Grid electricity and household energy

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What is it? Who uses it? Advantages Disadvantages Devices Related topics External links and references Contributors A call to introduce the Step Tariff on the Electricity Industry: RSA

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[top] [end]What is it?

National electricity grid

Local electricity grid

[top] [end]Who uses it?

[top] [end]Advantages

[top] [end]Disadvantages

[top] [end]Devices

[top] [end]Related topics

[top] [end]External links and references

[top] [end]Contributors

User:Grant Ballard-Tremeer 1 September 2003

[top] [end]A call to introduce the Step Tariff on the Electricity Industry: RSA

"Matthews Bantsijang: Director, Electricity Policy Analysis and Regulation, DME"

Eskom is proposing or arguing that tariffs be raised by 18 per cent in 2008 and a further 17 per cent in 2009 to cover new generation costs. Notwithstanding the counter-argument that the state, as shareholder, should pay for building extra infrastructure, especially in light of recent budget surpluses, there is an issue about how the tariff increases should be applied. An equal increase across the board will hit the poor hardest since poor households spend more of their income on energy compared with other households, I am not saying 18% is not for household consumers! Mining and manufacturing together use 54 per cent of South Africa’s electricity, compared to just 17 per cent for residential users. All of this suggests that a fairly sharp increase in prices to largescale industry and mining would have a significant effect on income to Eskom with which to pay for additional capacity. Conversely, an increase in residential rates will not have a major effect on Eskom’s income but will have a strong negative effect on individual users, specially the poor. My understanding of step tariffs is that the tariff changes when the total level of consumption reaches certain thresholds. For example, if the electricity utility charges one price for consumption of a certain number of kilowatt-hours and another charge (higher or lower) for additional kilowatt-hours. This system makes consumers' marginal cost of using electricity change with the level of consumption, while the average cost (the average price for using one kilowatt hour) is the weighed average of the price of all units consumed and may increase or decrease depending on the tariff structure.

A step tariff would be the most appropriate way of distributing any tariff increases so that the poor receive a free service, well-off residential users pay a cost recovery rate, and large-scale industry and mines pay the highest tariff. WHY??? This generates income for reinvestment and also cross-subsidises the poor. This system has the added benefit of forcing demand reduction from largescale users because the more that is used, the more expensive it will be per unit. Reducing demand from large-scale users may also reduce the need for all the planned additional capacity. If users are encouraged to seek renewable energy sources, further long-term savings can be made.

There may be other motivations for government to support the step of tariffs, like ensuring an adequate return on investment to get the private sector interested. Step electricity tariffs would also make it more attractive for foreign utilities to build power plants in SA. That’s something they have to date refused to do, because local electricity prices are by far the lowest in the world, making it an unattractive proposition for investment.’

One of the priority goals for the present government is to address the basic needs of the poor. There are good reasons for providing infrastructure and cheap or even free services to poor households and residential users; and on the other hand supporting an industrial development strategy that emphasizes local production for local need, it is economically and socially sustainable and serves to redress historical injustices through a deliberate policy of benefit redistribution. Realising these goals, step tariff would be the most appropriate way of distributing any tariff increases so that the poor receive a free service, well-off residential users pay a cost recovery rate, and large-scale industry and mines pay the highest tariff.

From Government - dme Policy directive, we need to have a policy statement on “Urgent move towards step tariffs”. Critically so, a policy on the threshold, that it should either be 0 cents per unit for the basic energy of 50kWh as the 1st or the start of threshold of raising tariff, this will be politically delicious and it will limit issues relating lack of implementation of FBE by Municipalities. Hopefully the software for all the utilities (Eskom, City Power, Supplying Munics, Centilec etc.) will be compatible to step tariffs.

Contrary to these goodies, from transparency policy, we will have to forget about the customer paying the real/ equivalent cost of supply, even though we will still be cost reflective on the electricity bills! Also from National Treasury perspective both on the Macro Policy and regulations, this will increase cross subsidies and the question of who pays Municipal levies, are we excluding the poor?

Article by: Matthews Bantsijang: Director, Electricity Policy Analysis and Regulation, DME

Categories: Fuels| Electricity

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Page created: 01 September 2003; Last edited: 19 November 2007; Version: 2
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