Electricity should be sold as a service. Time to shift to new paradigm

please read this excellent  article on the most important issue of electricity as a service vs a commodity

re posted from                            IOL

The consequence is that partial off-grid solutions (such as a solar panel on a residential household that draws electricity from Eskom at night) might appear more affordable than they might otherwise be, because the consumers can get away with passing their service costs onto the poorer households….

With Treasury having to absorb Eskom’s debt, and municipalities having a shortfall in revenue due to the widespread expansion of rooftop solar, South Africa has the opportunity to become pioneers in enacting legislation that can settle the LCOE debate by selling electricity as a service as opposed to selling electricity as a commodity.

Electricity should be sold as a service. Time to shift to new paradigm

Eskom power lines. Picture: Courtney Africa/Independent Newspapers

Eskom power lines. Picture: Courtney Africa/Independent Newspapers

Published 15 November 2023

by Hügo Krüger

There is an urban legend that the word “tariff” was named after the port city of Tarifa that was regularly raided by Portuguese Pirates during the Spanish Empire, but the origin of the word comes from the 12th century when Baghdad was the capital of the Islamic World and at the centre of scientific advancement.

The term translates from Arabic loosely as “information” and when it comes to electricity tariffs, regulators have to make sure that the information reflects the true cost of electricity to the consumers.

In the days of vertically integrated utilities, and when fixed prices were set by a regulator, electricity was always cross subsidised, leading to the false assumption that electricity costs were the same during the day and night and carried the same value to consumers during those periods. The various generating technologies were compared to one another, using a simplistic discounted cash-flow model, called the Levelized “lying” Cost of Electricity (LCOE), and electricity to the end users were priced in dollars or rand per kilowatt-hour. The LCOE is determined by dividing the entire cost of the electrical plant in net present value by the amount of electricity that it will generate over its lifetime.

The unfortunate consequence of the tradition is that it gave policy makers the wrong paradigm about electricity, which was to regard it as a commodity and not as a service (EOS). The metric is used today by salespeople, but few experts inside the energy sector take it seriously, because it does not account for the full cost to guarantee the end user a security of supply.

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