Electricity rate redesign in an African context: getting ready for the prosumer age

Abstract

The assumption that electricity consumers have no alternative but the grid for their electricity needs is currently being challenged by affordable Behind-The-Meter (BTM) technologies such as distributed PV systems and batteries. This shake-up has been well documented in liberalized power markets such as Europe, North America, and Australia. This paper looks at the regulatory implications of BTM technologies in Africa, where the power industry often follows the Single Buyer Model. Applying a game-theoretical model, we illustrate the impact of BTM technology adoption on different consumer classes under different end-user rate designs and BTM technology cost scenarios. In our analysis, we focus on the following regulatory metrics: cost efficiency, equity, and cost recovery. We find that with the increasing penetration of BTM technologies the popular volumetric increasing block tariff design leads to a regulatory trilemma between equity, the recovery of the integrated Distribution and Supply Companies’ (DISCOs) costs, and the recovery of the costs of the Single Buyer Entity, being responsible for the procurement of energy and the planning, dispatch, and the expansion of the transmission grid. We argue that it is important to transition to an end-user rate design with increased fixed charges. We propose that fixed charges be differentiated based on historical consumption, serving as a proxy for income. We offer several recommendations on how to overcome practical difficulties when implementing such charges. However, merely revising the end-user rate design might not be enough, the penetration of BTM technologies is an additional argument for wider reforms.