Earlier this year Johannesburg’s City Power wanted to introduce a fixed charge (R200 a month) for all prepaid residential customers’ electricity bills (with the exception of the indigent). This caused a furore and many elements of society pushed back vehemently.
In my view the pushback was largely driven by vested interests under the guise that they were looking after the interests of the poor. Be that as it may, City Power’s proposal was retracted and prepaid customers still do not pay any fixed charges.
In the days when the electricity system was centralised and Eskom was the sole supplier, the split between fixed and variable costs was not that important. However, as the system decentralises and there is a proliferation of independent power producers and prosumers (customers that both produce and consume electricity) the split between fixed and variable costs has become critical.
Residential customers who have postpaid accounts pay a fixed charge, but prepaid customers only pay for the electricity they use (R/kWh) and do not pay any fixed charges for the privilege of being connected to the grid.
As more affluent customers install solar panels on their roofs they reduce the amount of electricity they buy from the grid because they produce electricity during the day and only buy electricity when they require it (at night and on cloudy days). Eskom is their supplier of last resort — in effect they use Eskom as their battery.
This reduces sales from the grid, which still has fixed costs (maintenance and salaries) that cannot be adequately recovered, and there is a revenue shortfall. This shortfall will widen as more customers move to prepaid meters. The shift to prepaid makes sense because it reduces bad debt and makes revenue collection easier, but for now there is the unintended consequence of an under-recovery of the suppliers’ costs.
This is not sustainable, and unless fixed charges are introduced to prepaid customers the death spiral of Eskom and the municipalities will accelerate.
I am one of those prosumers on prepaid with solar panels on my roof, so I don’t pay any fixed charges. I am in effect gaming the system and getting a free ride from City Power and Eskom. I’m sure many Business Day readers are in the same position. Is that fair? Is it sustainable? I think not.
Fortunately, some municipalities, such as Cape Town, introduced fixed charges for their prepaid customers some time ago, but many others, including Johannesburg, have not. A fixed charge should urgently be introduced to the bills of all prepaid residential customers (except the indigent).
The longer we delay this reform the more painful it will be. I hope the National Energy Regulator of SA and the municipalities are listening.
Etienne Rübbers
Cofounder, Renew-e
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