News / National
Zesa to hikes tariffs on 1 January 2016
08 Nov 2015 at 08:05hrs | Views
ZESA is currently conducting empirical studies that are meant to determine the quantum of an electricity tariff increase that will be effective January 1, 2016.
After the determination has been made, the proposed tariff hike will be forwarded to the Zimbabwe Energy Regulatory Authority (Zera) for consideration. Government last reviewed electricity tariffs in 2012.
During the Zimbabwe-dollar era, the tariffs were reviewed annually.
It is envisaged that an increase in the cost of power will give Zesa the wherewithal to embark on contigency measures either to import additional power or to fund local power generation. Government, however, believes that while an increase is "inevitable in 2016", a minimum hike will suffice.
Zimbabwe Electricity Transmission and Distribution Company (ZETDC) managing director Mr Julian Chinembiri told The Sunday Mail Business last week that the company is still working to come up with an appropriate tariff structure that factors in local generation costs and the cost of imported power.
ZETDC is a unit of Zesa that is responsible for transmitting and distributing power. Mr Chinembiri said once approved, the new tariff will be effective January next year.
"We expect to send the tariff increase request this month. We are still trying to tie-up and see how our imports and costs are like. That's what we are trying to do first. We are yet to factor in all our imports.
"So next week I will be having a good picture to say what are our imports, where are they coming from, and at what cost? At that point, we will factor in the tariff and send to Zera," said Mr Chinembiri.
Zimbabwe imports the bulk of its electricity from Mozambique.
Analysts contend that local power tariffs are almost 6c cheaper than regional averages.
Zimbabwe charges 9,83c per kilowatt hour (kWh) while its regional peers are at 14c per kWh.
In 2013, a consultancy firm Norconsult indicated that a cost of at least 14c per kWh would be ideal.
But there are concerns over generation efficiencies, especially at thermal power stations where the cost of producing power is considered to be relatively higher than other power generation methods.
An energy report released by the International Monetary Fund (IMF) in 2013 titled "Energy Subsidy Reform in Sub-Saharan Africa, Experiences and Lessons" indicates that apart from South Africa, the average cost of supplying one kWh in sub-Saharan African countries is the highest among developing countries.
The report shows that the average cost of electricity in sub-Saharan Africa is about 15c per kWh and the cost of power is even higher in countries that rely primarily on thermal generation at 21c per kWh.
Zimbabwe's energy mix includes thermal and hydroelectric power and market watchers argue that the new tariff should take into consideration all these variables.
But it has also been argued that power utilities tend to be subject to high line losses; in some cases, half of power injected into the distribution system is lost.
The IMF report says on average, distribution losses (the amount of electricity injected into the distribution network that could not be billed) are around 25 percent, well above the international norm of 10 percent. Power utilities have also suffered from under-collection problems, with Zesa being owed about US$1,1 billion.
Power generation in Zimbabwe is currently depressed owing to low water levels at Kariba Dam.
By Wednesday last week, the country was generating 1 060MW against an installed capacity of 2 245MW and demand of 2200MW.
Hwange Thermal Power Station was generating 563MW, Kariba (468MW), Harare (30MW) and Munyati (27MW).
Zambia, which is similarly facing biting power challenges, is presently in the process of reviewing its tariffs after its power generation slumped by more than two-thirds.
In fact, Zambia's state-owned electricity company Zesco recently sought permission to more than double power prices to 0,88 kwacha (about US$0,17c) per kWh from 0,31 kwacha effective November 1, 2015.
Zesco proposed "cost-reflective" tariffs to attract power plant operators so that the country can meet demand. In Zimbabwe, a number of Independent Power Producers (IPPs) have failed to take off reportedly due to the obtaining "uneconomic" tariff, a belief that Zera strenuously denies.
According to a study commissioned by the World Bank in 2014 and conducted by the Economic Consulting Associates, a power project takes a minimum of two to four years to develop from the concept or prefeasibility stage to the finalisation of the concept.
And depending on the size of the project, an additional two to four years is required for feasibility study stage, which includes tendering for engineering, procurement and construction (EPC) contractors, negotiation of power purchase and implementation agreements.
Financial closure and fulfilment of conditions precedent requires another two to three years while construction of power projects ranges from three to five years, depending on the project size.
Explained Engineer Magombo in a recent interview: "What is critical for most of Power Purchase Agreements (PPAs) to be signed is the credibility of the off-taker or buyer of the power. ZETDC is currently working on improving their creditworthiness by embarking on prepayment and smart metering to improve their operations and reduce debt levels.
"However, IPPs are also allowed by law to sell their power to large users at a tariff which will allow them to recoup their investment. In the event that the off-taker is the power utility, the IPPs tariff will be diluted and the net impact on end-user tariff will be minimal depending on the size of the project.
"Tariffs are determined using the rate of return (RoR) or cost plus methodology which is in the Zera tariff code."
The tariff code sets out information requirements and procedures for calculation of the appropriate tariff level for consideration by Zera in accordance with the Electricity Act (13:19) Section 54.
The RoR methodology is premised on the revenue requirement principle where operators are allowed to recover all prudent costs and realise a reasonable rate of return on investment.
In comparison, South Africa has a five-year rolling tariff whereby the tariff is increased gradually at a certain percentage in order for the country to reach a cost reflective tariff. Last year, South Africa increased its power tariffs by 25 percent.
After the determination has been made, the proposed tariff hike will be forwarded to the Zimbabwe Energy Regulatory Authority (Zera) for consideration. Government last reviewed electricity tariffs in 2012.
During the Zimbabwe-dollar era, the tariffs were reviewed annually.
It is envisaged that an increase in the cost of power will give Zesa the wherewithal to embark on contigency measures either to import additional power or to fund local power generation. Government, however, believes that while an increase is "inevitable in 2016", a minimum hike will suffice.
Zimbabwe Electricity Transmission and Distribution Company (ZETDC) managing director Mr Julian Chinembiri told The Sunday Mail Business last week that the company is still working to come up with an appropriate tariff structure that factors in local generation costs and the cost of imported power.
ZETDC is a unit of Zesa that is responsible for transmitting and distributing power. Mr Chinembiri said once approved, the new tariff will be effective January next year.
"We expect to send the tariff increase request this month. We are still trying to tie-up and see how our imports and costs are like. That's what we are trying to do first. We are yet to factor in all our imports.
"So next week I will be having a good picture to say what are our imports, where are they coming from, and at what cost? At that point, we will factor in the tariff and send to Zera," said Mr Chinembiri.
Zimbabwe imports the bulk of its electricity from Mozambique.
Analysts contend that local power tariffs are almost 6c cheaper than regional averages.
Zimbabwe charges 9,83c per kilowatt hour (kWh) while its regional peers are at 14c per kWh.
In 2013, a consultancy firm Norconsult indicated that a cost of at least 14c per kWh would be ideal.
But there are concerns over generation efficiencies, especially at thermal power stations where the cost of producing power is considered to be relatively higher than other power generation methods.
An energy report released by the International Monetary Fund (IMF) in 2013 titled "Energy Subsidy Reform in Sub-Saharan Africa, Experiences and Lessons" indicates that apart from South Africa, the average cost of supplying one kWh in sub-Saharan African countries is the highest among developing countries.
The report shows that the average cost of electricity in sub-Saharan Africa is about 15c per kWh and the cost of power is even higher in countries that rely primarily on thermal generation at 21c per kWh.
Zimbabwe's energy mix includes thermal and hydroelectric power and market watchers argue that the new tariff should take into consideration all these variables.
The IMF report says on average, distribution losses (the amount of electricity injected into the distribution network that could not be billed) are around 25 percent, well above the international norm of 10 percent. Power utilities have also suffered from under-collection problems, with Zesa being owed about US$1,1 billion.
Power generation in Zimbabwe is currently depressed owing to low water levels at Kariba Dam.
By Wednesday last week, the country was generating 1 060MW against an installed capacity of 2 245MW and demand of 2200MW.
Hwange Thermal Power Station was generating 563MW, Kariba (468MW), Harare (30MW) and Munyati (27MW).
Zambia, which is similarly facing biting power challenges, is presently in the process of reviewing its tariffs after its power generation slumped by more than two-thirds.
In fact, Zambia's state-owned electricity company Zesco recently sought permission to more than double power prices to 0,88 kwacha (about US$0,17c) per kWh from 0,31 kwacha effective November 1, 2015.
Zesco proposed "cost-reflective" tariffs to attract power plant operators so that the country can meet demand. In Zimbabwe, a number of Independent Power Producers (IPPs) have failed to take off reportedly due to the obtaining "uneconomic" tariff, a belief that Zera strenuously denies.
According to a study commissioned by the World Bank in 2014 and conducted by the Economic Consulting Associates, a power project takes a minimum of two to four years to develop from the concept or prefeasibility stage to the finalisation of the concept.
And depending on the size of the project, an additional two to four years is required for feasibility study stage, which includes tendering for engineering, procurement and construction (EPC) contractors, negotiation of power purchase and implementation agreements.
Financial closure and fulfilment of conditions precedent requires another two to three years while construction of power projects ranges from three to five years, depending on the project size.
Explained Engineer Magombo in a recent interview: "What is critical for most of Power Purchase Agreements (PPAs) to be signed is the credibility of the off-taker or buyer of the power. ZETDC is currently working on improving their creditworthiness by embarking on prepayment and smart metering to improve their operations and reduce debt levels.
"However, IPPs are also allowed by law to sell their power to large users at a tariff which will allow them to recoup their investment. In the event that the off-taker is the power utility, the IPPs tariff will be diluted and the net impact on end-user tariff will be minimal depending on the size of the project.
"Tariffs are determined using the rate of return (RoR) or cost plus methodology which is in the Zera tariff code."
The tariff code sets out information requirements and procedures for calculation of the appropriate tariff level for consideration by Zera in accordance with the Electricity Act (13:19) Section 54.
The RoR methodology is premised on the revenue requirement principle where operators are allowed to recover all prudent costs and realise a reasonable rate of return on investment.
In comparison, South Africa has a five-year rolling tariff whereby the tariff is increased gradually at a certain percentage in order for the country to reach a cost reflective tariff. Last year, South Africa increased its power tariffs by 25 percent.
Source - Sunday Mail
