Energy regulator Nersa has approved Eskom’s umpteenth application to change its retail tariff structure, but has mitigated the effect on consumers with their own solar panels by providing for a three-year phasing-in period.
Eskom has been trying to change the structure of its tariffs since 2020, but the regulator interrogated its application substantially only late last year when it held public consultation meetings.
The new structure will be reflected in Eskom’s new tariffs that take effect on April 1, together with the 12.7% revenue hike the regulator awarded the utility in January. It is expected that municipalities will also adjust their tariff structures to align with Eskom’s for implementation on July 1, together with their tariff increase.
When the issue was discussed at a Nersa meeting last week, members emphasised that Eskom will not be allowed to use this structural change to make more money than the amounts of R445bn, R495bn and R537bn that Nersa approved earlier for the next three financial years.
The allocation of those costs to different customer categories may, however, change with some customers paying more and others less per month.
One group to see an increase are owners of embedded solar photovoltaic (PV) technology.
Eskom’s residential customers now pay for electricity according to an inclining block tariff providing for a low tariff for low volume users and increases as consumers use more electricity every month. The assumption was that poor people use less electricity and the affluent more.
As the environment changed, more and more affluent consumers reduced their usage by installing solar panels while staying connected to the grid for backup. The consequence was that they also benefited from the subsidy paid by higher volume users.
Eskom must maintain the network so that it is available when such users need backup but does not get any income from them. On the other hand, the regulator pointed out, where several families stay together at one Eskom service point, the usage may be high despite them being poor.
Nersa has now given permission for Eskom to scrap the inclining block tariff and unbundle its current energy charges. This entails the unbundling of generation cost into variable c/kWh tariff, a fixed charge to cover its fixed generation cost, in line with the way independent power producers charge their clients, including Eskom.
By allowing this, Nersa enables Eskom to prepare “for a competitive wholesale market which is foreseen in the recently promulgated Electricity Regulation Amendment Act”, said Deon Conradie, former senior manager in tariffs at Eskom and part-time lecturer on the subject at Wits Business School.
Eskom wanted to implement this fixed charge immediately but Nersa decided to allow the implementation over three years to avert a shock to those consumers.
There will be further unbundling to separate energy and network charges. This will ensure owners of solar PV with low kW/h usage pay for their network use. These costs are now all bundled together in the cost/kWh, and their network usage is being subsidised by those without solar PV who use more units of electricity.
“Nersa approved the alignment of tariffs with an updated cost of supply study to accurately reflect the cost of these services to avoid volume and trading risk; to reflect cost drivers more accurately; and to ensure that tariff charges cater for the unbundling of Eskom,” Conradie said.
Eskom’s tariff structure for municipalities has been simplified by reducing the 15 tariffs to three — one for large power users, one for small power users and one for public lighting.
Conradie said municipalities would overall see higher energy rates and reduced network and retail charges. Winter peak tariffs are also lower and there is a decrease in contributions to subsidies. The public lighting tariffs will, however, increase considering the under-recovery according to the latest cost of supply study.
Eskom will now calculate its detailed tariffs for 2025-26 and submit them to Nersa for approval. Its final tariffs must be tabled in parliament by March 15 to take effect on April 1.
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