Rapid rise in Eskom tariffs trigger solar surge, shrinking municipal revenues

JOHANNESBURG — One tends to forget the devastating impact Eskom has had on the South African economy. Economic growth was ticking along fairly well in the mid-2000s until electricity compacity constraints in 2007/08 started to strangle expansion. The Zuma years, in many ways, have further led us down the road of recession that we now find ourselves in. But Eskom, which is now reportedly seeking an almost 20% price hike next year, is again grabbing headlines for all the wrong reasons. South Africans, in the load shedding years, already started to distance themselves from Eskom, either by turning to solar or by just refusing to pay tariffs – a situation that has significantly dented municipalities’ budgets. As if the recent drama around Zupta controlled Tegeta and the Life of Brian (Molefe) weren’t enough, one wonders what further damage Eskom will inflict on SA. – Gareth van Zyl

By Yolandi Groenewald, Fin24

Eskom may be cutting off its own throat with its latest tariff rate application, as the rich opt to generate their own power and the poor find ways to circumvent payment.

As South Africans struggle to make ends meet in a struggling economy, higher electricity prices are likely to lead to a drop in sales, forcing the power utility’s revenue even lower.

An electricity pylon stands beyond an Eskom sign at the entrance to the Grootvlei power station, operated by Eskom Holdings SOC Ltd., in Grootvlei, South Africa. Photographer: Dean Hutton/Bloomberg

At the same time cash-strapped municipalities will emerge as the biggest losers, as users cut down on their electricity, eating into the municipality’s revenue. Electricity theft is at a record high, big metros such as Johannesburg reported.

Shell shocked South Africans heard this week that Eskom planned to charge them close to 20% more for electricity next year. A confidential Eskom draft tariff application to the Treasury and the South African Local Government Association (Salga) in April came to light this week, revealing that Eskom proposed to charge its clients an average of 19.9% more in tariffs.

The power utility has to submit its final revenue application for 2018-19 to the National Energy Regulator of SA (Nersa) by the end of June. If the tariff is granted municipalities could pay up to 27.3% more for bulk electricity purchases.

Municipality revenue

Municipalities generate significant income from reselling Eskom’s electricity to their towns. According to Statistics South Africa, around 30% of total municipal income came from electricity sales in 2015. But last month municipalities begging for a tariff hike of their own told Nersa that electricity sales were decreasing, largely due to Eskom’s tariffs hikes. Cape Town said its sales were the lowest since 2006.

Also a definite trend is emerging where homes and businesses who could afford renewable energy are opting for rooftop solar photovoltaic (PV) panels, cutting off Eskom revenue from customers with deep pockets.

“Higher electricity costs will trigger a downward spiral in demand and the end of Eskom’s ability to sustain itself, ” Ted Blom, Outa’s energy director warned. “The current trend will bring substantive pressure to bear on the consumer.”

Nersa gave the power utility permission to recoup expenses it hadn’t budgeted for in fiscal 2014 by raising tariffs an average 9.4% starting April last year, more than the 8% it had initially allowed.

‘500% hike in electricity prices’

Since Eskom first started increasing their tariffs in 2007, Outa calculated that electricity prices had increased by over 500% since 2007. Blom said Outa was disappointed that Nersa had not done more to shield consumers from excessive tariff hikes, which have seen electricity prices soar.

Nhlanhla Ngidi, who was responsible for energy and electricity matters at Salga, told Nersa last year that electricity prices has increased more than four times than that of inflation.

At the same time non-payment rates and theft more than doubled in 2015, he said.

“Higher tariffs lead to reduction in sales, obviously,” he said. “Increased tariffs have a negative inflationary impact on an already constrained economy and will also reduce sales.”

Ngidi added that municipalities increasingly saw customers becoming their own suppliers with solar PV rooftops. While Eskom’s revenue shortfall had to be addressed, it cannot be solved by demanding higher tariffs from hard-pressed consumers, he told the regulator.

“Ultimately municipalities will be forced to absorb an Eskom increase,” he said, alluding that many municipalities were already defaulting on their payment to the state utility.

AgriBusiness’ Stefan Pieterse also said that electricity revenue is one of the major sources of income for municipalities and has traditionally been used to subsidise other services.

“The rapid rise in Eksom tariffs have seen the municipal margin shrinking, which places a lot of pressure on municipal finances and the ability to deliver services,” he said. “Municipalities are highly vulnerable to price shocks from Eskom.”

Nic Barnes of the Johannesburg Property Owners and Managers Association (JPOMA) told Nersa last year that many of his tenants could no longer afford to pay for electricity.

JPOMA represents most of Johannesburg’s inner-city property owners and managing agents, over 50 000 affordable housing units. Barnes cited the case of MaDlamini, who lives in a flat in the Johannesburg CBD, earned R5 972 and her electricity account was R148.59. In 2016 her income had grown to R9 590.00, an increase of 60.58%. But her electricity bill increased by 174.47% to R407.84.

Source: http://www.fin24.com/Economy/Eskom/as-electricity-prices-soar-consumers-abandon-eskom-20170607-2

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