Eskom’s New Tariff Plan to Have Major Effects on Solar Users

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JIMMY MOYAHA: Eskom has submitted its new retail tariff proposal to Nersa, which involves a revision of how tariffs are structured and the introduction of new fixed-rate charges. Unfortunately, this change is not beneficial for consumers, particularly those utilizing rooftop solar systems, due to its various consequences.

I’m joined by independent energy analyst Chris Yelland to shed light on this matter.

Chris, it’s always great to have you on the show. Can you walk us through the new retail tariff plan? What is Eskom actually proposing, and what has received Nersa’s approval?

CHRIS YELLAND: The revised Eskom tariffs were implemented on April 1 of this year, affecting all electricity consumers in South Africa.

For residential customers at the retail level, the repercussions are considerable. Those who consume less electricity will face the most significant price increases, while larger consumers will benefit from relatively lower prices.

Interestingly, some customers might see their bills decrease this year, leading to reduced monthly expenditures.

This situation makes the residential tariffs somewhat anti-poor, due to the elimination of specific cross-subsidies that once aided smaller customers, thus increasing costs for those previously shielded, while larger consumers benefit.

JIMMY MOYAHA: With the tariffs now in place as of April 1, Nersa has approved just a 20% phase-in of the fixed tariffs this year. Where will consumers feel the impact of these fixed non-generation costs, and how severe might it become in the future, especially considering reports that suggest potential bill increases of up to 75% once all tariffs are fully enacted?

CHRIS YELLAND: To clarify, this part of your electricity bill is known as a ‘generation capacity charge.’ It’s a fixed monthly fee intended to compensate Eskom for maintaining adequate infrastructure to meet national demand and ensure reserve capacity for system resilience.

Nersa has allowed only a fraction of the proposed generation capacity charge to be added to customer tariffs, with the fixed charge being gradually integrated to prevent sudden financial shocks.

Read: Nersa cuts Eskom’s tariff increase – but consumers might bear the tax burden

For a practical example, consider a residential customer with a rooftop solar PV system who minimizes their dependence on Eskom. If this customer uses very little energy from Eskom, they will experience a sharp increase in their bill when the fixed charge escalates by 50% to 70%.

On the other hand, a customer using a significant amount of Eskom electricity would find their overall bill primarily influenced by variable costs, so the impact from rising fixed charges would be relatively minor.

This means that smaller customers will disproportionately carry the weight of these increases, particularly those with solar PV systems significantly reducing their reliance on Eskom.

Listen/read: Eskom’s new solar regulations – Here’s what you need to know

In this context, smaller consumers are the most affected by these hikes.

JIMMY MOYAHA: Chris, let’s delve into the fixed costs in relation to Nersa’s endorsement of alternative energy sources. Considering Eskom’s legal actions against Nersa, how might this situation affect the fixed charges? Could these alternative providers compete with Eskom and alter the fixed aspect of the tariffs?

CHRIS YELLAND: Eskom is raising the fixed part of its tariffs while decreasing the variable part. This strategy is aimed at securing its income amid growing competition. Consequently, even minimal usage of Eskom’s electricity will result in a higher monthly fixed cost. Some analysts argue this method is anti-competitive, as it enforces a fixed charge rather than a variable one.

Read: Nersa approves overhaul of Eskom tariffs

When discussing fixed versus variable costs, Eskom contends that the tariff proportions should mirror the fixed and variable dynamics of its operational costs. For instance, coal expenses are variable, while salaries are fixed.

This argument lacks merit. During purchases, you only encounter variable costs. A fixed fee is not charged simply for entering a store; instead, the fixed costs are factored into the product’s variable price.

The fixed component of the tariff should accurately reflect the business’s fixed costs.

Most companies balance fixed and variable costs, but few strictly enforce fixed or variable pricing models. Some businesses, like mobile data providers, offer a fixed monthly rate regardless of usage, while still incurring variable costs for specific services.

Ultimately, there is no justification for a tariff that reflects the balance of fixed and variable operational costs. This reasoning seems to serve as a flawed rationale aimed at insulating Eskom from competition.

Read: Experts say Eskom is striving to maintain its monopoly

JIMMY MOYAHA: Those are compelling insights regarding Eskom’s tariff strategy. South Africans will need to observe how this situation evolves.

For now, we are all subject to these new tariffs, and it remains uncertain how Nersa will react.

Thank you, Chris, for your valuable insights and time. It’s always a joy to have you on the show. Chris Yelland, independent energy analyst, has provided his perspectives on Eskom’s updated retail tariff plan and its implications for South Africans.

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