Eskom’s proposed new tariff structure and the catch-22 of generating enough revenue as consumers go off-grid

Subsequent to a court order, the National Energy Regulator of South Africa (Nersa) has decided to allow Eskom to recover R6-billion from electricity consumers. While this is legally correct, the dire economic conditions stemming from Covid-19 means options available for accessing electricity outside Eskom should be unpacked.

Our options are limited. Firstly, consumers can decide to go completely off-grid, this means that they can opt to generate their own electricity and not rely on Eskom or the local municipality. The initial investment to do so is costly, but there is a return on investment.

Generally, the off-grid systems are more complex due to the short life span of batteries – normally three to five years for lead-acid and five to 10 years for lithium batteries. The variable nature of renewable energy technologies shortfall that I indicated in my article last week would still be a major challenge for off-grid systems. This means that if one decides to go off-grid battery storage for backup as well as storing excess power, which might not be required when it is available from the generator, would still be needed.

The energy storage costs have been a bottleneck for the accelerated offtake of off-grid systems for many years. Storage is not cheap, which is why we have not seen a large uptake of off-grid systems. Secondly, consumers can decide to have an integrated power supply, from self-generation that is less than 1MW as well as from utility suppliers. This type of system is connected to the grid, meaning that instead of storing access power, you would typically feed it back to your utility supplier.

Most metros in South Africa have policies for feeding and managing power supply generated by their customers. There has been a steady growth in solar rooftop systems that are tied to the grid in the past five years. This also means that there has been a gradual decline in the power demand from the customer side.

As we know, renewables are not always available, so customers who generate their own power would always rely on their utility supplier for the deficit in electricity requirements. The catch-22 about meeting the customer’s deficit from the utility’s side is that shortfall electricity demand occurs anytime, for whatever reason, which means that utilities must always generate power, even if it might not be consumed. This affects the revenue that utilities would have generated in the absence of customers that self-supply.

As a result, Eskom has proposed some critical measures that would protect and sustain its revenue. The central aspect in the proposed changes aims to reduce tariffs for three winter months; however, for the nine summer months, the time-of-use principle would apply. If granted, this simply means that consumers will pay more in future.

Worryingly, Eskom has proposed to scrap the “consume less and pay less” principle that is known as the inclining block tariffs (IBT). The IBT divides electricity costs per kWh into four blocks (ie, zero – 50kWh; 50 – 350kWh; 350 – 600kWh; and over 600kWh), which encourages prepaid residential customers to consume less because they understand that using more electricity results in higher electricity costs.

As such, IBT promotes energy efficiency principles which support a long-term reduced demand. Eskom has struggled to meet the power demand during lockdown where most of the intensive energy users had a reduced power demand. We continue to experience this through the power outages that have been part of our daily lives.

While the proposed change to the tariff structure model might be insignificant for those with means, we cannot forget that South Africa is one of the most unequal societies in the world – more than half of our citizens still live below the national poverty line. 

The apartheid system excluded the majority of South Africans from access to electricity as well as economic opportunities. In 1994, the newly democratic government initiated a large-scale electrification programme to improve access to electricity for the poor and ultimately providing access to electricity for all South Africans. This was further complemented by policies directed at improving electricity availability and affordability.

The Free Basic Electricity (FBE) policy was introduced to give households that cannot afford electricity access of about 50kWh monthly. I do not know how many households can survive on 50kWh of electricity monthly. Soon, South Africa will need fundamental reforms that will deal with the inequality question and promote a more robust inclusive economy. 

At present, South Africans are not on an equal footing, hence the majority cannot afford to generate their own electricity, whether off-grid or grid-tied. Therefore, the energy regulator has a responsibility to reflect on what is on its table against all essential factors such as how many employees should be employed per MW, affordability and prospects for economic growth.

The principles of energy generation costs recovery are appreciated, however, we can only hope that Nersa will consider all factors and ultimately arrive at the correct decision. DM