Date post: | 14-Apr-2018 |
Category: |
Documents |
Upload: | ed-chikuni |
View: | 223 times |
Download: | 0 times |
of 25
7/29/2019 CoSS Tariff Review Obserations
1/25
ZERA Cost of Service Study (CoSS) for
Zimbabwe Electricity Supply Industry (ESI)
Stakeholder Workshop, Harare, 15 February 2013
Cost of Supply Study Tariff Review
7/29/2019 CoSS Tariff Review Obserations
2/25
Tariff Review Presentation Overview
Context & Key Tariff Design Principles
Tariff Structure Review
Regional Tariff Comparison
Questions
15 February 2013 2
7/29/2019 CoSS Tariff Review Obserations
3/25
Context and Tariff Design Principles
7/29/2019 CoSS Tariff Review Obserations
4/25
Key Tariff Design Principles
15 February 2013 4
Expectations Tariff Objectives Description
Customer 1. AffordableLeast cost options (price should exclude
inefficiencies)
2. Non discriminatoryTariffs should be applicable to all customers
on an equal and fair basis
3. Predictable & StableCustomers should be kept informed and real
price adjustments should be gradual
4. TransparentEasy to read and apply, and contains no
hidden costs
Utility 5. Cost Reflective
Cover the costs of the business plus a
return (profit) component
6. Encourage efficient useAppropriate price signals that will stimulate
efficient use of electricity
7. Implementation costImplementation and transaction costs
should be low
Government 8. Social SupportTariff levels and structures should
accommodate social programmes
9. Self sufficiency in
generation capacity
Expansion through development of own
resources
10. SOEs to be self funding
ESI should not rely on Government for
funding
11. Shareholder expectations Appropriate taxation & dividends
Tariff design andtariff determinationmust strike adelicate balance
between the (oftenconflicting)requirements ofdifferent
stakeholders ZERA has the
tough task offinding the
balance andmanaging theinevitable tensionbetweencustomers,
ZPC/ZETDC andGovernment
7/29/2019 CoSS Tariff Review Obserations
5/25
Tariff Code Pricing Objectives
Electricity pricing levels to recover the approvedrevenue requirements of service providers
Predictable prices over time to customers
Pricing signals to reflect the cost structure of theservice provided
Optimal asset utilisation by licensed entities
Fair and reasonable return to licensees
Incentives for the continued improvement of thetechnical and economic efficiency of licensees
Customers to be protected and informed of thecost of consumption
Phasing out or reducing of cross-subsidies
15 February 2013 5
Robust tariff methodologyin place
COSS & LRMC
Tariff structure review
Non-productive assetsreview (& removal)
WACC? - To secureinvestment funding
To be improved(continuously)
Cost-reflectivity promotes
economic efficiency
7/29/2019 CoSS Tariff Review Obserations
6/25
Tariff Structure Review
15 February 2013 6
7/29/2019 CoSS Tariff Review Obserations
7/25
Tariff Structure - Overview
Tariff structuring is a vital aspect of pursuing cost-reflectivity and drivingeconomic efficiency
Seeks to balance true cost-reflectivity (i.e. specific tariff for each individualcustomer) with simplicity (i.e. easy to understand and administer)
4 key aspects of tariff structuring
a) Functional split to match market structure (i.e. Generation, Transmission, Distribution,Supply)
b) Cost components to be recovered (fixed and variable)
c) Tariff/charge Components (linked to cost drivers)
d) Basis for charge differentiation (to promote efficiency)
Trend away from structuring tariffs according to customer type (andinstead differentiate by voltage level and/or distance)
Tariff structures need to additionally take account of metering and billingtechnology and capability
15 February 2013 7
7/29/2019 CoSS Tariff Review Obserations
8/25
Tariff Structure Charge Components
Typical Electr icity Charge Components
Fixed (monthly) charges (e.g. Basic Charge, Fixed Charge, Ampere
Charge, Service and Administration Charge)
Capacity/demand charges (e.g. kW or kVA demand charges)
Energy charges (e.g. kWh charges) Connection charges
15 February 2013 8
7/29/2019 CoSS Tariff Review Obserations
9/25
Tariff Structure ReviewTypical Tariff Structure breakdown
15 February 2013 9
Tarif f Elements Fixed MonthlyCharge
CapacityCharge
EnergyCharge*
In place ?
Energy
No TOU TOU 1 TOU 2 TOU 3
Network
Voltage 1 (132kV) Voltage 2 (88kV) Voltage 3 (66kV)
Voltage 4 (33kV) Voltage 5 (11kV) Voltage 6 (Low)
Retail/Supply
Prepayment Small Customer MediumCustomer Large Customer
Levies/surcharges
e.g. Rural Subsidy * Energy Charges at Network level relate to recovering the cost o f losses
7/29/2019 CoSS Tariff Review Obserations
10/25
Tariff Structure Functional Split
15 February 2013 10
BulkSupply
(SingleBuyer)
Tx
network
NGSC Transmission DISCO (regions)
Hwange
Kariba(South)
SmallThermals
ExportsImports
CaptiveCustomers
IPPs
ZPC
Dxnetwork
DxRetail
System &
MarketOper.
PPA
Dx
network
DxRetail
Dx
network
DxRetail
Dxnetwork
DxRetail
Dxnetwork
DxRetail
Eligible
Customers
C
IPPsIPPs
PPA
A
Connection & TUOSC
B
D
PSA
Tariffs & Charges
A - ZPC PPA Charges
B - Bulk Supply charges (wholesale energy)
C - Connection & Transmission Use Of System charges (TUOS) including C* for imports and exports
D - Distribution Tariffs (incorporating Distribution Use Of System (DUOS) and Supply charges)
C*
Standard Bulk Supply or
Special Pricing Agreement
7/29/2019 CoSS Tariff Review Obserations
11/25
Tariff Structure ZPC Generation Charge
Components and differentiation
PPA between ZPC and ZETDC
Capacity and Energy Charges setout individually per power station
Manages risk for ZPC, whileestablishing a basis forperformance efficiencyimprovements
Already in place to be refined Not renewed for 2013 (Amendment
2 was valid to 31/12/12)
PPA to be amended to vestbetween ZPC and Single Buyer(ZEDC)
PPA rates to be adjusted based onCoSS and tariff determination
15 February 2013 11
A ZPC PPA Charges
Power Station Capacity rateUS$/kW/month
Energy RateUSc/kWh
Hwange
Kariba
Harare
Bulawayo
Munyati
Payable onAvailable Monthly
Capacity
Payable onMetered Energy
Generation ChargesTariff Component Units Included? Differentiation
Geographic Voltage Time-of-Use
Capacity/Demand USD/kW/month Energy USc/kWh
7/29/2019 CoSS Tariff Review Obserations
12/25
Tariff Structure Bulk Supply
Charge Components and differentiation
Energy only charges for Bulk Supply(i.e. no capacity/demand charges)
Unlike network capacity, generationcapacity can easily be diverted for
use by other customers - reducesthe chance of under-utilised (orstranded) capacity
Customer peak and network peak
may occur at different times hencedemand charge may not be costreflective.
Generation demand charges willcause unreasonably high tariffs for
low load factor customers
Not presently in place - to beestablished between Single Buyer andDistributors (transparent transfer pricing
arrangement)
15 February 2013 12
B
7/29/2019 CoSS Tariff Review Obserations
13/25
Tariff Structure NGSC (Transmission) Charges
Charge Components and Differentiation
15 February 2013 13
C
Connection Charge Approach
Approach Advantages Disadvantages
No connection charge Simple and benefits
local generators whowish to export
Not cost reflective
Shallow connection charge Assign easilyidentifiable part ofconnection capex tocustomer
Not fully costreflective
Deep Connection charge More cost ref lective and
stronger locational pricesignal
Complex to
determine & dif ficultto justify
Use of System and Losses Charges
Explicit TUOS charges in place?Published tariff schedule needed
Facilitates revenue recovery by NGSCunder proposed new industry structure
Transmission losses need to beunbundled
Proper transmission charges are vital tosupport bilateral transactions betweenIPPs and eligible/ contestable customers
Connection Charges
Connection Charge Approach to beformalised
7/29/2019 CoSS Tariff Review Obserations
14/25
Tariff Structure ZEDC Network and Supply
Charge Components and differentiation
15 February 2013 14
Distribution Network Differentiation
Charge Charge Basis(Units)Geographic
(region)Voltage Time-of-Use
DUOS Capacity Charges Capacity(USD/kVA/mo)
DUOS Energy Charges (NetworkLosses)
Energy
(USc/kWh)
Network Connection Charges Once-off(USD/event)
Customerspecific Customerspecific Customerspecific
D Use of System and Losses Charges
Demand charges have resulted inexcessive customer bills due to loadshedding reduced by 20% by ZERAfrom 1 J an 2013
Fixed charges currently set to zero reinstatement to be considered as partof CoSS to ensure greater cost-reflectivity
Distribution losses need to beunbundled
Connection Charges
Connection Charge Approach to beformalised
7/29/2019 CoSS Tariff Review Obserations
15/25
Tariff Structure Summary
The tariff structure in place within ZETDC is largely in line with bestpractice, needing only some minor changes
Need for separate published transmission charges
Demand charges need to be unbundled for transmission and distributionrespectively
Network Losses need to be unbundled for transmission and distributionrespectively
Network Losses need to be differentiated by voltage level
It would be prudent to introduce a Reliability Services Charge to recoverthe costs incurred by the NGSC (System Operator) for ancillary services
14 February 2013 15
7/29/2019 CoSS Tariff Review Obserations
16/25
Tariff structure under current reality
Load shedding (supply availability) versus Demand Charge
Temporary deviation from cost reflective tariff structure by reducing demandcharges and by increasing energy charges
Timeframe needs careful consideration (when is normal supply restored?)with agreed review dates
Load shedding (supply availability) versus Fixed Charge
Temporary deviation from cost reflective tariff structure by reducing fixedcharges and by increasing energy charges
Timeframe needs careful consideration (when is normal supply restored?)with agreed review dates
Potential implications (of allowing temporary deviation) Higher revenue volatility need for a reconciliation approach to deal with
variations
Non cost reflective tariff structure undermines economic signals and efficiency
Deterioration of power factors
14 February 2013 16
7/29/2019 CoSS Tariff Review Obserations
17/25
Special tariff arrangements
Commodity-linked pricing agreements Aims to promote economic development but transfers commodity risk to power
sector (not sustainable in long term)
Existing agreements need to be honoured (although renegotiation may be anoption?)
No new agreements should be entertained
Prepayment by mining customers
Term loans by customers to ZETDC (to pay trade debt)
Principal and interest payments offset against electricity bill
Are financing arrangements accounted for so as not to distort collections?
Power Supply Security Scheme
Ring-fenced reliable supply at premium tariff
Short-term solution only should be phased out (risk of discrimination)
14 February 2013 17
7/29/2019 CoSS Tariff Review Obserations
18/25
Considerations
The Consultants initial review points to aspects pulling existing tariffs indifferent directions
WACC (if applied correctly) will in particular have a negative impact whileapproach to Generation asset valuation will point in a different direction
Addressing current concerns about Demand and Fixed charges being unfairwill be important but must clearly be understood as temporary measures
Customer willingness to pay for significantly underuti lised assets and
poor collection / revenue management impacts ESI financial viability inthe short term
Some restructuring process noise may occur while Governments ESIrestructuring policy and implementation plans are being finalised
Handling of legacy debt must be clarified
Treatment of Single Buyer needs clarification, including framework to allowBilateral Trading arrangements between willing buyers willing sellers
New framework is needed to allow Imports to play a real role in medium term
14 February 2013 18
7/29/2019 CoSS Tariff Review Obserations
19/25
Regional Tariff Level Comparison
15 February 2013 19
7/29/2019 CoSS Tariff Review Obserations
20/25
Regional Tariff Level ComparisonResidential Customers
ZETDC tariffs for residential customers appear relatively well aligned withregional peers (excluding Namibia and Zambia)
15 February 2013 20
Sample ResidentialCustomer
230V 14 kVA supply
5% Load Factor(~500 kWh per month)
9.9
9.8
10.6
10.1
17.0
7.4
5.0 10.0 15.0 20.0
RSA(CityPower)
RSA(Eskom)
Zimbabwe(ZETDC)
Mozambique(EDM)
Namibia(Windhoek)
Zambia(ZESCO)
USc/kWh
Country/Utility
SampleCustomerEffectiveElectricityCosts2013
Note:- Eskom has requested 16%
p.a. increase for next 5
years- NamPower has requested
18% p.a. increase for next5 years
7/29/2019 CoSS Tariff Review Obserations
21/25
Regional Tariff Level ComparisonCommercial Customers
ZETDC tariffs are average for regional commercial customer tariffs (notingwide spreads, indicating different degree of cross-subsidisation)
15 February 2013 21
Sample CommercialCustomer
2.2 kV 100 kVA supply
40% Load Factor(~30 MWh per month)
Note:- Eskom has requested 16%
p.a. increase for next 5
years- NamPower has requested
18% p.a. increase for next5 years
17.2
9.3
12.7
12.6
15.4
5.2
5.0 10.0 15.0 20.0
RSA(CityPower)
RSA(Eskom)
Zimbabwe(ZETDC)
Mozambique(EDM)
Namibia(Windhoek)
Zambia(ZESCO)
USc/kWh
Country/Utilit
y
SampleCustomerEffectiveElectricityCosts2013
7/29/2019 CoSS Tariff Review Obserations
22/25
Regional Tariff Level ComparisonLarge (Industrial) Customers
For Industrial Customers, ZETDC tariffs are slightly above average for the
region (and more so in terms of special arrangements for large customers)
15 February 2013 22
Sample Industrial Customer
11kV 10 MVA supply
80% Load Factor
(~6,000 MWh per month)
Note:- Eskom has requested 16%
p.a. increase for next 5
years- NamPower has requested
18% p.a. increase for next5 years
8.8
6.4
9.3
5.6
13.2
4.4
2.0 4.0 6.0 8.0 10.0 12.0 14.0
RSA(CityPower)
RSA(Eskom)
Zimbabwe(ZETDC)
Mozambique(EDM)
Namibia(Windhoek)
Zambia(ZESCO)
USc/kWh
Country/Utility
SampleCustomerEffectiveElectricityCosts2013
7/29/2019 CoSS Tariff Review Obserations
23/25
Conclusion Tariff Principles
Revisited
7/29/2019 CoSS Tariff Review Obserations
24/25
Tariff Principles revisited
15 February 2013 24
Expectations Tariff Objectives Addressed?
Customer 1. AffordableUndermined by poor supply
security/availability
2. Non discriminatory SPAs undermine this
3. Predictable & Stable 4. Transparent
Partly only(no prescriptive tariff structure)
Utility 5. Cost Reflective Fixed and Demand Charges
6. Encourage efficient use To be confirmed
7. Implementation cost Government 8. Social Support
9. Self suff iciency in generationcapacity
Barriers to securing investmentcapital
10. SOEs to be self funding Tariffs to reflect CoS
11. Shareholder expectations Need clarification
7/29/2019 CoSS Tariff Review Obserations
25/25
Thank You!