Big Eskom price hikes on the cards

3 years ago 1

ARTICLE AD BOX

The National Energy Regulator of South Africa (Nersa) is reviewing the proposed cost-reflective electricity tariffs model. If approved, South African homes and businesses could face higher electricity price increases.

Nersa is currently considering Eskom’s application for a 38% price increase under the old tariff model.

According to a City Press report, Nersa said tariff calculations based on Eskom’s potential revenue and allowed costs aren’t working, and the cost-reflective model could be introduced by 2026.

However, it’s not all bad news, as the new model aims to improve price stability and help address the country’s power crisis.

The cost-reflective model will see electricity tariffs — much like the power utility itself — unbundled into three categories: generation, distribution, and transmission.

Eskom’s sales are down around 14.7% due to reduced economic activity and increased load-shedding. This, combined with the regulatory clearing account (RCA), presents a challenge for Nersa.

The RCA is a mechanism Eskom can use to recoup any under-recovery if it didn’t achieve the estimated sales over a set period.

City Press spoke to energy expert Lungile Mashele, who said the RCA has been problematic for the regulator.

“They need to liquidate it at a scale and a pace users can actually afford. And, remember that Eskom asks for increases every year, so it’s those increases plus the RCA,” he said.

“This is what is posing problems for Nersa more than anything else.”

Mashele also believes the unbundling of electricity tariffs is a bad move.

“What this means for residential consumers is that they would need to pay for the entire suite of costs — that is, generation, transmission and distribution,” she told City Press.

Mashele said customers living in rural South Africa would pay more than those living in the country’s distribution hubs.

“What Nersa is trying to do will benefit certain customers only. It will make it more expensive for residential customers — the further away from the grid you are, the more you would then pay,” she added.

Eskom submitted a tariff restructuring application to Nersa in August 2022, proposing that it unbundles tariffs to reflect the costs of the power utility’s different services — generation, distribution, and transmission.

It provided three reasons as to why it proposed the changes.

“Firstly, the different tariff rates no longer reflect the different services being provided — that is, they are not aligned with energy, network and retail costs — because of the application of average price increases,” the power utility said.

Additionally, the impending unbundling of Eskom divisions requires charges to be more reflective of the costs per division.

Lastly, Eskom explained that the energy industry is evolving, meaning tariff structures also need to evolve to protect all customer interests and to ensure adequate recovery of regulator-approved revenue.

One of the significant changes proposed is the scrapping of the Inclining Block Tariff (IBT), which charges higher rates for higher monthly consumption.

Eskom proposed introducing a single energy charge (c/kWh), an ancillary service charge (c/kWh), a network demand charge (c/kWh) and a R/day service and administration charge for Homepower users.

The controversial proposal would see Homepower 1 users pay R938 instead of R218 without using a single kilowatt-hour of electricity.