Eskom’s New Tariff Plan Will Have a Major Impact on Solar Users

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JIMMY MOYAHA: Eskom has unveiled its new proposal for retail tariffs to Nersa. This initiative aims to reshape how tariffs are calculated and includes the introduction of new fixed-rate charges. Such changes are particularly disadvantageous for consumers, notably those utilizing rooftop solar systems, due to the associated implications.

Joining me to delve deeper into this topic is independent energy analyst Chris Yelland.

Chris, it’s always a pleasure to have you here. Can you shed light on the new retail tariff plan? What exactly is Eskom suggesting, and what has Nersa’s response been?

CHRIS YELLAND: The new Eskom tariffs became effective on April 1 of this year, impacting all electricity customers throughout South Africa.

At the retail level, especially for residential consumers, the repercussions are considerable. Essentially, those consuming lesser amounts of electricity will face the steepest price hikes, while larger consumers will enjoy comparatively reduced prices.

Indeed, some customers might even see a decrease in their bills this year, implying potential savings.

This scenario positions the residential tariffs as somewhat regressive. It results from the scaling back of specific cross-subsidies that once benefited smaller consumers, leading to increased expenses for those previously shielded, while larger consumers will benefit.

JIMMY MOYAHA: With the tariffs now effective since April 1, Nersa has authorized only a 20% phase-in of the fixed tariffs this year. Where will consumers feel these fixed non-generation costs, and how severe might it become in the future, especially with reports indicating potential bills could rise by as much as 75% once all tariffs are fully implemented?

CHRIS YELLAND: To clarify, this segment of your electricity bill is termed a ‘generation capacity charge.’ It’s a fixed monthly fee established to reimburse Eskom for sustaining enough infrastructure to meet national demand, along with reserve capacity for system reliability.

Nersa has permitted only a fraction of the suggested generation capacity charge to be added to customer tariffs. This fixed charge will be integrated gradually to avert sudden financial impacts.

Read: Nersa cuts Eskom’s tariff increase – but consumers might foot the bill in taxes

To provide a practical example, consider a residential customer with a rooftop solar PV system that reduces their reliance on Eskom. If this customer uses minimal energy from Eskom, they will likely see a marked increase in their bills once the fixed charge escalates by 50% to 70%.

In contrast, a customer consuming a substantial amount of Eskom electricity would find that their overall bill is largely governed by variable costs, making the effect of a rise in fixed charges relatively minor.

Thus, smaller customers will feel the weight of these hikes more acutely, particularly those with solar PV systems who significantly cut back on their dependence on Eskom.

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

In this context, smaller consumers are the ones shouldering the hikes.

JIMMY MOYAHA: Chris, let’s talk about fixed costs concerning Nersa’s endorsement of alternative energy providers. Given Eskom’s legal actions against Nersa, how might this situation affect the fixed charges? Can these alternative providers pose competition to Eskom and influence the fixed segment of the tariffs?

CHRIS YELLAND: Eskom is augmenting the fixed element of its tariffs while reducing the variable portion. This strategy is designed to secure its revenue in an increasingly competitive market. As such, even minimal consumption of Eskom electricity will result in a higher monthly fixed cost. Some analysts contend that this tactic is anti-competitive, as it enforces a fixed charge in place of a variable one.

Read: Nersa greenlights restructuring of Eskom tariffs

This argument is flawed. When purchasing items, you only encounter variable costs. You aren’t charged a fixed fee just to enter a shop. Instead, the fixed costs are encompassed in the product’s variable pricing.

The fixed part of the tariff should truly reflect the fixed costs of the business.

While most businesses deal with fixed and variable costs, very few implement strict fixed or variable pricing structures. Certain businesses, like mobile data providers, may provide a fixed monthly plan regardless of usage, while still incurring variable costs for particular services.

In conclusion, there’s no legitimate reason for a tariff to mirror the balance of fixed and variable costs in the business model. This reasoning appears to be a flawed justification meant to insulate Eskom from competition.

Read: Eskom is battling to maintain its monopoly, experts indicate

JIMMY MOYAHA: Those are insightful points regarding Eskom’s tariff strategy. South Africans will have to wait and see how this unfolds.

For the moment, we are all subject to these newly established tariffs, and it remains uncertain how Nersa will react.

Thank you, Chris, for your valuable insights and time. It’s always rewarding to have you here. Chris Yelland, independent energy analyst, has shared his perspectives on Eskom’s new retail tariff plan and its ramifications for South Africans.

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