenue without an equal reduction in its cost, said Eskom, which is choking under hundreds of billions of rand in debt and suffering tens of billions of rand in annual losses.
The new system, under the proposal, is specifically aimed at residential customers using more than 1, 000kWh/month and who are on Eskom’s Homepower tariffs. It introduces time-of-use tariffs, under which electricity will cost more during peak times and less during off-peak times. In addition, tariffs will be adjusted for seasonality with winter tariffs being much higher than those applicable in summer.
Industry and larger municipalities have long been charged according to their time of use. If the system is extended to consumers supplied by municipalities, it eliminates the need for municipalities to manage the current mismatch between the way Eskom charges its bulk sales to them and how they recover such costs from end-users.
That is expected to simplify the calculation of municipal tariffs and reduce the risk of under-recovery, said Deon Conradie, part-time lecturer in tariffs at the Wits Business School.
However, he cautions that municipalities will need to finalise cost-of-supply studies to ensure they recover real costs should they wish to change their tariff structures.
In recent litigation between civil rights group AfriForum and Nersa it was established that most municipalities that distribute electricity have not done cost studies as required by law. AfriForum took Nersa’s approval of the increased tariffs of these municipalities on review because of the lack of cost studies. Its application was granted in the high court, but Nersa’s appeal on the matter is still pending.
Eskom said the proposed new Homepower tariffs will reflect the correct network, ancillary service and service/administration costs. “The proposed changes will result in increased fixed charges, but the revenue from Homepower will, on average, decrease slightly for Homepower to be equal to cost.”
This is the third time Eskom has tried to change the structure of its tariffs. In 2020 the regulator did not process the application. In 2022 it substantially deferred it, but this time it seems the application will receive Nersa’s serious consideration.
Nersa plans to publish a consultation paper on the application in November and consult stakeholders on the proposals. It plans to make a final decision in January, which may be in time for the tariff increase that will apply to Eskom’s direct customers from April 1.
Eskom CFO Calib Cassim indicated that the changes, if approved, could be implemented in the next financial year starting on April 1, although the timelines will be tight. Nersa will, however, have the final say on the timing of the implementation.
The utility has applied to Nersa for a 36.1% tariff increase for the next financial year. Cassim emphasised at a media briefing on the application on Monday that Eskom’s tariffs are currently not at a level that covers its efficient cost.
He said Eskom realises it cannot moved to full cost-reflectivity immediately, because that will requite a 70% increase. Its application, which covers the next three financial years, provides for a gradual increase in the return on assets from the current level of 1.58% to 6% in the 2028 financial year.
The benchmark is a rate equal to Eskom’s cost of capital, which is currently 10.5%.
Update: October 15 2024
This story has been updated with more information
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