Here’s why power tariffs vary

The Electricity Regulatory Authority (ERA), which sets power tariffs, on July 9 announced the retail prices for July through September.

It reduced the charges for household usage from Shs750.9 to Shs747.5 per unit while commercial consumers will pay Shs616.6 from Shs639.8.

The medium industrial category tariff is Shs526.9 down from Shs556 a unit, that for large industrial consumers dropped to Shs355 from Shs361, while extra-large industrial users will pay Shs301.7, a decrease from Shs300.2.

From the above, it is clear the tariffs vary across consumer categories and that residential users pay a higher tariff.

Customers are priced basing on the strain they impose on the electrical system, especially during peak hours.

Residential consumers increase the burden during peak hours, starting 6pm to midnight.

That is when many are back home from their workplaces elsewhere and have turned on the lights, television sets, fans, refrigerators, and percolators/kettles for tea/coffee or bath water before hitting the sack after midnight.

 Since households use lower voltages, usually up to 240 volts, power utilities must install even more equipment such as transformers to step down the current for the safety of these residential consumers and their electrical gizmos.

The tariff for industrial consumers is closer to the wholesale price because they can receive power at higher voltages, up to 11,000 volts, thus saving utilities the money that they would have spent on extra step-down equipment.

Additionally, industrial concerns consume more power than residential and commercial consumers, thus enjoy the economies of scale. That said, the regulator considers the revenue requirement for the entire Electricity Supply Industry to arrive at the retail charges.

It adds the generation costs (Uganda has 43 power generation plants), the transmission costs (there is one company) and the distribution costs (there are seven power distributors) and divides the sum by the total units of energy sold.

The generation tariff is informed by the kind of Power Purchase Agreement (PPA) between the sole bulk purchase and the generation stations. A PPA will provide for either payment based on the volume of electricity a plant adds to the grid or basing on the installed capacity of the station irrespective of the quantity of power generated and sold.

The power transmission component factors in the Operation and Maintenance (O&M) costs, the net power purchase costs, debt service costs divided by the bulk energy sales less the transmission losses.

Distribution costs will include debt service, capital recovery as well as the operation and maintenance such as repairs, staff costs, transport and insurance.

On a quarterly basis, the regulator will adjust the tariff to reflect the changes in inflation, the exchange rate – utilities incur dollar-denominated costs when buying equipment that Uganda does not manufacture, the price of imported fuel  there are two heavy fuel oil plants feeding the grid and producer price inflation in the United States of America.

 As has already been written about, In Uganda, as happens in Seychelles, the tariffs are close to the cost of supply, or, put differently, generally the government does not subsidise consumption – save for the first 15 units that residential consumers use.

That said, the different actors in the electricity sector are working to significantly reduce the tariffs, for instance, to Shs185 per unit for industrial use.

Transmission and distribution utilities are investing in the reduction of energy losses through, among others, investing in bigger cables to ensure fewer electrons dissipate as heat and through operations against electricity pinching.

It should follow that as less power is lost, conversely there will be more to sell and once the revenue sector’s requirement is divided by many more units of energy traded, the per unit cost should reduce.

Mr Nelson Wesonga is a residential consumer of electricity