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Balancing cost-reflective tariffs and affordable electricity

Electricity utilities need to charge enough to cover their costs and maintain effective and efficient operations, but South African consumers, many of whom are already struggling financially, cannot afford steep rates increases.

As energy and power expert Professor Vally Padayachee points out, the discussion is not merely about high pricing, but is rather about affordability.

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“In recent years, the push for lower tariffs as a means of promoting affordability has resulted in electricity utilities like Eskom and various municipalities struggling to keep their heads above water financially. As tariffs have been reduced, these entities find themselves compelled to raise prices to reach the necessary cost-reflective levels.

“This brings us to the essential question: How can they navigate this conundrum without losing public support or incurring operational detriments?” he asks.

First Padayachee considers cost management and efficiency improvements that Eskom and municipal electricity utilities must focus on for operational efficiency.

Then he goes into engagement between utility and consumer around innovating tariffs. “Engagement with consumers is critical,” he reminds.

Next he switches to the role of regulator NERSA and the South African government in navigating “the delicate balance between cost-reflectivity and affordability”.

Then he explains the concept of leveraging collaboration and financial innovations and concludes with the thought that while harmonising cost-reflective tariffs with the idea of affordable electricity in South Africa may indeed be a complex challenge, it is not insurmountable.