Customers pay more for less

Cape Times
September 29, 2014
David Lipschitz – Energy Portfolio
Greater Cape Town Civic Alliance

CONSUMERS pay for the products we buy and usually we can determine the kind of produce we want and the price we are prepared to pay and if we want to prepay, pay cash, or pay on credit – except for electricity. We pay a tariff (price) determined by an “independent” organisation called NERSA, which is owned and paid for by the government. If we want electricity we have to pay the tariff and we don’t have any choice.

The government says that electricity is a commodity and its price is constant. But the price is not constant. It changes almost every second of the day. Yet our government says that we are stupid and that we won’t be able to work with varying electricity charges, for example a normal rate of R1.50 per kWh, a peak rate of R3 per kWh and an off peak rate of 75 cents per kWh, even though our cellphone charges are variable and we can make all sorts of other varying decisions, such as to use 3G when we are on the road, or ADSL, which is cheaper, when we are at home, or to use public transport or use our cars to get to work.

Off peak time is 10pm to 6am. It is entirely possible for homeowners to set ourselves up to only use electricity at off peak time and to actually sell electricity at peak time to people who want to buy it at those times, and who can make their own decisions about what they are prepared to pay to have the convenience of electricity at peak time, and during the day. But we are constrained by the government, even though there are many businesses who want to buy more electricity and wealthy people who want to buy more electricity and mines, smelters, and so forth, who want to buy more electricity.

The government also blames the fact that a 21st Century grid needs smarter metering, yet it says that we consumers cannot buy our own meters and that the meters must be paid for by government. But government gets its money from the consumer, so the consumer is paying this price regardless of whether government pays for it or the consumer pays for it. Yet another paradox in electricity pricing.

So now we have this interesting situation. In 2007, the price paid per kWh in the City of Cape Town was 52 cents per kWh and now we pay R1.72 per kWh. But back in 2007, South Africans enjoyed access to 42 GW of power, but now we have access to about 32 GW of power. We are paying more because we should have more, but the South African government and our electricity provider cannot find a way to bring us the additional electricity we are paying for, but which we don’t have.

As everyone knows, Medupi and Kusile are way behind schedule, are over budget and the quality is lower than expected. The same goes for existing power stations which are not being maintained properly, mainly due to lack of spare capacity, and hence our existing power stations are being run into the ground. At existing rates, grid failure is more likely every minute of the day.

So on average consumers in the City of Cape Town are paying R1 548 for 900 kWh of electricity in 2014, but in 2013 we were paying R684 for 1 200 kWh of electricity. And we are also already paying for the electricity from our two new power stations even though they are two years behind schedule and 60 percent over budget. So the electricity consumer is subsidising an inefficient system by paying for a product which is not being delivered.

At the same time, our government is complaining that they are losing electricity revenue because they have put our prices up so much that the only choice consumers have access to is energy efficiency, that is, not using electricity, which is the option of choice.

So we spend money and we change our buying behaviours so that we use much less. But as one can see we are paying 226 percent more for using less, so I have no idea where this particular problem is.

And the energy efficiency market is growing in leaps and bounds with homeowners able to use up to 70 percent less electricity if we wish, and many buildings changing their heating and cooling systems and other systems to save up to 30 percent of their electricity. This is adding jobs in a moribund economy, even if nothing else is growing.

What many of us have been asking for is the opportunity to buy and sell electricity at the “time of use” tariff, ie different prices at different times of the day, and therefore dramatically add to the availability of electricity on our national grid so that business can grow, so that job creation can grow, and all this can be done cheaply and sustainably, with consumers’ money and at no capital cost to the government, and therefore an increasing Country Investment Credit Rating, and therefore a lowering cost of capital for major infrastructure projects.

Big business can access the Time of Use Tariff, but only if it is spends more than about R500 000 a month on electricity, hence government again is protecting big business at the expense of the rest of us. I attended a talk at Koeberg Power Station on September 19 where Eskom said that Electricity growth should be 1 200 MW per annum. This means that the 42 GW we had 20 years ago should now be 66 GW, but it is actually 32 GW.

One should note that internationally electricity growth is 4 percent (compound), which is actually 1 680 MW per annum (more when compounding is taken into account), so our National Electricity Grid should have closer to 80 GW available. But we have less than half that. Hence a dwindling GDP number, jobless growth, high inflation, increasing interest rates, soaring crime and other social ills.

People like me really want to become power stations interacting with the grid, at least removing ourselves from the grid during the day and at peak time, and at best actually selling electricity into the grid at these times, so that Eskom and the municipalities can provide electricity to business which employs people who pay tax and the businesses themselves pay tax and there are many social benefits to this.

Yet we are told that we cannot do this because the poor will be negatively effected, and the poor are equated with unemployed people. But this is because our government would rather give grants to unemployed people than creating an environment which employs people.

One should also note that many of these so called “poor” people are actually selling electricity at exorbitant rates to “backyarders”, and therefore actually aren’t poor.

And the sad fact is that “retail wheeling”, ie the ability of a consumer to resell electricity to neighbours or someone else on the grid is allowed for poor people, but the rich (taxpayers) are not allowed to resell electricity.

But as I’ve already said, we are constrained. We pay for a particular product, but the product is not available. We say we want to help, but are told that the “law” which is meant to protect everyone, is actually against us, even though it is pro-government and pro-Eskom.

What can be done?

What should be done?

I pray that people will think about these questions and make decisions that are beneficial to the entire population of South Africa as we move forward in this new century.

● Lipschitz is the energy portfolio holder for the executive committee of the Greater Cape Town Civic Alliance.


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