Category: Energy news

Solar PV and the value of your home: What the experts say.

by Matt Capes

About this Article

We offer a new perspective on the long-term value you can create by installing a solar PV system in your home.

To provide context we elaborate on why the reliability, affordability and sustainability of solar PV make it a viable and valuable addition to your home. Trends in the South African residential property market and challenges caused by Eskom’s unreliable and expensive ‘service’ are also discussed.

We then move onto the focal points of this article: Saleability and sales premium.

To get insight into how solar PV systems can improve the saleability of South African homes, we spoke to two local residential property experts: Sandra Gordon, Senior Research Analyst at Pam Golding Properties, and Anthony Stroebel, Head of Business Development at Pam Golding Properties and a Director of the Green Building Council of South Africa.

Our article concludes with a method designed to help you calculate a rough estimate of the potential home sales premium unlocked by installing a solar PV system in your home.

Read time: 4 minutes

Authors: Matthew Capes, Sean Moolman

The Context: Declining Grid Reliability and Increasing Cost

The transition to clean energy is critical to securing a sustainable future for humanity.

In an ideal world this would be at the top of everyone’s to-do list, but each day brings its own challenges.

Especially in sunny South Africa.

For example: How do I manage to keep up with rising electricity and water bills? How do I cook dinner, have a hot shower, or watch some TV with my family, when persistent load-shedding and unexpected blackouts leave us in the dark?

Solar PV has become an increasingly affordable, reliable, and sustainable solution to these issues

*Annexure A includes more detailed information and references for the above illustration*

As a South African you are certainly aware of the challenges Eskom brings. You may also be familiar with the reliability, affordability and sustainability provided by solar PV.

They are solutions to the current challenges faced by many South Africans.

But what about the future?

An important reality often overlooked, is that the solar PV system becomes part of your home once it is installed; solar PV panels are routinely guaranteed at 25 years or more.

International research suggests that it can, however, we sought insights closer to home. A lekker local perspective if you will.

We spoke with Sandra Gordon (Senior Research Analyst at Pam Golding Properties) and Anthony Stroebel (Director at GBCSA, Head of Business Development at Pam Golding Properties) about two forms of value:

Saleability, is the extent to which the home can be easily sold or rented.

Sales premium, is the ability to command a higher sale or rental price.

At the end of this article, we provide a guideline to estimating your own home sales premium.

Let’s begin with saleability.

Gordon and Stroebel note, “Saleability is always relative to that particular moment in time i.e what else is on the market that would be competing for the same buyers…

Certainly, at this point in time, when solar PV has not necessarily reached any degree of critical mass, it is likely that solar homes will be competing with non- solar homes and will definitely therefore have a ‘value edge’.”

Let us elaborate on what that “value edge” is.

Escape from Eskom

Stroebel and Gordon anticipate that “Despite the lack of local research on the matter, the fact that South African electricity tariffs are rising steadily and loadshedding is set to continue for the foreseeable future, it is extremely likely that any measures which reduce utility costs and increase a home’s independence from state utilities would increase its saleability”.

They explain: “With a large, young population – and with utilities becoming more erratic and expensive – new mixed-use developments typically include energy and water efficiency features, solar power and – in some cases – rain harvesting etc.

“These features are undoubtedly attractive to the majority of potential homebuyers and, based on international trends, will be particularly important to younger buyers (who are an important source of housing demand in South Africa)”.

Securing the value of your home means you should consider who the buyers are likely to be and what would attract them to your home.

Millennials in the Market

Research conducted by COGNITION Smart Data found that Millennial home buyers have
“a strong ethic of sustainability” and are looking for “smart homes that are sustainable, efficient and healthy”.

Adds Stroebel, “Millennials want homes with the latest and greatest – and most environmentally compatible – technology.

“According to this research, millennials have a high level of interest in solar technologies to reduce their carbon footprint, reduce their energy bills and increase self-sufficiency. Trends which rising local tariffs and increased instability in delivery are likely to reinforce.”

So, they are young and they want to save the planet… and money too.

Environmental and Financial Sustainability

According to research conducted by CoreLogic, “Surveys have demonstrated that millennials tend to be more environmentally conscious. It is no surprise that they are the ones driving the green revolution in housing.

Solar panels will continue to be more popular on single family homes, each unit with its own battery and power management system”.¹

Green features such as a solar PV system also provide financial sustainability in the form of direct savings on energy costs, improving the saleability of your home and a potential home sales premium.

In a 2018 survey by the Pam Golding Property group: “70.3% of its agents estimated that homes with green features record a price premium of up to 5%, while 54.4% of agents stated that buyers are showing increased interest in green features”.²

According to Ooba, “energy-efficiency has become a buzzword for house hunters – not just because of load shedding, with homeowners around the globe trying to go green. A home that is less dependent on the grid makes for a sound investment opportunity”.³

A smarter and more sustainable home can offer you cost savings and certainty through independence from Eskom. These solutions will undoubtedly make your home more attractive to prospective buyers.

All these factors (and more) combine to create a perception of value of in prospective home buyers’ minds.

As they say in marketing, perception is reality…

So does this perception of enhanced value translate into real value?

Listed in Table 1 (below) are several estimates from reputable international research for quantifying the potential home sales premium as a result of having a solar PV system installed.

Table 1: Sources of international research on solar PV and home sales premium

The Appraisal Journal cited researchers Ruth Johnson and David Kaserman	“value increase of about $20 for every $1 saved on annual energy costs”
A study by the Lawrence Berkeley National Laboratory	“$5,000 resale value increase for every kilowatt (kW) of solar installed.”
The National Bureau of Economic Research (NBER)	“price premium of up to 4% (depending on size and age/condition of system)”

Reference – ⁴

Using the methods in Table 1 we created a rough guideline on how to estimate your home’s potential sales premium by having a solar PV system installed. *Please see Annexure B*

The estimates from the National Bureau of Economic Research (4%) in Table 1 and the aforementioned Pam Golding Properties survey (5%) are close enough to provide a basis for estimating the potential home sales premium in South Africa.

In the following illustration, we depict a range of potential sales premiums made possible by installing a solar PV system in a South African home.

^*A Please see Methods and Assumptions

Acknowledging the limitations of applying these methods and estimates is pertinent, especially considering the lack of local data.

With that being said, we want to leave you with a final thought.

Put yourself in the prospective buyer’s shoes. Imagine you have narrowed your choices down to two houses on the same street. The selling price is similar and so are the houses. The only major difference is that the owner of one house decided to install a solar PV system.

The houses don’t seem so similar any more… one of them is smarter, more sustainable and offers independence from ever increasing electricity tariffs and protection against load-shedding.

Which house would you be more interested in buying or be willing to pay a premium for?

*We would like to extend a special thank you to Sandra Gordon and Anthony Stroebel. We greatly appreciate your time and effort spent on providing us with invaluable insights.

ANNEXURE A

We know that solar PV can offer independence from Eskom’s unreliable service.

Although we were in lock down most of the year, South Africa still experienced its worst year ever of load-shedding in 2020.A total of 1798 GWh shed and 859 hours of outages.

To put that into perspective, there are 8760 hours in a year… We had load-shedding almost 10% of the time in 2020!

Eskom has not been off to a good start in 2021 either. According to data from Eskom se Push we had already seen 560 hours of load-shedding in the first half of 2021.⁵

Will the situation improve?

According to a technical report by the CSIR, Eskom’s coal fleet’s Energy Availability Factor (EAF) has declined from 94% in 2002 to 57% in 2019. Degrading infrastructure, scheduled maintenance and unexpected breakdowns exacerbate the rate at which the coal fleet’s EAF declines.

This means the situation is likely to get worse (at least, before it gets better).⁶

Solar PV has also become much more affordable, whereas Eskom is progressively more unaffordable. From 2007 to 2019, Eskom’s average electricity tariffs increased by 446%. Over that same time period, the price of solar PV modules decreased by more than 90% from R57,4/W_p to R5,32/W_p. ⁷

For the 2021/2022 year, the average monthly electricity bill is about R1 508 across all income groups in the four major metropolitan areas (Cape Town, Joburg, City of Tshwane and eThekwini).^*B

Solar PV is dramatically more environmentally friendly too.

Several lifecycle greenhouse gas (GHG) emissions studies show that solar PV, at only 50g of CO2-eq./kWh, has a fraction of the lifecycle GHG emissions of coal (948g of CO2-eq./kWh).⁸

Remember, most of the electricity generated by Eskom comes from coal fired power plants.

These studies analysed the emissions over the entire lifecycle of each technology. From mining of raw materials to manufacturing to operation to decommissioning at the end of its useful life.⁹

ANNEXURE B

*Monthly electricity and solar PV system cost estimates from Table 1 were adjusted to reflect those in South Africa.

Using the methods from Table 1, we begin our calculation with R2 034, the average monthly electricity bill for lower-middle to upper income groups (LSMs 5 to 10) for the 2021/2022 year.^*B

According to the Appraisal Journal, a solar PV system can enable a home sales premium of up to R20 for every R1 saved on annual energy costs.

To calculate potential annual savings, we multiply the R2 034 average monthly electricity bill by 12 months, which equals about R24 000.

Next, we multiply R24 000 by R20 which gives us a potential sales premium of R480 000.

To get to that same R480 000 but using the Lawrence Berkeley National Laboratory method which estimates R75 000 sales premium for every kW of solar installed – you would need to have about a 7kW solar PV system installed.^{*C and D}

According to a 2021 BusinessTech article, having a 5kW solar PV system installed will cost about R110 000.

This equates to R22 000 per kW installed, thus we can expect the 7kW system mentioned above to cost about R150 000.¹⁰

If our potential sales premium is about R480 000 and the cost of our solar PV system is about R150 000, we arrive at an arbitrage opportunity of R330 000.

We must consider that, if the potential 4% sales premium is R480 000, the total starting price of our home would need to be R12 000 000.

Since most of us don’t have a home valued at R12 million, let us work out the sales premium using the average selling price of houses in South Africa for property in the lower-middle (R638 200) income group to luxury value property (R2 300 000).¹¹

In 2019, the average selling price of houses for the above groups was about R1 300 000. Subsequently, the 4% sales premium would be about R52 000.

REFERENCES

1 – https://www.corelogic.com/intelligence/the-top-four-ways-millennials-are-changing-the-housing-market/

2 – https://blog.pamgolding.co.za/greener-living-rise/

3 – https://www.ooba.co.za/resources/living-off-the-grid/

4 – https://www.solarreviews.com/blog/do-solar-panels-increase-home-value

5 – https://www.timeslive.co.za/news/south-africa/2021-06-09-dark-times-weve-had-560-hours-of-load-shedding-so-far-in-2021/

6 – https://researchspace.csir.co.za/dspace/bitstream/handle/10204/11483/Wright_2020_edited.pdf?sequence=7&isAllowed=y

7 – https://ourworldindata.org/grapher/solar-pv-prices

8 – https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_chapter7.pdf

9 – https://reinvestproject.eu/wp-content/uploads/2019/11/OR_RE-INVEST_Life-cycle-GHG-emissions-of-renewable-and-non-renewable-electricity.pdf

10 – https://businesstech.co.za/news/energy/313854/this-is-how-much-it-will-cost-to-install-solar-panels-in-south-africa-based-on-the-size-of-your-house/

11 – https://www.intergate-immigration.com/blog/cost-of-living-in-south-africa-ultimate-guide/

Methods and Assumptions

*A – The ranges shown in the “Real Value: An Overview of Estimates” illustration, as well as the more detailed sales premium estimation guideline found in Annexure B, are based on rough international data which we further adjusted to make it more relevant in the South African context.

With many variables, some of which have changed drastically over the last few years, these sales premium ranges and estimation guidelines are rough at best. They are only intended to give a basic idea of how a solar PV system can potentially lead to a home sales premium.

*B – Average residential electricity consumption data was obtained from: Goliger, A. and Cassim, A. (14 and 15 July 2017). Tipping Points: The Impacts of Rising Electricity Tariffs on Households and Household Electricity Demand. 3rd Annual Competition and Economic Regulation (ACER) 2017 Conference, Dar es Salaam, Tanzania. Last accessed: 21/08/2017.

*B – Average effective residential electricity tariffs were calculated from the published 2021/22 tariffs of the following four metropolitan municipalities: City of Johannesburg, City of Tshwane, City of Cape Town and Ethekwini, using the average electricity consumption values for LSM5-10 obtained from the above references.

*C – The solar PV systems as discussed in this article include battery back-up. Thus they are either hybrid or off-grid residential solar PV systems. Grid tied systems do have some form of back-up (AC grid power) and provide cost savings with solar energy. However, they do not have back-up in the case of load-shedding. Thus, in our estimations we focused on hybrid and off-grid solar PV systems.

*D – At the time of writing the exchange rate was R15 to the Dollar

2022 update: Eskom tariff increases vs inflation since 1988 (with projections to 2024)

01Aug

by Sean Moolman

In 2015, 2017 and 2019 we published infographics showing Eskom annual tariff increases since 1988 compared to inflation.

Following Eskom’s court order success against NERSA in early 2021, it increased electricity prices by an average of 15.63% in April 2021. In April 2022, a further increase of 9.61% was approved. So what do the numbers look like today?

The graph below shows the Eskom tariffs from 1988 to 2022, plotted against CPI (Consumer Price Index) or inflation over the same period. It also shows projections up to 2024, based on expert forecasts and inflation projections.

Note: The graph depicts overall average increases – actual increases will be different for different types of consumers (residential, commercial and industrial) and will vary between municipalities.

Looking at the graph, the following can be noted:

In the period from 1988 up to the 2008 electricity crisis, electricity tariff increases did not keep tread with inflation. This was partly due to government policy to keep electricity tariffs as low as possible for poor communities, but also due to Eskom having an oversupply of electricity (in the 1990’s) and not investing in new capacity (in the 2000’s).
Between 1988 and 2007, electricity tariffs increased by 223%, whilst inflation over this period was 335%.
From the 2008 electricity crisis onwards, there is a clear and sharp inflection point for electricity tariffs in South Africa. From 2007 to 2022, electricity tariffs increased by 653%, whilst inflation over this period was 129%. Thus, electricity tariffs increased four-fold (or quadrupled) in real money terms in 14 years.

In fact, Eskom has already applied to NERSA for a 32% tariff increase in April 2023. It has also applied to NERSA to restructure residential tariffs to ‘reflect cost drivers more accurately’. The restructured tariffs will see two main options for direct Eskom customers – Homepower and Homeflex.

For the Homepower tariff, the grid connection fee would increase from R218/month to R938/month – this is the charge before you have used a single kWh of electricity!

The Homeflex tariff will introduce time-of-use charges – in other words, the price of electricity will change depending on the time of day. (Time-of-use charges is widespread internationally, and helps to balance grid load by incentivising electricity use outside of peak hours.)

Eskom is in serious need of restructuring – which the government at last acknowledged and announced in 2019. As of October 2022 this restructuring has not yet been completed, but is in progress.

Sources:

Eskom warned its pricing itself out of the market. Website: https://techcentral.co.za/eskom-warned-its-pricing-itself-out-of-the-market/105167/. Last accessed: 2021/07/30.
Eskom tariffs and charges. Website: https://www.eskom.co.za/CustomerCare/TariffsAndCharges/Pages/Tariffs_And_Charges.aspx. Last accessed: 2022/10/20.
Stats SA. CPI History. Website: http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf?. Last accessed: 2019/10/01.
Bureau for Economic Research. Inflation Expectations – History (2021). Website: https://www.ber.ac.za/BER%20Documents/Inflation-Expectations/?doctypeid=1065. Last accessed: 2021/07/30.
South Africa Inflation Expectations. Website: https://tradingeconomics.com/south-africa/inflation-expectations. Last accessed: 2022/10/20.

Image of Lethabo power station by Simisa on Wikimedia Commons [CC BY-SA 3.0]

The Price of Water and Electricity in South Africa: A Tale of Two Tragedies

18Jan

by Sean Moolman

Authors: Matthew Capes, Sean Moolman

Background

This article seeks to examine the price and affordability of water and electricity in South Africa. We embark on a tough but important journey to shed light on how the price of electricity and water has changed over the last 25 years, and how these basic needs have become less affordable for us, the citizens of South Africa.

On this journey, we discuss the following topics in 5 short chapters (click the link to go directly to a specific chapter):

The increase in Eskom’s average electricity tariff vs. inflation (CPI) – click here to read
The increase in the average municipal water and sanitation tariff for three different income levels vs. inflation (CPI) – click here to read
The contrast between the increases in South African electricity and water tariffs vs. inflation (CPI) – click here to read
How South Africans’ monthly electricity and water bills have changed in the past 25 years in both nominal and current money – click here to read
The combined electricity and water bill of an average South African household vs. average household disposable income in South Africa – click here to read

Each of the above topics is accompanied by a graph to aid the discussion and illustrate the seriousness of the situation in South Africa.

We hope to highlight the pertinence of wise water usage and efficient energy consumption and to stimulate the conversation surrounding what we could and should do to ensure sustainable and affordable access to these basic needs for all South African citizens.

For methods, assumptions and references, click here.

Chapter 1. Eskom average tariff vs. inflation (CPI)

The state of South Africa’s electricity provider, Eskom, is no secret. Plagued by ageing infrastructure, mismanagement, corruption, shrinking or stagnant revenues and increasing debt, the state-owned utility is caught in what is known as a ‘death spiral’.

The impact of these issues manifests in two ways. The first is known as load-shedding, something with which we as South Africans have become all too familiar. The second is the infamous Eskom electricity tariff increases. Ideally these tariff increases would be somewhat in line with increases in inflation… Oh what a perfect world that would be!

In sunny South Africa, electricity tariffs have increased by 512% from 2007 to 2020 (see the graph). That is 5 times faster than inflation! Eishkom?

To top it all off, Eskom was recently granted a R13 billion clawback by NERSA, as well as an additional R69 billion clawback, resulting from a court judgement in Eskom’s favour[a].

What does that mean for us? We, the citizens of South Africa, are set to experience further rapid electricity bill escalations over the next few years. It goes without saying that those increases will not be accompanied by improved service delivery.

Speaking of rapid escalations, has anyone kept an eye on their water bill? In the next chapter we take a closer look at municipal water tariffs.

Chapter 2. Average municipal water & sanitation tariff vs. inflation (CPI)

In the previous chapter we discussed the 512% increase in the average Eskom electricity tariff since 2007. We shall now embark on the 2nd leg of our journey in which we highlight an equally odious development in a tariff that has received a lot less negative press: Water and sanitation.

You are not alone if you allowed the increasing cost of your most basic need to go unnoticed…

Perhaps now is the time to explore the real water tariff trends, overshadowed by Eskom’s conspicuous plight and camouflaged by a complicated tariff structure, but which impacts our daily lives as South African citizens. Think back to ‘Day Zero’ in 2018 and the questions surrounding a lack of access to water and water insecurity in South Africa.

Now ask yourself this: Is it possible that the cost of the water provided by municipalities has increased faster than inflation, considering the deteriorating service delivery on a broader scale?

As can be seen in the graph, average municipal water tariffs have increased four times faster than inflation since 1996.

Essentially, the average municipal water tariff was almost 1300% higher in 2020 than in 1996… Unfortunately, we must bear this burden together with that of Eskom’s runaway tariffs.

In the next chapter, we compare electricity and water & sanitation tariffs over the past 25 years and consider why the increases in average municipal water tariffs have gone largely unnoticed.

Chapter 3. South African electricity and water tariffs vs. inflation (CPI)

In the previous chapter, we highlighted the dizzying increases in average municipal water tariffs since 1996. The numbers are startling to say the least, which begs us to ask: how could such exorbitant increases happen right under our noses without a public outcry?

The bulk of negative public attention and sentiment has been aimed at Eskom… Rightfully so, however, it may have distracted us from an equally pressing issue.

Water tariffs (1270%) have increased even faster than electricity tariffs (1120%) over the past 25 years (1996 to 2020).

But we have an excuse for our ignorance, for these staggering municipal water tariff increases are cloaked by more than Eskom’s shadow.

To begin with, our water tariffs appear as only one component in a larger municipal bill and are thus hidden in the details. Furthermore, every municipality sets its own water tariffs and structures them in a more complicated way than residential electricity tariffs. This tariff structure is known as block tariffs, where the price per unit of water increases in blocks as usage increases.

Consequently, it is more difficult for people to make direct comparisons and to know the real cost of each unit of water.

Our journey to unearth the truth would be incomplete without investigating the real monetary impact of these increases. How has the price of water and electricity changed over the past 25 years in current money terms? In the next chapter, we illustrate and discuss how these increases have affected our monthly electricity and water bills in both nominal and current money.

Chapter 4. South African monthly electricity and water bills 1996 to 2021 (nominal and current money)

Electricity and water tariff trends in South Africa were explored in the previous articles in this series. But this would be rather meaningless without highlighting how this translates into the monthly electricity and water bills of the average South African.

What was the monthly water and electricity bill 25 years ago compared to what we are paying today?

Not accounting for inflation, the average monthly electricity and water bill for lower to middle income families was a mere total of R161 in 1996. Fast forward to 2020 and this average monthly electricity and water bill has ballooned to R2 028!

The question you should now be asking is: “how much of that increase was due to inflation”?

As I am sure you would have guessed, the answer is not much. The next graph tells the story.

Essentially, this graph tells us that in 1996 the average electricity and water bill was R638 in today’s money. A stark contrast to the R2 028 average monthly electricity and water bill in 2020.

These prices have been adjusted for inflation and so the increases seen in the above graph are entirely the result of above-inflation tariff increases implemented by Eskom and local municipalities.

An over-arching question remains: Can we afford these exponential increases in the cost of two of our most basic needs?

We will answer this important question in the final leg of our journey, in which we compare the average electricity and water bills to the average household disposable income in South Africa over the past 25 years.

Chapter 5. Electricity & water bill vs average household disposable income in South Africa

The final leg of our journey is arguably the most pertinent. We know for certain that inflation is not the major cause of the increases in electricity and water tariffs. But the real question is: Can we afford these spiralling electricity and water bills? Did South Africans’ average income keep pace?

Looking at the above graph, the conclusion must be a deafening no. While our average monthly electricity and water bills have increased by 200% since 1996, our average household disposable income[b] has increased by a mere 37% since 1996.

The divergence between these basic costs and household income is especially pronounced from 2008 onward (the past 12 years). Furthermore, our disposable income has been impacted by economic downturns and, more recently, rising income tax rates.

Two of our basic needs have become increasingly unaffordable and we continue to struggle with load-shedding. Now more than ever, we need to take practical steps to explore alternative solutions.

Although the current outlook is bleak, there is hope on the horizon. In October 2020, the Department of Mineral Resources and Energy gazetted amendments to the electricity regulations, allowing municipalities to generate and procure their own electricity. South Africa has some of the best solar PV and wind resources in the world and the cost of these options continues to fall, making self-generation as well as the renewable aspirations of the Integrated Resource Plan (IRP) more viable every day.

Appendix A. Methods & assumptions

Average electricity consumption data for different LSM (Living Standards Measure) categories was obtained from Reference [1]. LSM 1 to 4 were classified as low income, LSM 5-6 were classified as lower to middle income and LSM 7-10 were classified as middle to upper income.
Average water consumption data for low, middle & high income households was obtained from References [2] and [3]. It was assumed that water consumption remained constant over time, although it is possible that it has reduced somewhat over the years due to increasing prices and water restrictions. However, the data in the references used ranged from 2004 to 2015 and water consumption was relatively constant over this period.
Eskom electricity tariff data were obtained from its website [4].
The Consumer Price Index (CPI) was used as inflation measure. CPI data was obtained from References [5], [6] and [7].
Municipal electricity and water & sanitation tariff data for the four metropolitan municipalities Cape Town, Johannesburg, Tshwane and eThekwini were obtained from their respective websites [8], [9], [10] and [11], as well as third-party reports [12].
Where water restrictions were in place and water restriction levels changed during the course of a municipal year (such as in Tshwane or Cape Town), the tariffs for the water restriction level that was in place for most of the year was used to calculate the average tariffs for the different income levels.
Tariffs for all income group were calculated based on the ‘single dwelling houses’ category and not for apartment buildings.
‘Indigent’ tariffs were not applied in calculation of the average tariffs for the lower income group (in other words, this group is not representative of the ‘lowest’ income group, but rather the ‘lower’ income group).
All tariffs are VAT inclusive.
All tariffs are metered tariffs (as opposed to prepaid tariffs). However, for most municipalities and in most years metered & prepaid tariffs are structured the same.
For the period 1996 to 2002, the water tariff data obtained excluded sanitation tariffs. The sanitation tariffs for this period for each of the four metro municipalities (Cape Town, Johannesburg, Tshwane and eThekwini) were estimated using the respective municipality’s average sanitation tariff as % of total water & sanitation tariff for later years for which full data was available.
Disposable income data was obtained from Reference [13].
No water & sanitation tariff data could be obtained for the four-year period 2003 to 2006. For this period, linear interpolation was done between the 2002 and 2007 tariffs for each municipality.
Average tariffs across the four metro municipalities in the study (Cape Town, Johannesburg, Tshwane and eThekwini) were calculated as simple averages (in other words, not weighted by measures such as population size).

Appendix B. References

[a] https://www.engineeringnews.co.za/article/eskom-says-it-needs-r23bn-more-from-tariffs-in-2021-to-remain-a-going-concern-2020-11-05

[b] ‘Disposable income’ is defined as the total income after tax (in other words before expenses), not income after expenses.

[1]. Goliger, A. and Cassim, A. (14 and 15 July 2017). Tipping Points: The Impacts of Rising Electricity Tariffs on Households and Household Electricity Demand. 3rd Annual Competition and Economic Regulation (ACER) 2017 Conference, Dar es Salaam, Tanzania. Website: http://www.competition.org.za/s/Parallel-3B_Goliger-and-Cassim_National-Treasury.pdf. Last accessed: 2017/08/21.

[2]. Viljoen N. 2015. City of Cape Town Residential Water Consumption Trend Analysis 2014/2015. Website: https://greencape.co.za/assets/Sector-files/water/Water-conservation-and-demand-management-WCDM/Viljoen-City-of-Cape-Town-residential-water-consumption-trend-analysis-2014-15-2016.pdf. Last accessed: 2020/08/02.

[3]. Bailey WR, Buckley CA. 2004. Modelling Domestic Water Tariffs. Proceedings of the 2004 Water Institute of Southern Africa (WISA) Biennial Conference. Cape Town, South Africa, 2-6 May 2004. Website: https://wisa.org.za/wp-content/uploads/2018/12/WISA2004-P004.pdf. Last accessed 2020/08/02.

[4]. Eskom Tariff History. Website: http://www.eskom.co.za/CustomerCare/TariffsAndCharges/Pages/Tariff_History.aspx. Last accessed: 2020/08/04.

[5]. Focus Economics. Inflation in South Africa. Website: https://www.focus-economics.com/country-indicator/south-africa/inflation. Last accessed: 2020/08/04.

[6]. Bureau for Economic Research. Inflation Expectations. Website: https://www.ber.ac.za/BER%20Documents/Inflation-Expectations/?doctypeid=1065. Last accessed: 2020/08/04.

[7]. Statistics South Africa. CPI headline inflation history. Website: http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf?. Last accessed: 2020/08/04.

[8]. City of Cape Town Tariffs. Web pages:

https://www.capetown.gov.za/Family%20and%20home/residential-utility-services/residential-water-and-sanitation-services/water-and-sanitation-services-and-costs-for-formal-housing.

http://resource.capetown.gov.za/documentcentre/Documents/Forms,%20notices,%20tariffs%20and%20lists/L3-WaterSanitationRestrictionTariffs.pdf

https://resource.capetown.gov.za/cityassets/Files/Tariff_increases_from1July17.pdf

http://resource.capetown.gov.za/documentcentre/Documents/Financial%20documents/Budget%202018-2019%20Annexure%206%20Tariff%20Fees%20and%20Charges%20Book.pdf

https://www.capetown.gov.za/Family%20and%20home/Residential-utility-services/Residential-electricity-services/the-cost-of-electricity

[9]. City of Johannesburg Tariffs. Web pages:

https://www.joburg.org.za/services_/tariffs/Documents/annexure%2020.pdf

https://www.joburg.org.za/Campaigns/Documents/2014%20Documents/2014-15%20approved%20tariffs.pdf

https://www.joburg.org.za/services_/tariffs/Documents/2015-16%20tariffs%20for%20approval.pdf

https://www.joburg.org.za/services_/Documents/rates%20and%20taxes/201617%20APPROVED%20TARIFFS%20FOR%20GAZETTING.pdf

https://www.joburg.org.za/documents_/Documents/Other/traffifs/Approved%20tarrifs.compressed.pdf

https://www.joburg.org.za/services_/Documents/rates%20and%20taxes/2018-19%20APPROVED%20TARIFFS%20FOR%20COJ.pdf

https://www.joburg.org.za/documents_/Pages/Key%20Documents/other/links/tariffs/Tariffs.aspx

[10]. City of Tshwane Tariffs. Web pages:

http://www.tshwane.gov.za/sites/Departments/Financial-Services/Financial-Documents/Pages/Promulgated-Tariffs.aspx

http://www.tshwane.gov.za/sites/Departments/Financial-Services/Financial-Documents/Miscellaneous/Statistics%20and%20Tariff%20Handbook%202012.pdf

http://www.tshwane.gov.za/sites/Departments/Financial-Services/Financial-Documents/Miscellaneous/Statistics%20and%20Tariff%20Handbook%20June%202014.pdf

http://www.tshwane.gov.za/sites/Departments/Financial-Services/Financial-Documents/Pages/Miscellaneous-Documents.aspx

[11]. eThekwini Tariffs. Web pages:

http://www.durban.gov.za/City_Services/water_sanitation/Bylaws_Tariffs/Tariffs/Pages/Sewage_Tariffs.aspx

http://www.durban.gov.za/Resource_Centre/Services_Tariffs/Water%20Tariffs/Forms/AllItems.aspx

http://www.durban.gov.za/City_Services/electricity/Tariffs/Pages/default.aspx

[12]. Third-party websites used as sources for municipal electricity, water & sanitation data:

https://greenaudits.co.za/2016/10/20/high-water-restriction-prices-for-cape-town-dec-2016/

http://www.rrva.net/wp-content/uploads/2011/09/New-Tariffs-and-Rates-for-CoJ-2011-12.pdf

https://www.timeslive.co.za/news/south-africa/2018-05-10-cape-town-explains-water-tariffs-pipe-network-costs-more-than-water/

[13]. South African Reserve Bank data. Website links:

https://www.resbank.co.za/Publications/Detail-Item-View/Pages/Publications.aspx?sarbweb=3b6aa07d-92ab-441f-b7bf-bb7dfb1bedb4&sarblist=21b5222e-7125-4e55-bb65-56fd3333371e&sarbitem=10091

https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/10091/14Statistical%20tables%20%E2%80%93%20Key%20information.pdf

2019 update: Eskom tariff increases vs inflation since 1988 (with projections to 2022)

25Oct

by Sean Moolman

(Click here for a 2022 update to this article)

In 2015 and 2017 we published infographics showing Eskom annual tariff increases since 1988 compared to inflation.

Following NERSA’s approval of a 13.87% average tariff increase in April 2019, what do the numbers look like today?

The graph below shows the Eskom tariffs from 1988 to 2019, plotted against CPI (Consumer Price Index) or inflation over the same period. It also shows projections up to 2022, based on currently projected increases as approved by NERSA (8.1% in 2020 and 5.2% in 2021), as well as Stats SA and the Bureau for Economic Research’s inflation projections.

Looking at the graph, the following can be noted:

In the period from 1988 up to the 2008 electricity crisis, electricity tariff increases did not keep tread with inflation. This was partly due to government policy to keep electricity tariffs as low as possible for poor communities, but also due to Eskom having an oversupply of electricity (in the 1990’s) and not investing in new capacity (in the 2000’s).
Between 1988 and 2007, electricity tariffs increased by 223%, whilst inflation over this period was 335%.
From the 2008 electricity crisis onwards, there is a clear and sharp inflection point for electricity tariffs in South Africa. From 2007 to 2019, electricity tariffs increased by 446%, whilst inflation over this period was 98%. Thus electricity tariffs increased more than four-fold in 12 years.
Based on the currently approved increases for 2020 and 2021, the total increase in electricity tariffs from 2007 to 2021 will be 520%. By then, electricity tariffs would have increased more than 5-fold in 14 years.

Considering the current serious state of Eskom’s debt and the fact that the country probably cannot afford for Eskom to fail, consumers can likely expect a continuance of much higher than inflation electricity price increases over the next several years. Eskom is in serious need of restructuring, but this is likely to face strong resistance from the trade unions.

Sources:

Noble B. Eskom Annual Price Increase 2019/20. Website: https://powertime.co.za/online/eskom-annual-price-increase-201920/. Last accessed: 2019/10/01.
Eskom tariffs and charges. Website: http://www.eskom.co.za/CustomerCare/TariffsAndCharges/Pages/Tariffs_And_Charges.aspx. Last accessed: 2019/10/01.
Stats SA. CPI History. Website: http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf?. Last accessed: 2019/10/01.
Bureau for Economic Research. Inflation Expectations – History (2019). Website: https://www.ber.ac.za/BER%20Documents/Inflation-Expectations/?doctypeid=1065. Last accessed: 2019/10/01.
Merten M. Electricity price goes up — way beyond inflation — as Ramaphosa answers questions on Eskom in the House. Daily Maverick, 2019/03/08. Website: https://www.dailymaverick.co.za/article/2019-03-08-electricity-price-goes-up-way-beyond-inflation-as-ramaphosa-answers-questions-on-eskom-in-the-house/. Last accessed: 2019/10/01.

Image of Arnot power station by Gerhard Roux on Wikimedia Commons [CC BY-SA 4.0]

350% increase in a decade: how expensive is electricity in South Africa compared to other countries?

27Sep

by Sean Moolman

Electricity prices in South Africa have dramatically outpaced inflation over the past decade (ever since the 2008 electricity supply shortage crisis). Recently, Eskom has won a court case allowing it to recover historical ‘losses’ or under-recoveries (the so-called regulatory clearing account or RCA).

Please note: we have published an update to this article in 2019 with more recent Eskom price increase data. Please see the article here.

After a brief respite in 2017 (when an increase of only 2.2% was granted by NERSA, the National Energy Regulator of South Africa), Eskom has submitted an application to NERSA for a 19.9% electricity tariff increase in 2018, and might still add additional RCA applications.

We have previously (in 2015) compared Eskom’s electricity price increases to inflation over the period 1988 to 2015, and have decided to update this comparison.

Below is the Eskom tariffs from 1988 to 2017, plotted against CPI (Consumer Price Index) or inflation over the same period. The dotted lines are projections over the next 3 years, based on Eskom’s 19.9% application for 2018, and further increases of 8% in each of 2019 and 2020 (this could be much higher if further RCA recoveries are granted).

Over a period of 10 years, Eskom’s electricity prices have increased by about 356%, whilst inflation over the same period was 74%. This means that electricity prices have increased 4 times faster than inflation over this period. Whilst South Africa had some of the least expensive electricity in the world in the early 2000’s, the question now is: how expensive is electricity in South Africa compared with the rest of the world in 2017?

We decided to investigate. The graph below shows 2017 residential (household) electricity prices for a selection of developed and developing countries in US dollars. South African prices for 2007, 2017 and 2018 (all in 2017 money) are indicated in yellow, and other African countries are indicated in green. (Note: most countries have a range of residential tariffs that vary according to use, location and other factors. The tariffs in the graph are based on a middle-class urban household with consumption of 400 kWh of electricity per month.)

As can be seen from the above graph, whilst South Africa used to be one of the least expensive countries in the world in terms of dollar price of electricity, this is no longer the case. It is now mid-range in terms of electricity price for the countries in the comparison.

Most of the African countries with less expensive electricity than South Africa (such as Botswana, Zambia, Zimbabwe and Ethiopia) have substantial government subsidies. Of course these countries typically also have a much less reliable electricity supply than South Africa.

Also to be noted is the high price of electricity in many developed countries.

However, the above is not the full picture. The typical income of a citizen of each of these countries varies tremendously. This impacts directly on the affordability of electricity in each country.

It is thus more appropriate to look at affordability of electricity as a function of the typical or median income of citizens in order to make a comparison. The below graph shows the cost of 400 kWh/month of electricity as a percentage of the median income per capita in each country (at purchasing power parity). This is a much better indication of relative affordability of electricity in each country. (Note: median income = that income where half of the people earn more and half of the people earn less. This is a better representation of the typical income than the “average” income, since averages are distorted more by extreme values or outliers.)

The following interesting observations can be made from the graph:

Disparities in electricity affordability are larger than only the dollar tariff would indicate – whereas the ratio of highest to lowest dollar tariff is 15, the ratio of highest to lowest relative cost is 75;
Electricity is most affordable in developed countries;
Electricity is least affordable in African countries;
Electricity in South Africa is still relatively more affordable than many other African countries;
Affordability of electricity in South Africa has decreased over the past decade and is continuing to decrease;
Following the possible 19.9% increase in 2018, South Africa’s electricity will be the least affordable of the BRICS countries.

References

Source for exchange rates (as of 27/09/2017): https://www.oanda.com/currency/converter/
Source for median income per capita: https://www.givingwhatwecan.org/post/2016/05/giving-and-global-inequality/
Featured image source: Photo by Thomas Kelley on Unsplash
Sources for electricity prices:
- http://sunmetrix.com/residential-electricity-rates-united-states/
- http://www.hydroquebec.com/publications/en/corporate-documents/comparaison-electricity-prices.html
- http://global-climatescope.org/en/country/mexico/#/details
- http://global-climatescope.org/en/country/chile/#/details and http://www.ees-magazine.com/chile-large-scale-batteries-now-home-storage-later/ and https://www.cne.cl/wp-content/uploads/2016/07/AnuarioCNE2015_vFinal-Ingles.pdf
- http://www.mme.gov.br/documents/1138787/19852880/04+-+Boletim+Mensal+de+Energia+-+Abril+2017+-+Ingl%C3%AAs+%28PDF%29.pdf/78545671-a8da-4b54-b4c3-c423b12f816f
- http://www.enre.gov.ar/web/web.nsf/home?openframeset and http://global-climatescope.org/en/country/argentina/#/details
- http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Disaggregated_electricity_price_data_for_household_consumers,_second_half_2016_YB17.png
- https://www.solarquotes.com.au/blog/south-australia-is-actually-second-cheapest-state-for-household-electricity/
- http://www.theinvestor.co.kr/view.php?ud=20160819000624 and http://asian-power.com/ipp/news/why-kepco-will-be-hurt-koreas-reduced-tariffs
- https://asia.nikkei.com/Business/Trends/Japan-s-gas-electricity-prices-to-rise-again-in-May
- http://global-climatescope.org/en/country/china/#/details
- http://www.hindustantimes.com/india-news/55-increase-in-bihar-power-tariff-from-apr-1/story-uZF2x5pX7xauEysMDGN6aL.html and http://www.thehindubusinessline.com/news/8-power-tariff-hike-for-all-categories-of-consumers-in-karnataka/article9629593.ece and https://cp.tatapower.com/irj/go/km/docs/documents/Public%20Documents/CustomerPortal/pdf/Direct.pdf
- https://www.confusedaboutenergy.co.uk/index.php/household-energy-costs/electricity-cost-calculator
- https://www.naij.com/1108939-new-electricity-tariff-nigeria-2017.html#1108939
- https://stima.regulusweb.com/historic#tariffs
- http://poweroptimal.com/cost-shower-south-africa/
- https://www.bpc.bw/media-site/news/Pages/2017-Tarrifs.aspx
- https://www.esi-africa.com/news/different-power-tariffs-in-among-the-sadc-region-members/
- http://www.monitor.co.ug/News/National/Government-increases-power-tariffs/688334-3502314-69d3fkz/index.html
- https://www.esi-africa.com/news/different-power-tariffs-in-among-the-sadc-region-members/
- http://www.reg.rw/index.php/our-business/customer-services/electricity-tariff
- https://www.esi-africa.com/news/different-power-tariffs-in-among-the-sadc-region-members/
- http://news.xinhuanet.com/english/2017-04/24/c_136232502.htm
- http://ceb.intnet.mu/
- https://www.myjoyonline.com/business/2017/september-27th/reduction-in-electricity-tariff-will-take-effect-in-2018-boakye-agyarko.php
- http://egyptoil-gas.com/news/electricity-ministry-to-announce-new-tariffs/ and http://www.scedc.com.eg/Customer/BC1.aspx

Energy News: Petrol & diesel vehicle ban, two-bladed wind turbines and more…

08Jun

by Sean Moolman

One thing is certain: the energy industry is undergoing rapid and dramatic change, and mostly to our collective benefit!

There are too many developments to mention, but here are a few of the most interesting from the last few weeks:

The UK (2040) and France (2040) have both joined Germany (2030), Norway (2025), the Netherlands (2025) and India (203) in announcing plans to completely ban petrol & diesel vehicle sales. This is driven partly by renewable energy and climate change goals, but the main concern is actually nitrogen oxide pollution and its negative health effects on urban populations.
These developments will provide further impetus to the growth of electric vehicle sales. Bloomberg New Energy Finance predicts that over half of all new car sales will be electric by 2040. They also predict that electric vehicles will cost less than internal combustion engine vehicles by 2025 – 2029 in most countries.
That should make Tesla’s shareholders happy! What is also making them happy, is Tesla securing an order from South Australia for the world’s largest lithium ion battery of 100 MW. The battery will be paired with a Neoen wind farm.
Speaking of wind farms, it seems that two-bladed wind turbines are much more cost-effective than three-bladed turbines. A slightly lower efficiency (about 2% lower) is more than off-set by an approximately 50% reduction in total cost of energy (capital & operating cost) over the lifetime!
And a floating wind farm has been proposed off California’s coast, where a steep continental shelf makes traditional underwater foundations for offshore wind farms prohibitively expensive.
Fossil fuel power generation continues to experience headwinds. A large Mississippi flagship clean coal project is experiencing large cost overruns (their US$2.4bn budget is heading to US$7bn!), putting the feasibility of clean coal in question.
… And similar huge cost overruns have led to a nuclear reactor construction project in California to be aborted unfinished.

The fact that even in the USA coal and nuclear power projects continue to experience huge cost overruns should be a major red flag for South Africa’s nuclear power plant ambitions. Let’s hope that the powers that be start accepting our inevitable solar future!

Until next time

The PowerOptimal team

Image below: China’s Panda Green Energy Group has been creative with a new 100 MW solar farm…

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About this Article

The Context: Declining Grid Reliability and Increasing Cost

Escape from Eskom

Millennials in the Market

Environmental and Financial Sustainability

2022 update: Eskom tariff increases vs inflation since 1988 (with projections to 2024)