To effectively navigate Eskom's evolving tariff structures, large power users (LPUs) need a clear understanding of the key changes and how to strategically respond. These changes aim to modernise tariffs, reflect the true costs of electricity supply, and prepare for future developments in the energy sector.

The Imperative of Tariff Modernisation

Tariff modernisation is essential because the electricity supply and demand landscape is rapidly changing. Tariffs must accurately reflect costs, ensure fairness, and adapt to Eskom's structural unbundling. Traditional methods of recovering fixed costs through kWh charges are becoming unsustainable due to declining sales and the growing adoption of alternative energy sources. As stated in the document "Eskom RTP-2023-detailed-presentation-version-2 2.pdf", "The changing energy environment, reducing sales and the increasing use of alternative energy sources by customers, means that tariff structures are outdated and need to reflect current realities".

Understanding the Cost-to-Serve (CTS) Study

The updated Cost-to-Serve (CTS) study underpins the revision of all charges. This study ensures that tariffs align with the actual costs of providing electricity. Energy costs have increased more rapidly than average price increases, necessitating a re-evaluation of tariff structures.

For time-of-use (TOU) tariffs, costs are divided into variable generation costs and fixed generation capacity costs. These costs are further allocated into peak, standard, and off-peak periods, differentiated by season, based on the wholesale TOU structure. For non-TOU tariffs, an average annual c/kWh value is determined using a representative load profile.

Strategic Responses to Time-of-Use (TOU) Changes

The current TOU charges, last updated in 2005, no longer align with the present needs of the system and its customers. As a result, existing price signals and TOU hours are not optimal for effective system management.

LPUs can strategically shift their consumption to off-peak hours to minimise costs. This may involve optimising operational schedules or investing in energy storage solutions. Proposed changes include increasing the evening peak to three hours and reducing the morning peak to two hours. A two-hour standard period on Sunday evenings is also being introduced.

Impacts of Municipal Tariff Rationalisation

Municipal tariffs are being streamlined into three categories to reduce complexity and improve clarity. These categories are:

• Municflex: For large power users.
• Municrate: For small power users.
• Public Lighting: A dedicated tariff for public lighting.

Subject to Nersa's approval, existing tariffs like Megaflex and Miniflex will be superseded by Municflex. These adjustments are intended to simplify sales and revenue forecasting for both Eskom and the municipalities it supplies.

Subsidies and Cost Allocation

The tariff proposals seek to minimise intra-tariff subsidies by aligning charges more closely with actual costs.
The document "Eskom RTP-2023-detailed-presentation-version-2 2.pdf" indicates that legacy subsidies originate from historical policy decisions. Eskom aims to reduce cross-subsidies, such as those paid by urban large power users to subsidise lower voltage customers, through adjustments to network charges.

Implications of the Generation Capacity Charge (GCC)

The introduction of the Generation Capacity Charge (GCC) is designed to recover fixed generation costs more effectively, moving away from a sole reliance on kWh charges. "A fixed generation capacity charge has been introduced to recover fixed generation costs and a gradual increase in the fixed component of the network charges is proposed because network costs are primarily fixed in nature".

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The GCC is determined by allocated costs, reflecting the expenses associated with maintaining backup generation capacity. This charge is based on the costs associated with the cheapest generators that would provide back-up in a system with high renewable penetration.

Analysis of Network Charge Changes

Distribution network costs are separated into fixed and variable components for urban non-local authority LPUs. Sixty percent of network costs are designated as fixed, while forty percent are variable, influencing how costs are distributed among different users. Network charges are differentiated according to Distribution’s current voltage and geographic categories.

Strategic Recommendations for LPUs

To effectively navigate these changes, LPUs should consider the following strategic recommendations:

• Invest in energy efficiency and demand-side management: Enhancing load factors can lead to significant cost savings.
• Actively participate in regulatory discussions: Articulating concerns and shaping tariff policies is crucial.
• Explore bilateral agreements and alternative energy sources: This can provide greater control over electricity costs and supply.

Key Concepts for a Comprehensive Understanding

To ensure a comprehensive understanding, LPUs should grasp the following key concepts:

• Revenue Determination and Tariff Design: Revenue determination sets the level of tariff charges, while tariff design sets the rates and structure for end-use customers.
• Wholesale Integrated Selling Price (WISP): Eskom Distribution purchases energy and capacity at WISP, which is a pass-through cost to customers.
• Cost-to-Serve (CTS) Study: The CTS study is used to update charges and align them with actual costs.
• Time-of-Use (TOU) Tariffs: TOU tariffs are structured to reflect the costs of electricity at different times of the day and year.
• Generation Capacity Charge (GCC): A fixed charge designed to recover generation costs.
• Network Charges: Network charges are structured and allocated, including fixed and variable components.
• Subsidies: Different types of subsidies exist in electricity tariffs, and understanding how they are allocated is essential.
• Municipal Tariff Rationalisation: Changes to municipal tariffs and their impacts.

By incorporating these detailed explanations and strategic recommendations, LPUs will be better equipped to navigate the evolving energy landscape effectively.

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