By: Nghiiinomenwa Erastus
The Electricity Control Board has granted Nampower permission to pass on some of the burdens for generating and transmitting electricity to its consumers through a 7.3 per cent bulk tariff hike.
The energy regulator acting chief executive office Rachel Boois announced this on Thursday.
As a result, on 1 July 2022, big electricity consumers such as mines, municipalities, and Regional Electricity Distributors (REDs) will pay on average N$1.8222 per kilowatt-hour for the period 2022/2023.
NamPower submitted a tariff application for an effective bulk tariff (inclusive of generation and transmission) increase of 12.78 per cent, which would have resulted in an increase from an average of N$1.6982 per kilowatt-hour (kWh) to N$1.9153 per kilowatt-hour for the financial period 2022/2023.
The increase will not come straight to households immediately. The bulk buyers/distribution utilities such as the Regional Electricity Distributors, local authorities, and regional councils will individually apply to the ECB.
The regulator will then review their distribution tariffs, which will apply to end-users when approved.
According to the High Economic Intelligence (HEI) ‘s analysis, the 7.3 per cent bulk increase is the highest tariff increase in the past five years for the country.
The increment follows a decline in tariffs for the year 2019.
The HEI team indicated that the country’s electricity outlook tariffs depend on investment in new, cost-effective and energy-sufficient projects to ensure the government reduces its reliance on electricity.
Annual electricity tariff reviews ensure that utilities charge appropriate tariffs to collect enough revenue to provide reliable and efficient services at affordable, cost-effective rates.
In reviewing the tariff, ECB leader, Boois explained that it has considered several factors, including the impact of the tariffs on the electricity supply industry, consumers, and the economy at large.
In particular, the regulator said they reflected on the impact of the Covid-19 pandemic on several industries. They also considered the consumers and the current economic climate.
She said the regulator is cognisant that prices of goods and services have been increasing, negatively affecting consumers.
Boois also updated that as part of the discussions with the mines and energy Minister, the ministry availed N$100 million through the National Energy Fund (NEF) to mitigate the impact of the increase on consumers.
The allocated funds will be used for energy-related variable costs of NamPower in consultation with the ECB.
Over the years, the tariff paid by consumers included an amount for Long Run Marginal Cost (LRMC) purposes.
The LRMC is intended to ensure a smooth tariff path for the future, especially when NamPower is experiencing cash flow challenges due to expensive power supply options or to fund the building of new power plants.
The LRMC funds may cushion customers from unexpected tariff hikes or when the economy is depressed or build new power plants that will ensure an affordable projected tariff path.
According to the ECB head, N$85 million was available to mitigate the tariff increase’s impact on consumers and the economy for the past two years.
In 2020, an amount of N$500 million was allocated from the Long Run Marginal Cost Fund to fund the construction of NamPower renewable energy plants partially.
An amount of N$342 million was allocated to the 20MW Solar PV plant at Omburu.
The remaining amount of N$158 million will be used for part-funding of the 40MW NamPower-owned Wind plant to be procured soon.
The construction of the NamPower Omburu solar PV plant was completed, and the plant was commissioned at the end of March 2022.
Since the plant was customer-funded, only minimal operational costs are recoverable through the approved tariff.
According to ECB, Omburu solar PV plant is currently the cheapest source of electricity in our energy mix, thus reducing the tariff increase.
In accordance with the tariff methodology, NamPower will not be allowed a return and depreciation on the assets created using the N$500 million LRMC contribution.
According to ECB calculation, this will result in a total net saving to the customers of approximately N$1 billion for 30 years and will assist in improving the affordability of electricity to end-users.
Boois indicated that despite the importance of the Fund due to the current depressed economic situation, no provision was made for the recovery of the LRMC as part of the tariff for the 2022/2023 period.
The electricity regulator will, in the future, consider reinstating the recovery of the LRMC.
The regulator also warned economic agents that future tariffs could increase with inflation and cater to a generation as per the National Integrated Resource Plan.
She added that the expectations are also influenced by external factors such as the weather, foreign exchange fluctuations, and other unforeseen circumstances that may affect the projected price path and must be considered when reviewing future tariff applications.
Email: erastus@thevillager.com.na
