Klaus Schade
The total electricity bill consists of various components. Almost all electricity distributors charge basic monthly fees. The exception is the City of Windhoek for their Industrial Demand categories. They also charge demand charges that are based on the actual maximum demand in kVA of the consumer, which contribute a significant share to the overall electricity costs. A few distributors add network access charges that are similar to the maximum demand charges, but are based on the declared maximum demand, not the actual, and hence remain unchanged throughout the year. Hence, a mere comparison of electricity tariffs falls short of the complexity of the cost of electricity.
Furthermore, there is no single electricity tariff. Electricity distributors offer time-of-use (ToU) prices to most electricity consumers in order to provide incentives to spread electricity consumption more evenly throughout the day. The ToU tariffs are expected to reduce maximum demand at peak times and hence reduce excess capacities during standard and off-peak times, and subsequently investment in underutilised capacities.
With the exception of Lüderitz, peak tariffs in Namibia are generally lower than in South Africa. However, standard and off-peak tariffs are generally lower in South Africa than in Namibia. Overall, using a simple average of electricity prices from selected distributors, Namibian peak hour prices are 8.5% lower than South African prices, but 21.5% higher for standard and 32.5% higher for off-peak hours.
Besides the ToU tariffs, the times for which the ToUs apply matter for businesses, since they determine the extent to which they can shift electricity to lower tariff times. Peak time tariffs apply to seven hours a day during weekdays, amounting to 35 hours per week in Namibia. This amounts to 10 hours more than in the three selected South African municipalities – Cape Town, Durban and Johannesburg – that charge peak tariffs during five hours every weekday. The longer peak times in Namibia reduce the hours for which standard tariffs are charged. They account for 52 hours during the week in Namibia, compared to 62 hours in Durban and Johannesburg, and 55 hours in Cape Town. Off-peak hours apply to 81 hours (48.2%) in Namibia, Durban and Johannesburg.
The difference between peak tariffs, standard tariffs and off-peak tariffs varies widely. The spread between peak and off-peak tariffs could be as high as 66% (for instance in Durban for Industrial Time of Use tariffs), but is for most distributors around 35%.
Price adjustments in 2021/22
The analysis of price adjustments between the periods of 2020/21 and 2021/22 reveals some striking trends. South African distributors had to raise tariffs sharply, ranging from 11.9% in Cape Town to 15.1% for the Durban industrial time-of-use tariffs. The increases are applied across the board. These increases are not surprising, since Eskom is not only battling a widening gap between electricity demand and supply, which results in rotating load shedding, but is sitting with a high debt burden.
In contrast, about half of the Namibian distributors reduced peak tariffs by between 1.2% (Oshakati Premier Electric) and 4.3% (City of Windhoek Industrial Demand tariff), while others increased peak tariffs by between 1.3% (Keetmanshoop) and 9.2% (Lüderitz). All distributors, however, increased standard and off-peak tariffs, with the exception of Keetmanshoop, which left off-peak tariffs unchanged.
Maximum demand charges
Maximum demand and network access demand charges contribute in part significantly to the overall electricity bill. There is often little a business can do to flatten electricity consumption and reduce the maximum demand curve in the short term since it is determined by the production process and the production technology used. In Namibia, only Windhoek, Erongo and Keetmanshoop apply maximum demand and network access charges, while Botswana and the three South African municipalities apply maximum demand charges.
Case studies
We have used four case studies based on industry information to compare total electricity costs for different levels of monthly electricity consumption to compare the total cost of electricity between the Namibian Regional Electricity Distributors (REDs) and some Local Authorities to those in Botswana and selected municipalities in South Africa.
For electricity users with a monthly consumption of 1.6 million units, of which 41% was used during off-peak hours, 38% during standard and 21% during peak hours and a maximum demand used of 3,994 kVA and network access demand of 3,900 kVA, the costs range between ZAR2.4 million in Durban (Industrial ToU tariff) and NAD4.3 million in Oshakati. Windhoek (NAD3.4 million) charges slightly lower costs than Johannesburg (ZAR3.6million), but higher than Cape Town, Durban or Botswana, while costs of all other Namibian distributors exceeds those of South Africa and Botswana. On average, Namibian businesses paid some NAD4.0 million, compared to ZAR2.9 million in South Africa and NAD2.8 million in Botswana.
The total costs for consumers with a monthly average electricity consumption of 200,000 units, of which 44% was consumed during off-peak times, 31% during standard and 25% during peak hours and a maximum demand of 600 kVA and network access demand of 745 kVA, were in line with the previous case study. A company in Durban would pay ZAR330.004 per month, while it’s NAD599 178 per month in Erongo. The City of Windhoek remains the low-cost distributor in Namibia (NAD447 625 pm), just ahead of Johannesburg (ZAR487 651).
The results are a little bit more mixed for users with a monthly average of 16,000 units, with 23% consumed during off-peak hours, 40% during standard and 37% during peak hours and a maximum demand of 104 kVA and network access demand of 110 kVA: Cape Town offers the lowest costs at ZAR43 719 per month, followed by Durban (ZAR48 842 pm) and Windhoek (NAD49 524).
The final case study refers to a monthly average electricity consumption of 1,500 units, with the largest share used during peak hours (46%), followed by 34% during standard times and the remaining 20% during off-peak times. The maximum demand averaged at 29 kVA and network access demand at 55 kVA. Durban is by far the lowest-cost location (ZAR5 877 per month), followed by Lüderitz (NAD8 209 pm), Windhoek (NAD10 307) and Botswana (NAD11 002).
Conclusion
These case studies underline the need to
look beyond electricity tariffs, be it average tariffs or tariffs at specific times of the day, but to include all costs as well as the distribution of consumption during the day.
Furthermore, for the regional comparison, it is important to keep in mind that Namibia is only one out of five SADC member states that has implemented cost-reflective tariffs after a Cabinet decision in 2009. This caused some strong price adjustments in the following years, similar to what South African electricity consumers are experiencing currently. However, neither Botswana nor South Africa have introduced cost-reflective tariffs yet, hence stronger price rises can be expected in these countries over the next years. Electricity subsidies also imply that the Government cannot provide other services or investment in infrastructure at the same level or that the debt burden increases, which all can have negative impacts on the operations of the private sector. The implementation of the Modified Single Buyer Model in Namibia is expected to result in lower price increases, or even price reductions for large electricity consumers.
Moreover, any price comparison needs to be complemented by an analysis of the security of supply. Regular load shedding in South Africa – and other countries in the region – increases production costs through the provision of alternative sources of electricity, such as generators, and/or loss of production and productive time. These are costs Namibian consumers have so far not incurred.
In order to reduce maximum demand charges and lower overall electricity costs, Namibian businesses could conduct electricity audits to detect electricity leakages and wastages, as well as explore resource-saving production technologies and processes. Finally, investment into renewable energy sources, such as solar, will reduce the maximum and the network access demand, and hence the costs of these components of the overall electricity bill.