According to MyBroadband, South Africa’s struggling power utility, Eskom, is currently considering a new pricing structure. The cost structure would badly affect those who have installed solar power.
The proposed plan will have a bad impact on the value proposition of solar installations. The power utility currently makes money in two ways: fixed connection charges and electricity tariffs which vary based on usage.
For most fixed connection customers, the usage charges are what they cough out for. Eskom now wants to change this pricing structure.
The utility wishes to significantly increase the fixed connection charge and reduce electricity usage charges.
New pricing plan will reduce Eskom’s financial risk
The power utility explained how the change would help it reduce its financial risk. It also said the change would assist it in recovering its fixed costs.
Eskom noted how connection charges contributed towards the
initial capital cost to connect a customer to their existing network. The cost
is based on the national average charge to build the line and connect the customer
to the power grid.
Tariffs, energy costs, and network costs
Electricity tariffs are separated into various types of
charges, e.g. c/kWh and R/kVA. They are used to recover the cost of operating
and maintaining the network.
The utility recovers energy costs through c/kWh charges. Energy costs include Eskom’s generation plus Independent Power Producers (IPPs).
Network costs are largely fixed in nature. They include transmission
lines, distribution lines, and transformer costs.
However, currently, Eskom recovers these network costs through
variable (c/kWh) and fixed (R/kVA and R/Customer) charges.
Eskom’s fixed charges for fixed costs
The power utility explained that having variable tariff
charges for a fixed cost could cause problems when there is a reduction in
usage (sales). Reduction in revenue doesn’t have an equal reduction in its own
fixed network costs.
Therefore, Eskom wants to reduce variable usage charges like c/kWh and increase fixed charges. The state-owned utility said this would allow them to recover actual fixed costs incurred even if volumes are lower.
Solar power users not properly charged
“If this is not done, a customer that decides to put a solar installation on their rooftop can reduce their bill not only with the energy value but also the network value.” Eskom
Solar users leave the utility with a loss because its fixed network costs won’t decrease. They end up paying for only a fraction of their usual monthly bill.
The utility said:
“This then means that the network charge of customers without solar must increase, effectively resulting in customers with solar being subsidised by customers without solar.”Eskom
“If we don’t start to fix the tariffs to respond to changes in technology and environment – to be more cost-reflective by recovering fixed costs through fixed charges – all customers will be impacted negatively.” Eskom
How new pricing will impact solar users
Several businesses and households that have solar installations also use Eskom as a backup. For businesses, the new pricing plan will affect them badly as a large part of their electricity bills will consist of fixed charges which will not be reduced by using solar power.
The new structure will defeat the purpose of installing solar power as savings will be much lower. The only way solar installers will benefit is if the user goes completely off the grid without any backup power from Eskom.