30% electricity tariff increase is a reality, says Erasa

The Electricity Resellers Association of South Africa (Erasa) will this week decide on a strategy to address members’ concerns about a looming 30% increase in electricity tariffs for most of the end-users they serve in Eskom distribution areas, according to chair Johan Hopley.

These are households that rent or own sectional title units and use on average 400kWh of electricity per month. They are generally already financially struggling, and such a sharp increase in electricity costs will drastically increase the risk of non-payment.

A change in Eskom’s tariff structure poses a further threat to the resellers’ business model as it limits their ability to recover a loss on higher winter tariffs during the summer months, says Hopley.

Electricity resellers play an important role in the electricity value chain, especially in sectional title schemes. In most cases, Eskom or the municipal distributor brings the electricity to one bulk connection point at the gate, so to speak, of the premises. The internal distribution is then done by the developer and managed in the long run with the assistance of a reseller.

The reseller buys from Eskom or the municipality at a bulk rate but is legally not allowed to sell it to end users at more than the approved retail tariffs of the local electricity distributor, be it Eskom or the municipality.

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Impact already being felt

According to Hopley, the first Eskom bills based on the new tariffs that were implemented on 1 April show an increase of 30% in buildings’ bulk purchase cost.

A building in the East of Pretoria, for example, paid R357 921 (excluding Vat) to Eskom in May last year.

Based on the same number of units in May this year, the bill runs to R464 081 – a 30% increase.

Resellers must pass this on to end users who are expecting an increase of no more than the 12.74% that energy regulator Nersa approved for Eskom from 1 April.

That widely quoted number is, however, an average and does not reflect the much higher increases for those using less electricity every month.

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A tenant or unit owner who used 400kWh in May last year and paid R1 177, will now have to pay R1 547 – an increase of 31%.

This may be a huge shock to smaller households that are already struggling to make ends meet, says Hopley, and may result in lower payment rates – which poses a huge risk for resellers.

If they use more electricity, the increase moderates. However, at 600kWh per month it is 28%, which is still pretty steep.

Even if they try to use less electricity, the impact will be limited due to Eskom’s structural changes as the fixed monthly charges have increased from R195 to R367 per household.

The corresponding decrease in the price per kWh is small – from R2.95 to R2.45 (17%).

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Seasonal hurdle for resellers

Hopley says the added complication is that Eskom’s bulk tariffs are seasonal.

This means the reseller pays much more for electricity when winter tariffs apply – in June, July and August – than in the rest of the year.

The retail tariffs they must charge end users are however the same throughout the year.

Resellers, therefore, used to sell at a loss during the winter months but were able to make up for it during the nine summer months.

With the new tariffs, the loss in winter will be much bigger and in summer, the reseller may only break even, which is not at all sustainable.

This article was republished from Moneyweb. Read the original here.