Friday, 9 May 2014

Electricity Tariff-------Ethiopia



Intent of the article:


The Utility:

·  Will serve for the young engineers and electricians as an alternative and additional hand out to carry out their day to day assignment to the satisfaction of their employer and the customer they are serving,

·   Will be a reminder and an organized input to the senior and management staff in their initiative for training and coaching of the young recruits.

    The consumer:

·     Will help the consumer to be in charge of the electric supply and the billing so that they develop a common understanding with the utility.

Potential customer:

·   Will help the future customer who has a desire to invest in the country develop more accurate estimate in their planning and budgeting of the cost of power,


   Introduction:

The electrical energy produced by a power station is delivered to a large number of consumers. The consumers can be persuaded to use electrical energy if it is sold at reasonable rates. The tariff i.e., the rate at which electrical energy is sold naturally becomes attention inviting for electric supply company. The supply company has to ensure that the tariff is such that it not only recovers the total cost of producing electrical energy but also earns profit on the capital investment.
Tariff is the rate at which electrical energy is supplied to a consumer. Electricity tariff (sometimes referred to as electricity pricing or the price of electricity) varies widely from country to country, and may vary significantly from locality to locality within a particular country. There are many reasons that account for these differences in price. The price of power generation depends largely on the type and market price of the fuel used, government subsidies, government and industry regulation, and even local weather patterns.
In standard regulated monopoly markets, like the case in Ethiopia, electricity rates typically vary for residential, commercial, and industrial customers. Prices for any single class of electricity customer can also vary by time of day or by the capacity or nature of the supply circuit etc. If a specific market allows real time dynamic pricing, a more recent option in limited markets to date typically following the introduction of electronic metering, prices can even vary between times of low and high electricity network demand.
The actual electricity rate (cost per unit of electricity) that a customer pays can often be heavily dependent on customer charges, particularly for small customers (e.g. residential users).

      Objectives of tariff:

Like other commodities, electrical energy is also sold at such a rate so that it not only returns the cost but also earns reasonable profit. Therefore, a tariff should include the following items.

  •          Recovery of cost of producing electrical energy at the power station.
  •      Recovery of cost on the capital investment in transmission and distribution systems.
  •    Recovery of cost of operation and maintenance of supply of electrical energy e.g., metering equipment, billing etc.
  •          A suitable profit on the capital investment. 


  • Desirable Characteristics of a Tariff:
Proper return:

·      The tariff should be such that it ensures the proper return from each consumer. In other words, the total receipts from the consumers must be equal to the cost of producing and supplying electrical energy plus reasonable profit. This will enable the electric supply company to ensure continuous and reliable service to the consumers.

Fairness:

·      The tariff must be fair so that different types of consumers are satisfied with the rate of charge of electrical energy. Thus a big consumer should be charged at a lower rate than a small consumer. It is because increased energy consumption spreads the fixed charges over a greater number of units, thus reducing the overall cost of producing electrical energy. Similarly, a consumer whose load conditions do not deviate much from the ideal (i.e., nonvariable) should be charged at a lower rate than the one whose load conditions change appreciably from the ideal.

Simplicity:

·       The tariff should be simple so that an ordinary consumer can easily understand it. A complicated tariff may cause an opposition from the public which is generally distrustful of supply companies.

Reasonable profit:

·  The profit element in the tariff should be reasonable. An electric supply company like the case in Ethiopia is a public utility company and generally enjoys the benefits of monopoly. Therefore, the investment is relatively safe due to non-competition in the market. This calls for the profit to be restricted to less than 10% or so per annum.

Attractive:

·  The tariff should be attractive so that a large number of consumers are encouraged to use electrical energy. Efforts should be made to fix the tariff in such a way so that consumers can pay easily.
     Ethiopia’s  electricity tariff Comparison:

·  Compared to Chinas 7.5 to 10.7,Brazils 16.20,Egypts 0.7 for the first 50 kWh/Month to 9.6,France’s 19.39,Germany’s 36.25,India’s 8 to 12,South Africa’s 8 to 16,Turkey’s 12.57 18.63,UK’s 20.0, US”s 8 to 17 ; 37 US Cents/KWH, Ethiopia is selling electric to its customers approximately 5.6 US Cents/KWH.

·       The price also differs from the source of the electricity. Coal: 1-4 cents; Gas: 2.3-5.0 cents; Oil: 6-8 cents; Wind: 5-7 cents; Nuclear: 6-7 cents; Solar: 25-50 cents.

·            Whilst useful for comparing electricity prices at a glance, it does not take into account a number of significant factors including fluctuating International exchange rates, a country's individual purchasing power parity, government electricity subsidies or retail discounts that are often available in deregulated electricity markets.


·       A comparative study of electricity tariffs used in Africa also ranks Ethiopia as having the lowest rate for electricity, let alone the international standard.

·       This will be the biggest privilege for investors mainly for those who aspire to join the manufacturing industry which consumes a lot of energy. Together with the advantages of cheap labor, tax incentives and big market potential, return on investment is promising in Ethiopia.

Although tariff should include the total cost of producing and supplying electrical energy plus the profit, yet it cannot be the same for all types of consumers. It is because the cost of producing electrical energy depends to a considerable extent upon the magnitude of electrical energy consumed by the user and his load conditions. Therefore, in all fairness, due consideration has to be given to different types of consumers (e.g., industrial, domestic and commercial) while fixing the tariff. This makes the problem of suitable rate making highly complicated.
Taking this in to account the Ethiopian electric utility’s tariff system is divided in to two types of electric utility supply each with different categories. Inter-connected system/ICS/ and self contained system/SCS/. The former is the national grid system which interconnects the supply from hydroelectric power plants, diesel power plants and one geothermal power plant. The latter is for remote areas that the national grid does not reach. It connects small scale power plants (hydropower, solar and wind energies) to the surrounding household’s off-grid.
The electricity tariff of the ICS has currently categories of domestic/tariff 10/, Commercial/tariff 20/,Active staff/Tariff 13/, Street light/tariff 30/, Industrial low voltage/Tariff 41/, Industrial low voltage/Tariff42/, Industrial low voltage/Tariff44/, and own consumption.

The electricity tariff of the SCS has currently categories of domestic/tariff 15/, Commercial/tariff 25/, Active staff/Tariff 18/, Street light/tariff 35/, Industrial low voltage/Tariff 46/, Industrial low voltage/Tariff 47/ and own consumption tariff/15/.
Among the two systems, the interconnected system covers the majority of the energy demand throughout the nation. So, this article will analyze all tariff categories in detail only the interconnected system.

The Electricity bill:

The monthly bill/under the existing trend the period one month/ contains the information and the sum of;
   A.Monthly energy consumption/in the form of KWH/ multiplied by the respective tariff range and summed to total
    B.The service charge basically considered the costs of energy meter, meter        reading, and the billing. Though it is not associated to neither power nor        energy consumption, the KWH range referenced in A above is applied to          calculate with appropriate range of category.
    C. Power factor charges-for active and reactive consumers,
    D. Minimum charges-for three phase consumers.


Domestic: /tariff 10/;

This tariff category consists of the service the utility provides to residential consumption. The consumer energy demand for this kind of service is limited to few KWs. One peculiar provision in the domestic tariff category which is not available with the rest of the categories other than the commercial category/which has two different tariff ranges/ is that it includes ranges of tariff categories. The intention of this range of categories which has an increasing value as the KWH consumption rises is to protect the low level energy consumers.

Table  1.1:

Energy/KWH:-

No
category
Monthly Consumption range
Rate/Eth Birr
1
1st block
0-50
0.273
2
2nd  block
51-100
0.3564
3
2nd  block
101-200
0.4993
4
4th block
201-300
0.5500
5
5th block
301-400
0.5666
6
6th block
401-500
0.5880
7
7th block
>500
0.6943

Table 1.2:

Service charge:

No
Type of service
Monthly Consumption range
Rate/Eth Birr
1


Single phase
0-25
1.4
2
26-50
3.404
3
51-105
6.82
4
106-300
10.236
5
>300
13.652
6
Three phase

17.056
7
Active Reactive

37.564

Example:
·       Assume the monthly consumption of the customer called Ato Abebe kebede be 120 KWH. Then, the monthly bill of Ato Abebe Kebede will be generated with a price tag of Birr 63.016.

o   KWH consumption:50*0.273+50*0.3564+20*0.4993=41.456
o   Service charge:1.4+3.404+6.82+10.236=          21.56
o   Total=                                                           63.016
                

2.   Commercial/general /tariff 20/:

Table 2.1:

Energy/KWH:-

No
category
Monthly Consumption range
Rate/Eth Birr
1
1st block
0-50
0.6088
2
2nd  block
>50
0.6943
Table 2.2:
Service charge:
No
Type of service
Rate/Eth Birr
1
Single phase
14.494
2
Three phase
22.558
3
Active Reactive
35.258

3.   Industrial low voltage/Tariff 41/:380V
Table 3.1:
Energy/KWH:
No
category
Rate/Eth Birr
1
Equivalent flat rate
0.5778
2
Peak
0.7426
3
Off-peak
0.5435
Service charge :                                                     53.57 Eth Birr

4.   Industrial low voltage/Tariff 42/:15KV

Table 4.1:

Energy/KWH:

No
category
Rate/Eth Birr
1
Equivalent flat rate
0.4086
2
Peak
0.5085
3
Off-peak
0.3933
Service charge                                                        54.009 Eth Birr

5.   Industrial low voltage/Tariff 42/:132KV
Table 5.1:
Energy/KWH:
No
category
Rate/Eth Birr
1
Equivalent flat rate
0.3805
2
Peak
0.4736
3
Off-peak
0.3664
Service charge                                                        54.009 Eth Birr
6.   Street light/tariff 30/:
Table 6.1:
Energy/KWH:
No
category
Rate/Eth Birr
1
Equivalent flat rate
0.3805

Table 6.2:
Service charge:
No
Type of service
Rate/Eth Birr
1
Single phase
14.494
2
Three phase
22.558
3
Active Reactive
35.258

Note: Currently the peak and off peak tariff rates are not applicable in the country.

7.   Power factor:

When the power factor of the consumers is lowered, the current of the system increases thereby increasing the loss as it is not easy to increase the size of the conductor and raise the capacity of the system of an already established network. It will also make voltage regulation difficult and reduce handling capacity of the overall system.
To avoid the damaging reactive power, the utility advises and encourages medium and large scale industries to install proper power factor correction equipment to maintain their power factor as close as one. Otherwise, enforces proportional penalty created by artificial demand reactive power consumption up to a certain level. Total disconnection of service is also enforced when below a set threshold value/0.6/.
Table 7.1
Multiplying factor;
No
Type of service
Rate/Eth Birr
1
High voltage consumer
61.634
2
Low voltage consumer
68.369


8.   Minimum Charge:
Table 8.1
Multiplying factor;

No
Type of service
Monthly Consumption range
Rate/Eth Birr
1
High voltage consumer
First 20 KW
31.086
2
Next 400KW
15.543
3
For the balance
7.771
4
Low voltage Consumer
First 20 KW
34.197
5
Next 200KW
17.104
6
For the balance
8.552

The main reason behind Minimum Charge penalty is that the customer has the resources of the utility on his hand, and so, shouldn’t keep it idle with his own reasons, the utility would otherwise assign to other customers instead. Electric energy once produced shall be consumed as it is difficult to store for future application. The customer should understand that it is also a loss for the utility and the penalty neither compensates the loss. At the same time, the utility shall keep the customer be informed why they are incurring a penalty for not functioning their systems as there is a lot of confusion, misunderstanding and complaints regarding minimum charge penalties.
Once recognized, it is made effective by the utility on the condition that the consumer’s consumption for the current month/as billing is issued on a monthly period/ shouldn’t be lower than 50% of the maximum consumption registered for the last 12 months.
However; the calculation is a bit different for three phase active users and active reactive consumers.

Minimum charge for three phase active only users:

The utility sets a constant/7040/ in their CMS /customer management system database. A customer is liable for minimum charge penalty if and only if the maximum value registered on their energy meter reading is greater than the value set on the CMS database/7040/.The assumption behind this set value is that the customer’s consumption for this range of KW allowed during subscription is most likely below this figure. The calculation can better be understood with a brief actual example.
If the customer consumes X KWH in January which is greater than 7040 and later on May consumes Y KWH which is less than 50% of X then there will be a minimum charge penalty calculated as follows.
Minimum Charge in Birr=(X/352-Y/352)*rate, where rate is as stated
  in the table above .
Example:
Assume X=9000KWH, on January 2012 and Y=3000KWH on May 2012
Then MC Birr= (9000/352-3000/352)*34.197
                   =583.00

Minimum charge for three phase active-reactive users:

In this case, the penalty will be made effective if both the power and energy consumption falls below 50% of the highest maximum ones registered in the last 12 months in the customers energy meters , which is recorded in the CMS database for reference.
MC Birr= (Pmax - Pmin)*R
Where; Pmax and Pmin are the highest maximum in the last 12 months and the current minimum powers registered respectively and R the rate.
Note:  the energy is one of the criteria to check whether the customer is liable for minimum charge but not included in the final actual calculation of the penalty.

Example:
The KWH reading in January 2016 was 1000, the maximum demand reading(KW) in March 2016 was 100. And if the current (April 2016) billing readings of KWH and KW are respectively 400 and 40 then this consumer is liable for minimum charge payment calculated as follows
MC=(KW max in January-KW max in April)*rate
      = ( 100-40)*rate
      =60*rate which is translated to
       =20*34.197+40*17.104
        =1368.1 ETB, assuming low voltage consumption

Recommendation-From personal experience:
1.   The energy demand is rising following the development of all of the sectors in the country. Latest development indexes by internal and international information outlets are assuring the growth in the economy is sustainable over the coming decades. Among other things, the rise in the demand of energy will be one of the challenges of the nation ahead. The GOE has noted earlier and working on the subject aggressively thereby building grand hydro power plants to meet the energy demand before it is too late.
It is not easy and sometimes economical though to meet the demand by only building power plants of higher rating. It is also possible to alleviate or manage the problem by establishing some flexibility on the system. One way of achieving this is through application of peak and off peak hour principles. It has been on the list of the utilities tariff rating but I really wonder why it has not been applied so far. Over the past few years, we are witnessing shading and power outages on peak hours. So, definitely, it is the time for the utility to put the principle on the ground and better manage the system and let keep businesses operate. If fully integrated with tools of the current technology, it is possible to switched on and off on the individual demand level, let alone on the supply side.

2.   Though it could be argued to be as an incentive to investment in general, raising the tariff categories other than the domestic to a certain level is worth thinking at this stage. This will relieve of the utility off its financial burden especially at this critical time when the money collected is flowing to the ongoing projects and help develop and deliver quality services to the existing and prospective customers.

3.   Power theft has always been a virus on the power utility sector on international level but extremely significant in the developing countries where monitoring is the weakest. I sometimes wonder why businesses are engaged in such malicious acts and reluctant to pay for what they are making profits of incomparable size using electricity from utilities with such a minimum price margins. It is not fair to complain about electricity service delivery while our actions are weakening the capability of utilities. It is not as such a difficult job for the utility to trace the usage of customers, so it is adviced to refrain from such illegal activities. I personally witnessed how customers got mad when discovered at the end.


4.   Errors on the billing are likely to happen especially at the first months of service after subscription when the data occasionally is copied to the database wrongly. The billing is prone to errors as it passes through different subjective stages mainly when the reading is taken and on the encoding stages. Customers are advised to remain vigilant with respect to the reading of the energy meters on their premises. Errors on their part such as short circuiting will also impose a big risk which doesn’t have an excuse from the utility.

5.   It would be economical especially for industrial consumers to avoid operation during peak hours of the day. In doing so, they will also play a vital role on the stability of the overall system.

6.   The way the energy is calculated for industrial consumers is dependent on the type of energy meters installed, whether the energy meters do have a scaled division and on the potential and current transformers installed. The consumers should closely attend whether the appropriate multiplying factors/KWHF, KWF/ are employed. What sometimes happens, in my experience, wrong data is fed to the system and wrong billing is generated, sometimes, for so long. When at some point the utility discovers the problem, the correct bill of long months, even years, with a large sum on it will be generated and the customer is forced to pay which may drive to madness.

·       Sources
o   www.eepco.gov.et

o   Wikipedia