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Why Eskom wants to make three big changes to its tariff structure

Solar power generation is affecting its costs and efficiencies as well as its revenues, while its incline block tariff structure is ‘very unpopular’.
Another issue is that customers who use alternative energy end up being subsidised by those who don’t. Image: Waldo Swiegers, Bloomberg

Eskom hopes its proposed retail tariffs for 2021 will help solve a looming problem triggered by increased solar generation across the country.

It cites a research study that projects between R3.5 billion and R4 billion in revenue will be lost to photovoltaic (PV) solar generation by the end of this year. Many would argue these numbers are on the low side.

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The shift to solar generation by business and households has resulted in two major problems for Eskom.

First, it says “customers using PV systems during the day results in drop in the demand for electricity during the day – with the highest drop in system demand in the middle of the day. This midday demand drop (called the ‘duck curve’) affects the power system negatively, as it means that the generators have to ramp up at an even faster rate than before to meet the evening peak demand”.

As solar usage increases, so demand during the day will continue to decline, including a flattening of the morning peak. This causes an ever-increasing ramp up to the evening peak.

Source: Eskom’s 2020/21 proposed retail tariff plan

Second, because existing tariffs are largely variable-usage based (charged per kilowatt-hour), Eskom argues that they do not adequately “reflect the fixed costs and also the demand a customer imposes on the network”.

As customers move to solar, Eskom contends they could become a “zero net or very low net” consumer as they feed excess power back into the grid during the day. Because they still use the network, this resultant “loss of revenue” will not be commensurate with a reduction in costs.

Eskom says “it also results in customers with PV being subsidised by customers without PV”.

The utility argues that its current tariff structure has caused this.

This view is supported by the South African Local Government Association (Salga), which in its draft comments on the proposed tariffs says “the challenge is that current tariffs have sent incorrect tariff signals to end customers creating a falsely attractive business case for own generation”.

Eskom is adamant that its proposed “changes must not be viewed as ‘anti-renewable’, but rather as an attempt to support the connection of alternative energy resources in a responsible way and to avoid unwarranted and non-economic cross-subsidies”.

It says the proposed changes will not “hamper the uptake of small-scale electricity generation” or households or larger consumers generating their own power, “but rather that more correct and economic signals are provided when making alternative energy choices”.

Aside from the rationalisation and simplification of its tariff plans, there are three major adjustments proposed by Eskom:

1. Changes to peak pricing

Eskom wants to change the peak vs standard vs off-peak periods as well as prices in its time-of-use (TOU) tariffs. It argues that “the current TOU charges last changed in 2005 and no longer reflect the current system and customer requirements”. Because 80% of its sales are on these tariffs, any distinctions between peak/off-peak and seasonality are critical.

It wants to increase the evening peak to three hours (from two) and decrease the morning peak to two hours (from three), introduce a “standard period” on a Sunday evening, and – importantly – change the ratios between summer (low demand) and winter pricing (higher demand).

The proposed structure will see the gap between peak as well as weekday day-time pricing narrow when comparing winter versus summer.

Source: Eskom’s 2020/21 proposed retail tariff plan

2. Removing the incline block tariff structure

It proposes the removal of the incline block tariff (IBT) structure for residential customers it supplies directly (like greater Sandton and Soweto).

Consumers, particularly those on prepaid, are mostly confused by the incline block structure, where the more you use, the more you pay per unit of electricity.

Eskom says it is “very unpopular in community discussions” and that some “customers buy legally at the low block and then illegally once they reach the higher block consumption”.

Source: Eskom’s 2020/21 proposed retail tariff plan

At the higher end (Homepower), Eskom says “the use of inclining block tariffs greatly incentivises higher-consumption customers to use alternative energy sources and energy efficiency, resulting in a real revenue loss not commensurate with a real cost reduction”.

It stresses that the overall subsidy received by Homelight (for low-consumption households) does not change. However, within each of the residential tariffs (Homelight and Homepower), there are obvious impacts: “lower-consumption customers will pay slightly more and higher-consumption customers less”.

3. New way of charging households that want to sell solar back to the grid

Eskom wants to introduce a new tariff, Homeflex, for urban residential customers (think wealthier households in, say, Bryanston). It will be mandatory for those who want to sell power back to the grid from their solar installations (and voluntary for any other residential customer).

In this tariff, Eskom notes “customers would need to pay for the required smart time-of-use meter”. No further details on the meter are provided, given this is a tariff application. Homeflex unbundles charges into energy and network charges (something done by City Power and many other metros).

It will pay the same rate for energy sold back to the grid that the tariff charges in its time-of-use breakdown. In other words, it will pay the winter daytime rate if you’re feeding back solar to the grid during that time. But customers will pay fixed network charges regardless of their power consumption.

All three of these changes will have wide ramifications for all users of electricity, even if they are not directly supplied by Eskom.

Changes to peak pricing and time-of-use tariffs will filter through to municipal tariffs, even if these aren’t based on time-of-use.

Salga says “the rationale to remove the IBT tariff is plausible and supported”.

“[Energy regulator] Nersa needs to make a decision on the sustainability of the IBT tariff so that the entire country can move in the same direction. Again, a transition plan will be needed to educate and inform customers of the proposed changes and the impact of the changes on their electricity bill.”

If approved, Nersa will likely nudge (or force) municipalities away from incline block tariffs in future.

Eskom’s hefty 113-page submission to Nersa provides detailed motivation for a raft of proposed changes beyond those highlighted above. It says there has been consultation with the System Operator, Eskom divisions, the Energy Intensive Users Group (EIUG), and the Association of Municipal Electricity Utilities (AMEU).

Nersa is expected to pronounce on the tariffs by March. These will be implemented from April 1 for Eskom-direct customers and on July 1 for municipalities that bulk-buy power from the utility.

COMMENTS   44

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So you first force your paying customers to go solar because of your inability to supply reliable electricity and now you want to punish them?
This will only cause the solar guys to go off the grid completely and as you are loosing most of the actualy paying clients, you end up supplying only the non paying clients.

Agreed,I will go off completely and my surplus generation I’ll store in cheap second hand batteries + have a side arrangement with my neighbour(s) to “co operate” should I need access to the grid and or they need emergency stuff.(Club/pooling of costs!!)Necessity is a great mother and just love the way its being now driven and spun with a political ‘subsidization of rich by poor’ narrative.De facto a tax.By the way … cut the cost base,collect and see how quickly the economic equation balances.

The government is smart. They will tax you for the solar panels you own.
Did Western Cape ask its residents to register if they have solar panels? If so, this is a precursor to bad tidings.

Yes indeed Muks, just like in Zim you pay for ‘water’ even if you have boreholes. Needless to say, had you been connected there is very intermittent water supply

Yes, this is the ANC logic. Force all paying people away (even overseas) and just leave the non-paying ones left.

Eskom has officially entered the death spiral. They are a demand driven business with diminishing demand due to the cost and reliability of supply. As with most things in South Africa, we need to look to Australia to see what is happening with their power producers and how solar power is affecting their business. The unbundling of Eskom needs to happen soon.

Small correction please Bert – Replace “non paying clients” with parasites please.

Dear Eskom.
Taking my house off the grid during daylight has been one o0f the best investments I ever made.
Working full speed to go off grid completely.
Enjoy your looming implosion idijits.

The In block tariff structure was unpopular since the day it was introduced. Back then Eskom didn’t care. Now that they are losing paying customers because they can’t supply, they are furious. Guess what? You are going to be left with all your non-paying customers, because those who have installed solar, will eventually go completely off grid.

Go to gas geyser and you will be virtually off at night . Monopolies will always break eventually, it’s the nature of things !

i have solar geyser and given most conditions is more than enogh.Not always luxurious but adequate even in the morning.Using a retention blanket would also help

My geyser is off most of the summer, sun is enough even in the mornings a hot shower is there. Winter an hour a day.

We also have solar water heating. Our geyser is off at the switchboard about 350 days per year (365 days in 2020). Of course shower water temperature varies, which makes life interesting!

South Africa , with Eskom and the various municipalities have one of the most complex electricity tariff systems in the world.

Their incompetence caused ordinary citizens to rather switch to their own solar , now they want to recoup lost revenue by charging everyone else even more.

What about fixing your own costs structures , removing leakages , removing incompetence and sourcing products @ market related prices and not pay premiums to enrich the corrupt ??? Well that’s to much hard work , let’s just charge people more , done , problem solved !

What about the impact that has in general inflation ? So the man on the street pays even more for goods and services !!!

Hey ESKOM,

How about first focussing on those consumers that consume electricity and do not pay and secondly collecting on all the outstanding debts due to you?

But alas common sense is not so common. Carry on in this way and and more and more consumers will go off the grid.

Next thing you know they will start taxing residents for sunlight used to drive their PV systems.

In essence they want to tax people with solar already. This is why they are pushing for solar installations to be registered and licensed.

They cannot get their own house in order and will eventually be left with only the electricity thieves on the grid.

We will watch this downward spiral accelerate until a national blackout finally happens.

So the day peak drop hAd nothing to do with the lockdown and then fact that many businesses have closed (tongue in cheek)
They are quick to blame PV for all their problems meanwhile it is the government that has caused them.

So it is easy for Eskom to ramp-down 2500 MW very very very fast (they call it loadshredding) but they complain that ramping up 1200MW in the evening is too difficult?

There are laws and regulations that govern tariff changes. The Energy Regulation Act only allows tariffs that are cost-reflective, non-discriminatory and generate reasonable margins. Neither Eskom nor councils can have a tariff that generates 90% margin on user A and 55% on user B. The 90% is illegal in scope, the 90 v 55 is illegal due to discrimination.

If they produce a skewed Cost of Supply that says making capacity available costs R200/kVA then they are compelled to recover that R200 plus margin from ALL their consumers. They cannot recover kVA differentially.

Without renewables (IPP and private own generation), we would be in near constant loadshredding or at minimum those weeks when we had evening-only loadshredding would have been all-day schedules.

Show some damned gratitude!

@Johan_Buys

Gosh Johan, why now so angry with the powers that be ?

After all, you gladly abide by their theft via levies system…..oops, tax system.

Just blindly obey the authorities, regardless of their malevolent intentions ?

Eskom should be allowed to charge what they like.
Anyone one should be able to generate electricity and sell into the national gride.
Competition and more competition will sort out Eskom.
No one should be forced to stay on the gride.
Yes in the short term the price of electricity will be expensive but it will start dropping very fast.
With gas getting cheaper I can only see domestic demand for electricity falling.

In a free market , business should be able to charge whatever they want.

Where eskom has a monopoly. That’s shouldn’t and can’t be the case.

Battery’s appear expensive, but they are cheaper than escom.
Maths :

My battery of choice a Lithion Ion Pylontech Battery R 15000 ea, 2.4 kw at DOD ( depth of Discharge) of 80% yield 2.4 *0.8 = 1.9 kw, with guarantee of 6000 cycles.
Thus 6000 cycles x 1.9 kw = 11 520 kwh

Price of battery / kwh
R15000/11 520 = R1.3kw/h, already way cheaper than escom…a lot cheaper

I do not sell battery’s , i simply have 2 stiff middle fingers,…in between there are a escom logo

If your battery delivers 1.9kW for 1 hour per cycle your numbers seem correct. However, this is the cost of the battery per kWh delivered. You need to add the cost of the energy to charge the battery 6000 times to compare with Eskom costs

True but technically your solar energy is free if you take the original panels, inverters etc cost as a sunken cost.

Hi Casper

I load them PV on the roof, thus i do not use em idiots for charging.

I have a goodwe hydrib invertor and 8 off 325 wats on em roof…
My daily usage form grid now +- 3 units Kw/h…
If i am further motivated by escom i have a low threshold to abdicate the grid

Batteries will get there but to complete your budget:

Batteries only store energy, so you need to generate more than enough. Solar costs about R1/kWh at residential scale. Not all homes can install enough solar – angles, space, shade, etc.

To go off-grid you need hybrid inverters that convert the battery energy to house AC power and manage the in/out. They are damned expensive still. Figure around R60k for a 40A capable single phase hybrid inverter.

IMHO don’t try and do solar plus battery only. You would need to over-invest in both solar and batteries to cater for those few bad days. The good hybrids can auto-start a gennie to help the batteries. MUCH cheaper overall to do sensible batteries and solar plus gennie for maybe 50h per year.

eskom does not have the word “competion” in their vocabulary never mind any other form of generating electricity – over the years they stuck to coal as their main source of electricity – they were actually begged by the private sector to start changing over or just make a portion of their electricity generated by renewable energy systems – but eskom was too s—t-scared for this leap forward – it may cause job losses for pals – now they start feeling pinch thereof but once again wants to punish the supporter and user of their one and only product for their own +20year long shortsightedness and incompetence – currently one of the most clumsiest organizations (skip saa for this one) in rsa. does not matter who is running eskom and who is the ceo – it simply can not and will not be able to compete with the private sector while dishing out its product to non paying municipalities / possibly foreign countries /allows free illegal connections and make outrages amounts of overseas loans. – one, even ten swallows do not make summer – it is now time for the self supporting sa citizen to say: “up to here and no further” with eskom’s idiotic reasons to support their tariff increase but also punish the 5 wise virgins for being pro-active – dream-on

I give up on Eskom and this government!

Let me get this straight?

For many years Eskom has not been able to meet its obligations and caused immense destruction to the economy. What did people do? They bought generators and installed PV. Now, this dinosaur is complaining that PV is cutting into their pie.

Eskom should do what others business have had to do – RETRENCH!! Other companies not protected by the regime had to go bust or retrench but these commie lunatics think they will live on.

I urge everyone who financially can to move away from Eskom as fast as you can

A few years ago private installations were very much an upper income group spend but not anymore.

The USA consumer has had an electricity increase of 1% a year over the last 10 years. Our increases have forced households and businesses to look for alternatives. Municipalities also have a problem because their ridiculous mark ups on the Eskom price that provided funds for service delivery are also affected by private installations. Their income is not rising sufficiently to keep pace with commitments.

On a personal note my electricity cost is less than it was 5 years ago and this has been achieved without a ridiculous spend. Our take off the grid has reduced significantly.

It is only a matter of time before solar panels attract rate levies so the answer isn’t necessarily to come off the grid. A solar geyser, gas stove and super efficient lighting basically leaves the kettle. Nothing else uses much at all.

Am I really intersted in the woes of Eskom.Not really.The biggest problem is that Eskom is a SOE and a virtual monopoly in the energy sector, which should have been privatised long ago.Surely Eskom could themselves have become players in the solar business decades ago? They only have themselves to blame,and now want the poor consumer,as always,to bail them out.

The whole Eskom+Municipality-mark-up is unsustainable. Eskom’s business model no longer works. Municipalities generate huge revenues by loading the price of electricity it sells to customers. “Wealthier” customers also pay extra to subside “poorer” customers. In spite of the revenue stream , many municipalities are in dire financial straits.

The situation is chasing away people and will continue to do so. Eskom knows this and now wants to charge you a network access fee – regardless of usage. Against this the business case for solar power is compelling from a energy security and reliability POV. Solar adoption is only going to grow.

There many good people at Eskom , but the problem is far bigger than plant availability and age. You see this in the other SOEs and the government. After years of talking about change , very little has actually been implemented. At least the implosion is slow and gives enough warning to those who can see it.

Also, the day time power dip actually helps Eskom. It is predictable and stable in its timing and volume. It’s not a bad thing.

I had to reread the first 7 paragraphs 3 times. The logic used in those two reasons is astonishing…

@tiaanjfourie

Agreed !!

Is anyone else noticing the continual increase of government animosity and punishment via increasing taxes etc inflicted on the people of this country by being buried under cleverly crafted PR spins like the editorial here ??

Or is this undeclared malevolence being lost in the noise of modern times which the average person cannot fathom due to being overwhelmed from just trying to survive these days ?

The old phrase ” Your Government is at War with You” rings truer than ever.

Its that feeling you get when a prickly pear is inserted somewhere and then turned……………

I have been waiting for this.
1. The Eskom homeflex with the ability to feed back at the tariff at the time is a good move. Areas in the US do a similar type of netmetering- it’s what smart meters are designed for.
2. Hilarious so inclined block tariff causes people to implement energy efficiency- surely then achieving what it is supposed to?
3. One trick not mentioned here is encouraging folk to face panels east/west to pick up especially afternoon ramp up – this would make sense.

Eskom really do need to make some attempts to win hearts and minds…….but death spiral on the cards

I believe horse-drawn carriage makers used the same argument when the car was invented. Eedjits

When life hands you a lemon, make a lemonade; why doesn’t Eskom develop and market quality, affordable solar energy production technology and batteries instead of clinging to the soon to be alienated coal production?

Oh, wait! That takes creative entrepreneurship … Hmmm …. back to the drawing board.

The SSEG effect is minor at this stage. The largest contributor to the so-called duck curve and hence the displacement of Eskom generation and thus loss of revenue are the 20-year take or pay IPP contracts, which force Eskom to off-take energy from them even when demand is low and there is sufficient Eskom capacity to meet demand which typically happens during the middle of the day..

It thus stands to argument that ESKOM should similarly be putting tariff measures in place to compensate itself from the revenue lost through IPPs, this amounts to many billions more compared to the peanuts from citizens’ SSEG.

As usual the real issues are being sidestepped by the bureaucrats and suits and the smallest guy on the field is being tackled without the ball..

I hope NERSA is wide awake when they review the tariff application.. oh wait.. nvm

I maintain that those initial REIPP contracts were crooked. Little transparency and plenty of cheaper bids excluded. That is when the grid should have been taken away from Eskom and split into REDS. Existing power stations etc sold to highest bidder; no BEE and monopoly crookedness then let anyone generate and quote to sell power. Too late now.

Looking at this from a different perspective –
We need to have electrical supply Overcapacity and stability to avail or attract INVESTORS to build manufacturing facilities in South Africa which will REDUCE unemployment. I think any person of intellect can accept that is a foundation requirement.
Should PV be kept out of the free enterprise market/competition, thinking penalties as envisioned by the writer Vs thinking relying on a Single source supplier ( all eggs in one basket with a temporarily repaired handle !)then where does Eskom believe the significant funding will come from in the future for them as a single source to build power generation capital projects -in order to address the growth of the countries basic needs – not less than URGENT -CRITICAL need NOW to address redundancy of the Matla/Duva stations and alike, whilst showing the world we can supply factories that invest in RSA with power.
Rather embrace the PV supply system, offer incentives to households to invest in their own supply -back feed systems to Eskom ( so we have the ramp down at PRESENT in the day, but with the growth of manufacturing, you will need this nonresidential capacity in the day, so look at this a win, not a penalty ..
Ultimately we could reach in 20 years the same as my son house in the USA , where at least 5 electrical supplier canvas phone annually for the next years contract to buy-in from him at peak demand and sell to him during the winter demand, each offering separate incentives if you sign with them such free set car tires a year/ free satellite TV et ..etc – its called competion my Comrades and its good for everyone

This Eskom brought this on itself. Problems are many & their generation system will take years to fix – if it ever happens at all. Solar is the way to go & probably off grid. My experience is despite having low energy everything,solar water heating (boost by Eskom in the early hours for 2 hours only) geyser controller & gas cooking consumption charged is 30kWhr / day and has been since we bought the property 14 years ago.Nothing we have done has brought it down – according to Eskom anyway. We measure (using an energy monitor claimed to be better than 90% accurate)under 20kWhr / day. Off grid looks increasingly viable with a payback of under 5 years – no maintenance cost taken into account.

End of comments.

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