SELMA SHIPUNDA
IT IS A well-known fact that there is a close correlation between electricity consumption and development. Just like any other country, the same is true for Namibia.
For social and economic development to occur, everybody in the country must have sufficient, reliable, and above all, affordable electricity.
Electrification is not simply about connecting households to the grid. The extent to which energy services are actually used depends on their affordability.
According to the latest Household and Expenditure Survey by the National Statistics Agency (NSA), only approximately 45% of the Namibian population have access to electricity.
To address this undesired state of affairs, the Ministry of Mines and Energy is currently developing a policy to electrify all rural and peri-urban households by 2040, to ensure equality of opportunity within the economy.
HOW ARE TARIFFS DETERMINED?
Electricity tariffs are regulated by the Electricity Control Board (ECB) as provided by the Electricity Act 4 of 2007, in accordance with the prevailing government policy, which states that tariffs should be cost-reflective and based on sound economic principles.
According to the act, the ECB is responsible for reviewing, setting, and approving all electricity tariffs charged by licensed suppliers and distributors of electricity, such as the Regional Electricity Distributors (REDs), NamPower and local authorities such as municipalities, and town and village councils in areas where REDs are not established yet.
Tariffs are reviewed annually by determining the revenue required by the licensees to operate, including a regulated return, in order to determine the end-user tariff.
The review process has two broad stages, the bulk tariff review stage, where the bulk or wholesale tariff charged by NamPower to distribution licensees is determined. This process ends in April, with the ECB announcing the NamPower tariff for the year. Stage 2 reviews the revenue requirement of distribution licensees. The final end-use tariff, which includes the NamPower and distribution tariff, comes into effect on 1 July each year.
THE EVOLUTION
According to the ECB, from the financial year 2016/2017, NamPower applied for an effective bulk tariff increase from N$1,28 to N$1,68 per kWh (inclusive of generation and transmission) of which the end-user (consumers) tariffs inclusive (bulk, distribution, and supply) were approved at an average tariff of N$2,00/kWh.
The reason for the tariff increase was due to the increased cost of supply, mainly due to an unexpected depreciation of the Namibia dollar against the US dollar.
However, in 2018/2019, a tariff application for an effective bulk tariff decrease was made from an average of N$1,69 per kilowatt/hour to N$1,64 per kilowatt/hour for the financial period 2019/2020.
As a result of a shortage of supply experienced in 2015 in Namibia and the southern African region, NamPower procured expensive electricity to secure a constant supply.
This led to an under-recovery amount incurred between 2015 and 2017.
A 2,5% tariff decrease was approved, which enabled NamPower to recover its allowed operating costs and ultimately fulfill its financial obligations, including payments to the local independent power producers.
The end-user tariff approved was N$2,4200/kWh.
Since then, there was no tariff increase in the 2020/2021 financial year, and the national end-user tariffs remained at an average of N$2,4200/kWh.
Recently, due to the increased cost of imported electricity and commodity prices, a tariff increase of 12,8% was requested for the 2022/2023 financial year. After analysis from the ECB and input from the energy ministry, a lower average bulk increase was approved at 7,3%.
Unlike other countries, the electricity supply industry in Namibia is one of the industries that does not rely much on government subsidies. The ECB, in accordance with government policy, ensures that the tariffs are cost reflective and determined independently, taking into consideration factors currently affecting the country's economic status, such as the impact of the Covid-19 pandemic and the ongoing war between Russia and Ukraine.
Understanding that electricity is an enabler of economic development, it is also crucial to note that it is affected by factors such as installed capacity, investment, weather patterns, fuel consumption and the unit price of fuel. Inputs of generating electricity, such as fuel, are also affected by global dynamics such as the war between Russia and Ukraine.
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THE WAY FORWARD
In consideration of renewable energy, as much as the country is increasing its renewable energy sources, renewable energy is more reliable during the day or only during certain times of the day.
Therefore, the current energy projects are replacing some of the energy imported, but does not address the challenges of baseload at night.
Hence, for Namibia to derive benefits from renewable energy, large renewable energy plants with storage facilities at a relatively low cost of electricity are required to replace the expensive energy imports.
Therefore, electricity tariffs in Namibia are impacted by geopolitical issues, global economic factors and what happens in the region. However, the cost of electricity must be supplied cost-efficiently not to put undue pressure on consumers while covering reasonable expenses incurred by the utilities.
* Selma Shipunda is a postgraduate scholar in mineral and energy economics at the Curtin Graduate School of Business (Perth,Western Australia). She has previously worked at Swakop Uranium, and now works at the Ministry of Mines and Energy. She is passionate about mathematics (calculus) for econometrics and forecasting of mining and energy commodities.
