Nersa approves restructuring of Eskom tariffs

Energy regulator Nersa on Tuesday (18 February) approved Eskom’s Retail Tariff Plan, which will require owners of solar PV installations connected to the grid to pay for the use of the system every month, whether they used electricity during that period or not.

However, it mitigated the impact of the increased fixed charges Eskom proposed by phasing it in over three years, starting on 1 April this year.

The regulator made it clear that the purpose of the restructuring is not to increase Eskom’s revenue.

The recent revenue determination that allowed Eskom an average increase of 12.74% for the next financial year and 5.36% and 6.19% for the subsequent two years is still valid and Eskom won’t be allowed to recover more from tariffs.

Eskom has been asking for the tariff restructuring since 2020 and indicated that it has become urgent as the tariffs no longer correlate with the different cost drivers.

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Deon Conradie, former senior manager for tariffs at Eskom and part-time lecturer in tariffs at the Wits Business School, says: “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.”

While the impact on owners of solar PV installations has caught the most attention, Conradie says all Eskom clients will be impacted – some will see an increase and some a decrease, depending on their usage patterns.

He adds that consumers can in many cases soften the blow of increased cost by changing the way they consume electricity.

ALSO READ: Nersa approves 12.7% electricity tariff hike for Eskom

Preparing for a more competitive environment

The unbundling of the generation cost into fixed and variable charges will align the way Eskom’s clients pay with the way independent power producers (IPPs) charge for electricity, thereby preparing Eskom for a competitive wholesale market, as foreseen in the recently promulgated Electricity Regulation Amendment Act.

It will result in a reduction in the variable time-of-use (ToU) c/kWh energy charge and add an additional fixed capacity charge, to be implemented over three years.

Further unbundling of tariffs will take place to separate energy and network charges.

This will ensure that owners of solar PV, with low kW/h usage pay for their use of the network. These costs are currently all bundled together in the cost/kWh and their network usage is in fact being subsidised by those without solar PV who use more units of electricity.

“This eliminates artificial subsidies and improves cost transparency, particularly for grid-connected backup and energy export users,” says Conradie. “It ensures they contribute fairly to network costs.”

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Better understanding of residential users

Eskom’s residential customers will no longer be charged according to inclining block tariffs.

This system, which imposed higher tariffs the more electricity one uses, was often misunderstood by clients and does not give the right economic signals anymore, says Conradie.

During the energy regulator’s meeting, it became clear that this system failed to protect the poor, as was intended.

This is because poor families living together on one property with one service point also ended up in the more expensive tariff brackets.

At the same time, affluent families with low usage in holiday houses standing empty for long periods, or using mostly self-generated solar power, benefitted unduly.

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Changes to ‘the peak’

Nersa further approved changes in the structure of ToU tariffs.

The morning peak will now be two hours instead of three and the evening peak will be extended by one hour to three.

In addition, Eskom will introduce a two-hour standard period on a Sunday evening and reduce the current 1:8 ratio of the summer (low-demand season) off-peak rate to the winter (high-demand season) peak rate to a 1:6 ratio.

Conradie says the impact on customers will depend on their load profile.

If they change their consumption patterns according to the changes in ToU tariffs, they may mitigate the impact.

“Reduced winter rates will result in lower costs for high consumers during winter. High summer peak users will incur higher costs.”

Service charges

Service and administration charges for large power users (LPUs) will be reduced significantly.

However, customer service charges will in future be levied per point of delivery, rather than per account.

This may negatively impact customers with multiple points of delivery linked to one account, Conradie says.

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Bulk supply to municipalities simplified

The tariffs Eskom charges municipalities for bulk supply have been rationalised and simplified by reducing 15 tariffs to three – one for large power users (Municflex), one for small power users (Municrate), and one for public lighting.

Conradie says overall municipalities will see increased energy rates and reduced network and retail charges.

Winter peak tariffs are also lower and there is a decrease in contributions to subsidies.

RThe public lighting tariffs will however increase considering the current significant underrecovery according to the latest cost-of-supply study.

ALSO READ: Eskom proposes further tariff restructuring to ensure ‘transparency and fairness’

Impact on municipalities

Conradie specifically points out the following impacts on municipalities:

• There is a total revenue decrease based on Municflex due to local authority large-power-user tariffs no longer contributing to non-local authority low-voltage subsidies and the impact of updating the rates in line with the latest cost-of-supply study; and
• Local authorities currently on rural tariffs will experience the highest reduction when based on Municflex, mainly due to these tariffs being pooled with the urban tariffs – and will further experience reduced fixed charges and winter peak rates on ToU tariffs.

However, the following three tariffs see increases:

• Public lighting tariffs have the highest percentage increase due to updating tariffs with the cost-of-supply study;
• Local authorities on the current Miniflex tariff will see increases mainly due to the conversion of the current c/kWh Network Demand Charge (NDC) into the Municflex R/kVA NDC – however, the impact on individual customers will depend on their ToU profile; and
• Local authorities on the current Homepower (residential) tariff will see an increase mainly due to the removal of the non-cost-reflective inclining block tariff structure.

Eskom will now calculate its detailed tariffs for 2025/26 and submit them to Nersa for approval.

Municipalities are expected to align their tariff structures to those of Eskom. Their tariffs, if approved by Nersa, will be implemented from 1 July.

This article was republished from Moneyweb. Read the original here.