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NMA Electricity Price Comparison 2012
NMA Electricity Price Comparison 2012
December 2012
Submitted to:
Namibia Manufacturers
Association (NMA)
P O Box 20810
Windhoek
Namibia
Tel +264 (0)61 233206
Fax +264 (0)61 233360
Submitted by:
Contents
1 INTRODUCTION ........................................................................................................................................ 4
2 HOW ELECTRICITY TARIFFS ARE DERIVED IN NAMIBIA ............................................................................ 4
3 APPROACH AND METHODOLOGY ............................................................................................................ 8
3.1 Approach ............................................................................................................................................ 8
3.2 Assumptions / Limitations / Notes ..................................................................................................... 8
4 BACKGROUND .......................................................................................................................................... 9
4.1 NamPower Trend ............................................................................................................................... 9
4.2 General Electricity Price Developments in Namibia ......................................................................... 10
4.3 Domestic vs Commercial Prices ........................................................................................................ 11
5 KEY FINDINGS ......................................................................................................................................... 12
5.1 The Tariffs ......................................................................................................................................... 12
5.2 Comparing Namibia to its Neighbours ............................................................................................. 12
5.3 Development Over Time .................................................................................................................. 14
5.4 Comparing Different Areas in Namibia ............................................................................................ 16
6 ADDITIONAL ISSUES ............................................................................................................................... 18
6.1 Access Charges vs Demand Charges................................................................................................. 18
6.2 Future Electricity Pricing Outlook ..................................................................................................... 18
7 CONCLUSIONS ........................................................................................................................................ 18
8 POSSIBLE NMA ACTIONS ........................................................................................................................ 19
9 ANNEX: A BRIEF INTRODUCTION TO ELECTRICITY PRICING TERMINOLOGY.......................................... 20
9.1 Cost Reflectivity ................................................................................................................................ 20
9.2 Tariff Structure and Charges ............................................................................................................ 20
9.3 Tariff Level ........................................................................................................................................ 20
9.4 Pricing Signals ................................................................................................................................... 21
9.5 Average Energy Cost......................................................................................................................... 21
9.6 Load Factor ....................................................................................................................................... 21
Figures
1 INTRODUCTION
The NMA has approached EMCON in 2004 to conduct an electricity price comparison between
Namibian and South African municipalities. Updates to this analysis were done in 2007 and 2011.
This present report updates the 2011 report and draws some comparisons to the status quo in 2004,
2007 and 2011.
0.90
0.80
Proportion of Average Daily Peak
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Time of Day
Consumer
LA Surcharge
Asset Cost
Imports Cost
Fuel Cost
Generation
Operating Cost
Asset Cost
Typically between one half to two thirds of the end consumer price is made up of generation and
transmission costs over which the distributor has little or no control. Figure 4 shows the estimated
contributions that each sector makes to the final price of electricity in Namibia in 2012/13:
3.1 APPROACH
We have collected electricity tariffs from a number of RSA and Namibian electricity distributors
valid for 2012 to 2013. The RSA entities are a mix between the largest cities and some smaller
places which are more comparable in size to the Namibian municipalities. For Namibia we have
included the NamPower Distribution tariffs for comparative purposes. We have also included the
tariffs charged by City of Windhoek, NORED Electricity, Erongo RED (Walvis Bay) and CENORED
(Tsumeb). Swakopmund and Otjiwarongo have been omitted from this update because they have
the same tariffs as Walvis Bay and Tsumeb respectively. We have also included data on Botswana.
We have used the same NMA member consumption data collected in 2004, updated in 2011 with
two NMA members who are on time of use tariffs.
We have compiled the above data into a spreadsheet and calculated the total electricity bill for all
the sample consumers if they were supplied by each of the municipalities.
4 BACKGROUND
4.1 NAMPOWER TREND
Figure 5: NamPower Average Price1
The above figure shows the development of NamPower’s revenue per kWh sold (derived from
NamPower’s annual reports). This shows that since 1995 the bulk electricity price has gone up by a
factor of more than 5 and since 2004 it has more than doubled. It is also evident that the rate of
increase has been higher in the last few years than in the decade before.
All electricity distributors (from whom the NMA members buy their electricity) buy their bulk electricity
from NamPower. Usually the bulk electricity cost makes up between 50% to 70% of a distributor’s cost.
1
The years in this chart refer to NamPower’s financial year ending in June of the referenced year, i.e. 2011 applies to NamPower’s 2010/2011
financial year. The figures for 2011/12 are not yet publicly available at time of writing. Data source is the NamPower annual reports.
One key factor influencing NamPower price development is the demand growth experienced in the last
decade, coupled with increasing reliance on imports of electricity which carry sharply increasing costs.
Although the growth curve has slowed from 2008 it has picked up again with the new mines being
developed in Namibia.
Most growth in electricity demand in Namibia now has to be supplied from imports (because little
additional generating capacity has been developed in Namibia). If those imports happen at peak or
standard times (in TOU terms) then they often carry high prices, which in turn drives up the average
cost of bulk electricity in the country. The additional turbine being installed at Ruacana will help provide
power at peak times at a more reasonable rate, and the new diesel power station in Walvis Bay will also
help provide power at peak times (although at a fairly high cost). Despite these initiatives by NamPower
the role of imports will be big until a larger base load power station is built in Namibia.
Figure 8 shows the difference between commercial (large power user) and domestic tariffs in the
sample of Namibian distributors. In Namibia the residential tariffs are higher than the commercial tariffs
except for Tsumeb (CENORED) and Oshakati. The residential tariff used as reference is the prepaid tariff
applicable at 500kWh/month. Generally the difference between the commercial and domestic tariffs in
Namibia is not huge.
Figure 9 shows the difference between large power user and domestic tariffs in South Africa. As in
Namibia the difference between commercial and domestic tariffs is not large.
5 KEY FINDINGS
5.1 THE TARIFFS
The table below shows the tariffs of the various Namibian and RSA distributors that we have obtained.
Demand Access
Windhoek - 93.00 97.20 230.00 133.00 68.00 103.00 88.00 66.00
Walvis Bay 1 100.00 90.00 86.00 104.00 205.00 134.00 99.00 113.00 97.00 74.00
Tsumeb 700.00 170.00 - 124.00 230.00 160.00 125.00 130.00 115.00 92.00
Oshakati 920.00 167.00 - 101.00 209.00 138.00 103.00 108.00 93.00 70.00
NORED 770.00 135.00 90.00 198.00 130.00 85.00 99.00 83.00 54.00
NamPower 1 000.00 114.01 74.06
From the above table one can make the following observations:
Demand charges in RSA are no longer necessarily lower than in Namibia.
Energy charges in RSA are generally lower than Namibia, however not in all cases.
Demand charges vary substantially between distributors, both in RSA and Namibia
Electricity tariffs in Botswana are lower than those in both RSA and Namibia (although the demand
charge has risen to a comparable level).
2
See section 9.6 for a definition.
A low load factor (low utilisation of capacity) has a large detrimental effect on the average cost of
electricity, as illustrated by the sample consumer “Non-TOU 2”.
The bill in Namibia is higher than in RSA and in Botswana for all cases.
Using tariff data for Windhoek and Johannesburg only (instead of country averages) reveals almost
equal costs on TOU while the gap on most other consumers is smaller than when using the country
averages.
Looking at fixed cost as portion of the total bill reveals that in Namibia and South Africa the fixed part of
the bill is roughly the same, and both are much less than in Botswana. Up to three quarters of the
electricity bill is for energy consumed, which in turn implies a high incentive for energy efficiency (i.e. to
reduce the bill by using less energy where possible). Those consumers with low load factors (non-TOU 2
and 4) have a higher fixed component to their bill because they use relatively little energy compared to
the capacity they have available.
The price differential between Namibia and RSA has decreased sharply since 2007. Currently the
average Namibian price is only about 25% higher than in South Africa whereas it was 70% higher five
years ago. There has not been much change since 2011.
Since 2004 the average electricity cost for commercial consumers has more than doubled in Namibia. In
South Africa and Botswana it has also more than doubled, although the price in Botswana is still little
more than half of that in Namibia.
The percentage of the average electricity bill coming from fixed charges (demand, access and basic
charges) in Namibia has decreased from 50% in 2004 to around 30% in 2012. In South Africa it has also
decreased by about the same percentage. In Namibia a small increase can be seen from 2011 to 2012,
because fixed charges were increased about as much as energy charges. In previous years energy
charges were increased more than fixed charges.
The reduced fixed part of the bill and rising energy prices present an increasing opportunity for energy
efficiency, since energy saved now has a much more pronounced effect on the total bill than before.
Managing demand is however also still important as wasted capacity is still expensive.
From the above it is clear that CENORED’s commercial tariffs are still significantly higher than the other
areas that have been investigated, however the gap has decreased since 2011. Most other areas have
roughly the same level of average cost with the exception of Oshakati which lies between CENORED and
the rest.
The demand charges in Erongo RED and CENORED and Oshakati are markedly higher than those in most
other areas. Notably Windhoek’s demand charges are extremely low.
3
Demand and Access charges are added here, which is a simplification since in practice they are not just added up. The above picture would
therefore be true only for consumers with a very flat load profile over the year. Actual demand plus access charges paid by most consumers
will be less than the illustrated value.
The pattern of high season time-of-use charges is similar for most areas in Namibia.
The only notable exception is Windhoek which has a very high peak energy rate while it has a very low
off-peak rate. This means that consumers on TOU are hard hit in Windhoek during the months of June
through August (high demand season). This is a trend already observed in 2011, but has reduced in
severity this year. It is expected that within one to two years Windhoek will align with the other areas in
this regard.
Looking at the low season rates it is only NORED which is slightly out of line with a lower off-peak rate.
During most of the year therefore Windhoek’s consumers will not face the high peak rate which applies
during the winter months.
4
Hi-P = Peak, Hi-S = Standard, Hi-O = Off-Peak. High season is June through August. Low season is the rest of the year.
6 ADDITIONAL ISSUES
6.1 ACCESS CHARGES VS DEMAND CHARGES
Erongo RED is still the only distributor to have followed NamPower’s lead of splitting the old demand
charges into network access charges and new (reduced) demand charges. Network access charges are
charged on the highest demand taken in the last 12 months while demand charges are charged on the
demand taken in a given month. This brings some relief to consumers with varying demand.
In comparison with 2011 Erongo RED has only increased its demand charge and left the network access
charge constant. This favours consumers with varying demand, and it is our understanding that this has
been done with the seasonal consumers in Walvis Bay in mind.
7 CONCLUSIONS
We make the following conclusions from the above analysis:
The price margin between Namibia and South Africa has remained almost since 2011 at around
25%.
Within Namibia significant differences in price levels are observed (see Figure 17). Of the
distributors sampled CENORED has the highest prices, for commercial consumers up to 40% higher
than other urban areas. The reasons behind this are many, but for energy intensive consumers this
makes the CENORED area unattractive. Between the other urban areas sampled the difference in
price is relatively small.
In general energy intensive commercial consumers are advised to locate in one of the larger towns.
Areas currently served by NamPower Distribution (such as the plots north of Windhoek) are also
attractive; however it is likely that NamPower Distribution may be absorbed into REDs or into local
authorities at some point in the future (negotiations are currently under way for City of Windhoek
5
See section 9.1 for more information.