‘COST-REFLECTIVE ELECTRICITY TARIFFS MAY HAVE NEGATIVE IMPLICATIONS’

MBABANE - There are some implications that could be costly to the Eswatini Electricity Company that have to be considered, before full migration to cost-reflective tariffs in Eswatini’s electricity sector.

This was observed in a conference paper presented by Eswatini Economic Policy Analysis and Research Centre (ESEPARC) Research Economist Mangaliso Mohammed, who is also the Acting Senior Research Fellow, which sought to probe the implications of the migration that was approved by government. The paper, which was presented at the Eswatini Economic Conference (EEC) 2019 at the Royal Swazi Convention Centre on Thursday, also looked into how customers would react to the change. Mohammed’s study notes that Eswatini’s electricity sector now operates under an improved and approved National Energy Policy, as of 2018. This then calls for a need to restructure electricity tariffs to reflect the true long-run marginal cost of electricity supply.

Explaining, Mohammed said cost-reflective tariffs were economically efficient and require that the tariff paid by the customer should be equal to the marginal cost of supply. He said theory dictates that a consumer’s sensitivity to price changes could be measured by the co-efficient of price elasticity. Furthermore, he stated, usually the demand of a good will fall as the price increases, holding all other factors constant. On the key findings, the study reveals that for the domestic customer, a E0.02 real increase in electricity tariff for the domestic customer, is associated with a decrease in electricity consumption of 185kWh on average per household per year.

The study finds that the migration to cost-reflective tariffs will increase domestic tariffs by 66 per cent from E1.75/kWh to E2.90/kWh and the -0.58 elasticity means domestic consumption of electricity could decrease residential electricity sales by as much as 38.3 per cent. For the non-domestic customers, all customers (agricultural, commercial, and industrial) will be negatively impacted by the migration to cost-reflective tariffs. The industrial customer group is the only one affected significantly (p < 0.1) by changes in electricity tariff. This implies that electricity is a key input of production for the industrial customer group and excessive increase in their electricity tariffs could hamper the productivity of this sector.

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