Eskom wants households to pay hundreds per month before using power

Eskom has proposed that households pay a far greater portion of their bills in the form of fixed charges related to the supply of electricity (currently these are bundled into the price per unit of power).

This would see many of the suburban residential customers serviced directly by the utility, (e.g. Sandton and Soweto) paying hundreds of rands per month before using a single kilowatt-hour (kWh) of electricity.

In a major overhaul of its tariff structure, it plans to reintroduce a service and administration charge levied per day for the provision of its service.

While Eskom doesn’t state explicitly that the changes are due to the increasing proliferation of rooftop solar at residential properties, it will force those customers on to a new time-of-use tariff.

These changes are included in its 121-page submission to energy regulator Nersa for the restructuring of its tariffs from its next fiscal (2023/24).

Time to ‘modernise’

It says “existing tariff structures are outdated and need to be modernised to reflect the changing electricity environment and crucial decisions in this regard need to be made to protect the electricity industry”.

“For example, it is no longer appropriate to recover fixed costs only through variable kWh-based charges.”

It argues that the unbundling and restructuring of tariffs “will remove artificial subsidies, provide greater transparency of costs, ensure the correct economic signal, and reflect a more accurate payback period by comparing the energy cost of the utility versus the energy cost of the alternative and not including network cost bundled with the energy in the analysis”.

One can see from the following charts that low-consumption residential customers will pay more under the proposed tariffs.

At 0kWh, indicative charges (based on current tariffs) are R938, R1508, R3408, and R562 on each of the Homepower tariffs (1/2/3/4), respectively. Homepower tariffs are based on supply sizes. Suburban households would likely be on Homepower 1, with even larger properties on Homepower 2 or 3. Homepower 4 is for smaller/lower income households*.

It will also remove the incline block tariff (IBT) structure where the rate per kilowatt hour increases after a certain amount is used.

It says “IBT as a tariff structure is no longer appropriate” because customers do not understand it and because it does not give “the right economic signals”. Eskom says it incentivises higher-consumption customers to install solar and that these customers are subsidised by those without solar.

Following its proposed changes, Eskom says that average monthly bills on its Homepower tariffs for residential customers will be 4% cheaper on its proposed unbundled tariffs.

It says “to make network charges more reflective of the cost drivers, there will be a gradual increase in the fixed network charge”.

“For this submission, the fixed network charge increased to 60% and the variable network charge reduced to 40%,” it adds.

And for those who seek to ‘escape’ high charges …

Beyond these changes, Eskom will also seek to – over time – migrate all customers (except low-income households) to time-of-use (TOU) tariffs.

Read: SA had 3.6m indigent households in 2020

It notes that currently many of its customers are not billed in this way.

It says because subsidies as well as demand and capacity charges are bundled into the price per kilowatt hour, this “creates further incentives for customers to deploy onsite generation [read: solar] and ‘escape’ … high energy charges”.

Eskom says the “System Operator has also recognised the impact of PV [photovoltaic solar] on the system and how dispatchable plant (mainly coal plant) will have to be used to manage the impact that renewables will have on system operations”.

“For example, customers using SSEG [small-scale embedded generation] systems such as PV will reduce the energy in the system during the day but will not change the current morning and evening peak period system demand,” it explains.

In fact, Eskom contends that morning and evening peaks will become “peakier” over time and “still need to be managed by price signals”.

“Expensive peaking generators may have to be uneconomically used for very few hours in a day to provide electricity to the country” during the morning and evening peaks. “Time-of-use pricing signals, therefore, will continue to be needed to manage the high system demand in the morning and evening peak periods as well as to manage the variation of system demand levels between the high- and low-demand months”.

Private generation

Related to this, Eskom commissioned a study following the lifting – last year – of the threshold of private generation from one megawatt (MW) to 100MW.

Read: Companies can produce up to 100MW of power – Ramaphosa

The study recommended that:

• “While loadshedding is a reality, Eskom may want to wave [sic] the cost of registering an SSEG system but of course not the cost of changing and meters or installation of needed infrastructure. The loss in registration fee will be easily recoup [sic] if the customer moves over to the correct tariff;
• “Eskom should promote and encourage customers to install and register SSEG; and
• Eskom “more actively monitor customer profiles to identify customers with SSEG system who have not registered.”

It has finalised plans for a new residential time-of-use tariff, Homeflex. It says this tariff will be “mandatory” for all Eskom-direct customers who have grid-tied generation (solar), whether they intend to export power to the grid or not. Other residential urban customers can elect to convert to this tariff.

Those on prepaid smart meters cannot use this tariff; as such they will require the installation of a post-paid smart metering device, which these customers will need to pay for.

It will offset sales back into the grid at the same tariff as the current Homeflex TOU energy rates, although this may change.

Readers will note that the standard (daytime) rate is 56% of the peak summer energy tariff and 25% of the peak winter one. This means a household with a solar installation would need to export at least twice their peak usage during the day in summer order to offset that cost.

(A further tweak is that the existing peak times across all of Eskom’s tariffs will change to three hours from two, with the exception of the morning peak in summer).

Eskom says all rates in its proposed new tariff structure “will be updated based on the price increase process for the year of application”. In other words, the Nersa-approved increase for 2023/24 under the separate multi-year price determination will continue and be applied to the new structure, if approved.

* Homepower/Homeflex supply sizes