You are Here > Home > My Money > Why do electricity costs differ so much?

Why do electricity costs differ so much?

Feb 8, 2021

Why do electricity costs differ so much?Electricity is a major household expense for everyone. This will only worsen in April this year when we expect to see an overall 15% increase in the Eskom standard rate.

Trying to understand what the “average” household spends in South African is virtually impossible as electricity bills can vary dramatically between households. A quick survey on social media found that while some households were spending as little as R350 a month, others were struggling to keep their bill below R3 000 a month.

Obviously the number of people living on the premises will make a difference, and more affluent homes may have a larger electricity load due to pool pumps and appliances. Yet even between similar households, we saw large variances in what people are paying.

Considering that the standard Eskom rate per unit is 116.72 c/kWh, why are households paying well above that rate? VAT is definitely a culprit as you have to add that to any published electricity tariff, pushing the actual Eskom average rate to 134.23 c/kWh.

However, Michael Franze, MD of Citiq Prepaid which provides prepaid sub-meters to landlords, says electricity rates can vary significantly depending on who you buy your electricity through, what tariff has been allocated to you by your electricity service provider, and sometimes even whether you buy prepaid or are on a billing system.

If you get your power directly from Eskom, which is the case in many rural areas and in Soweto, you will be charged according to a different system than if you receive your electricity from a municipality.

Municipalities add surcharges, allowing them to effectively collect a tax. Some municipalities like Ekurhuleni have different tariff plans depending on how much a household uses. Cape Town and Johannesburg charge a far higher monthly service and capacity fee than Ekurhuleni, but their rate per unit is lower. It is important to check your own municipality tariff plan and to understand how your electricity usage impacts your bill.

The more you use, the higher the unit price

Most municipalities use the “incline block tariff”(IBT) system. This means that the more electricity you use or buy in a month, the more you pay per unit. For prepaid customers this means it is better to either buy from week to week, or buy just enough at the beginning of each month to keep you going. It’s cheaper to top up with a few units at the end of each month than to buy enough to last you for two months.

Different municipalities use the IBT system differently. Ekurhuleni uses the IBT system for what they deem to be “low usage” households and then charge a flat fee for higher users. If you are on the wrong plan, it could end up costing you a lot of money.

If you are using less than 600 units a month, you pay 137.70 c/kWh. However, if you exceed 700 units, it gets prohibitive topping at 659.69 c/kWh. So once you go above 600 units a month, you could be better off on the bulk residential flat fee of 203,87 c/kWh. It is important to make sure you are on the correct plan.

Prepaid or billing?

While the rate per kWh can be higher  for prepaid customers, municipal prepaid meters usually work out cheaper per month as there is no service or capacity charge.

A service charge is a monthly fee for having electricity available while a capacity charge is a monthly fee for the amount of capacity that has been made available. This is added to customers’ bills, but is not charged to prepaid households (except for Cape Town where a “home user” charge has been added to all rates bills).

This example shows how a household which receives a monthly bill pays double the amount paid by a household with a prepaid meter:

  • Both households use 374 units a month with single phase 60A.
  • The prepaid customer IBT tariff is 148.09 c/kWh for the first 350 units, after which they move into a new IBT block tariff of 169.87 c/kWh for the remaining 24 units. This gives an average price of 149.49 c/kWh.
  • The IBT for billing customers increases in far larger blocks of 500 units. The billing customer only pays 142.42 c/kWh for their 374 units.
  • The billing customer pays a service charge of R147.74 and capacity charge of R435.24.
  • The total monthly cost for the pre-paid customer is R559.09 excl VAT and R642.95 incl VAT
  • The total monthly cost for the account payer is R1 115.63 excl VAT and R1 282.97 incl VAT

The capacity charge increases depending on the size of the connection. For example, a house with a residential three phase 80A will pay a capacity charge of R478.57.

Prepaid meters are also great at helping you monitor your consumption. If you only get your bills a month or more in arrears, it’s easy to forget that day you accidentally left the heater on and wonder if you’re being overcharged. When you can track your consumption from day to day, or even from hour to hour, it’s much easier to budget.

It is worth noting that there is a further difference in the cost of prepaid units if you are a tenant and paying through a sub-meter. For example, Citiq supplies landlords with a prepaid sub-meter when a landlord is sub-letting and wants to ensure each tenant pays for their own electricity and water. There is an additional service for this which can add up to 12% to the cost of the base unit rate.

Appliance usage is the culprit

The type of appliances you use affects your electricity bill.  The amount of power any appliance uses, also called its power rating, is measured in watts (W), and this is always marked on the packaging or somewhere on the appliance.

An energy-saving lightbulb might use 20W and an iron would be around 1 000W or 1 kiloWatt (kW). A unit of energy, which is measured in kiloWatt hours (kWh), is just the amount you need to run a 1kW appliance like an iron for one hour. If you are paying 200 c/kWh that means it costs you 200c (R2) an hour per for every 1kW used – i.e. R2 to use your iron for an hour.

A good general rule is that the more heat an appliance generates, the more power it uses. Franze recommends that once you’ve switched off appliances that stay in standby mode, look at the things which use the most power: stoves, ovens, geysers, kettles, irons and heaters.

For example, even the most efficient wall panel heater uses 400W an hour, which is nearly R3.20 a day if you use it for four hours. A two-bar infrared heater will cost twice as much. That is why closing the curtains to keep the heat in, and putting on a jersey instead of turning on the heater, could potentially save hundreds of rands a year.

As geysers are one of the biggest consumers of electricity, having a solar geyser would help reduce your energy bill significantly. If you do not want to fork out the upfront capital, then there is the option to put in a timer and to wrap your geyser in a blanket.

Franze explains that a geyser is essentially a giant kettle you boil to heat the water. “If you have it on a timer which only boils it once before the evening shower, that’s far better than reheating the water several times a day. Similarly, a geyser blanket would keep the water somewhat heated so less power is needed to hear it from cold”.

Who qualifies for free electricity?

Indigent households can claim free basic electricity (FBE) of 50kWh per household per month for a grid-energy system (connected through the national electrification programme). This is the amount of electricity deemed enough for basic lighting, basic water heating using a kettle, basic ironing, a radio, and a small black and white TV.

Municipalities have different thresholds for indigent households in their bylaws, but in 2017 most municipalities (147 out of 257) classified an indigent household as a family earning a combined income of less than R3 200 per month. Eleven municipalities (9 local municipalities and 2 district municipalities) adopted a lower income poverty threshold of R1 600 per household per month.

Once registered with the municipality, the customer’s details are loaded on the Eskom system where they get credited with free electricity tokens.

This article first appeared in City Press.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Video: Your money behaviour

Have you ever wondered how your money behaviour compares to that of your peers? Where do they save? What do they spend their money on and how much debt do they have? On this edition of Money Matters, we chat to Akash Dowra, Head of Client Insights at Discovery Bank,...

Nothing shocking about new retirement fund emigration rules

South Africans seem to live in constant fear of the government going after their savings. New tax rules for emigrants' retirement funds is just the latest development to fuel this anxiety. Andre Tuck, Senior Investment Consultant at 10X Investments, has a close look...

Listen: Juggling motherhood in the gig economy

Mapalo Makhu (@womanandfinance) rejoins Maya (@mayaonmoney) on the My Money, My Lifestyle podcast after taking a break to have her second child. She shares her experiences of having a child while having to meet client deadlines, and emphasises the importance of having...

Proposed additional exit tax leaves industry experts confused

Tax Consulting SA gives the lowdown on a new draft tax bill which essentially proposes an additional exit tax on retirement funds. It is not uncommon for National Treasury and the South African Revenue Services (SARS) to propose, and subsequently gazette, amendments...

Video: Five tax myths

Many employees don't understand the complex tax calculations made by their companies and they often question these deductions. According to tax specialist Tanya Tosen, there are five key things an employee needs to understand when it comes to their tax. Myth one:...

GEPF establishes complaints handling office

If you are struggling to get your claims processed or not receiving your benefits, help is at hand with the recent establishment of the Government Employees Pension Ombud (GEPO). The state is the largest employer in the country, and the Government Employees Pension...

Video: Money is different for women

Did you know that 80% of women will manage their own finances during their lifetime, either because they have remained single, gotten divorced, or been widowed? And the reality is that money and finances are different for women. Why? We know from South African salary...

What does a financial plan look like?

I often write about the importance of having a financial plan – knowing your goals and how you are going to achieve them. But it is about more than just a financial plan. It is also about how you want to live your life and whether that plan reflects your values. I...

More households supporting unemployed family

For many working South Africans, the pressure of financially supporting friends and family is unrelenting. Most of us have either experienced a job loss or have a family member who lost an income due to the extended Covid-19 lockdown. It is not surprising then that...

Video: How to change your money habits

We know from studying history, that entire generations can share a similar money attitude or behaviour based on a major financial event that their generation experienced. People who grew up during the great depression of the 1930s, and those who grew up during World...

Pin It on Pinterest

Share This