Eskom wants those who generate their own power to pay for grid use - but it will not earn extra

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Eskom wants own generation consumers to pay a "fair, unsubsidised" contribution for using the grid.
Eskom wants own generation consumers to pay a "fair, unsubsidised" contribution for using the grid.
  • Eskom wants those generating their own power, particularly through renewables, to pay for their use of the grid.
  • However, an energy expert warned this could force more users to go off-grid, leading to ramifications for poorer households which rely on subsidies from higher income households. 
  • Nersa said Eskom's proposal will be interrogated and it plans to engage broadly with stakeholders before reaching a decision.

Eskom wants those generating their own power to pay a charge for using the grid as a back-up, but the power utility said it will not be earning more revenue if this happens.

During a public hearing hosted by the National Energy Regulator of South Africa (Nersa) on Tuesday, the power utility presented its proposals for its retail tariff plan for the year 2021/2022. It is based on a retail plan submitted to Nersa in August last year.

The plan includes changes to certain tariffs and is based on a cost-to-serve study conducted in 2019. This tariff plan is based on the 2019/20 revenues granted by the regulator as per the Multi-Year Price Determination (MYPD) process.

The last time Eskom revised its tariffs was back in 2012, using the cost-to-serve study at the time.

The proposed changes were needed to respond to the changing environment driven by the power utility's unbundling as well as the changing consumer needs and changing technology, it explained in a public consultation paper submitted to Nersa in November 2020.

Eskom's corporate specialist on pricing, Shirley Salvoldi, told Nersa during the public hearing earlier this week that the aim of the plan was to ensure the tariffs reflected divisional cost and volumes more accurately.

Salvoldi clarified that it was about addressing cost allocation or the tariff structure - and was not an application to raise its earnings.

"Tariffs need to be updated and modernised to reflect the changing environment to protect customers and the industry," she said.

Among the notable changes was the removal of Inclining Block Tariffs - under this system households pay more for electricity as they buy more, Business Insider reported previously.

Eskom also wants to have users of solar PV or own generation to pay a capacity charge. This relates to their use of the grid. Currently, they only pay an energy charge, which according to Eskom's submission to Nersa, only partially recovered the power utility's fixed costs.

"Customers who are connected to the grid and install renewable energy should still be liable for their fixed capital costs. This also means that customers without solar PV subsidise those who have solar PV," Eskom's consultation paper read.

Eskom's presentation to Nersa explained that users relying on own generation have the benefit in being connected to the grid - and must pay a "fair, unsubsidised contribution for using the grid".

"Customers that install own generation, still need the grid and the power system for stability and back-up," the presentation read.

The current tariff structure recovers both fixed and variable costs through energy charges (based on volumes sold or c/kWh). Eskom wants a residential tariff of R2/kWh to be split into network (a fixed daily charge) and an energy (volumetric c/kWh) charge.

According to Eskom, it would not be recovering extra revenue - it would just be rebalancing the way the charges (fixed and variable) were split in the tariff.  

In an emailed response to questions from Fin24, Eskom said reports that it wanted those reliant on solar power to pay more were "factually incorrect". 

"All customers, whether they have solar or not, will be offered the same tariffs. All Eskom is doing is ensuring that the tariffs accurately reflect energy, network and retail costs correctly. If this is not done, this means that customers that have PV installed will become subsidised by those that don't have PV," it reiterated.

"This is meant to ensure that apples are compared with apples, i.e. energy charges reflecting energy costs and that all customers are treated equitably and fairly."

Fair tariff

"It's not that Eskom wants to extract more money from customers. They just want to implement a fair tariff," said Paul Vermeulen, the chief engineer of renewable energy at City Power.

The Johannesburg-based utility had had a tariff structure in place that accounted for fixed costs and energy used by solar PV customers, he added.

City Power also introduces its own mark-up to the tariff.

The tricky part was when it came to a prepaid tariff - the fixed charge element was missing, Vermeulen said. "That is what Eskom is complaining about, they say it's an unfair tariff."

Eskom's argument is that it is unfair to allow someone with a PV system, who is going to reduce the kWh bought, to be charged the same as somebody who does not have a PV system.

"That PV customer, on prepaid, would not be paying their fair share to maintain the grid," added Vermeulen.

The DA plans to file submissions to Nersa in response to Eskom's proposals.

According to DA MP Ghaleb Cachalia, splitting the tariff would "punish solar panel users" and made it more expensive for them to generate their own power.

"This anti-competitive behaviour by Eskom is reprehensible and could be in violation of South Africa's competition laws. Eskom is trying to use its market dominance to bully private households generating power 'for own use' by increasing the cost of solar power use," he said.

Death spiral

Professor Anton Eberhard of UCT, who also chaired the Eskom Sustainability Task Team, said those with solar PV who were grid-tied, but did not feedback power were probably not paying the full cost of having grid back-up.

On the flipside, those with solar PV and who made use of battery storage and feedback power to the grid were not being subsidised, nor were they being "adequately compensated" for the power they produced and their power was contributing towards reducing loadshedding, he added.

"If these 'prosumers' are not adequately compensated then they will go off-grid [which is not optimal for the system as a whole] and Eskom or municipalities will lose their cross-subsidies from higher income to poor households and it will hasten the utility death spiral," said Eberhard.

Vermeulen said if these consumers went off-grid it would be to the detriment of poorer households that relied on subsidies from higher income households.

"One thing the utility industry has not promoted is the value of being connected to grid," he added, especially considering the expense incurred if households were to go off-grid.

"The idea of the grid as back-up is not a bad one," Vermeulen said.

Consumers also have the opportunity to sell their surplus back to Eskom to reduce their bills.

"It's important to get this message across so that consumers stay part of the grid community." 

He added City Power wanted these solar PV customers to remain part of the "energy community" by feeding in the power they did not use back into the grid.

For this reason apart from charging these customers for the power they take from the grid, they are also compensated for the power they feed back into the grid, overall it reduces their electricity bill.

Vermeulen said allowing more PV energy onto the grid would contribute to a reliable electricity supply.

"As an industry, we have slipped up. We haven't informed our customers of what the value of the grid is ... it's kind of insurance for the rich customer, the grid is insurance. Even with loadshedding, the reliability of the grid in South Africa is still very good," he added.

During a separate briefing on the MYPD on Thursday, Nersa said the proposal was still going to be interrogated broadly and Eskom was just putting its position forward during the public hearings this week.

"That is going to be a long process, we are going to engage broadly with stakeholders before coming to any decision," said Nhlanhla Gumede, the regulator member primarily responsible for electricity regulation at Nersa.

He added there was nothing Nersa could add to the Eskom submission at this stage.

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