THE Zimbabwe Energy Regulatory Authority (Zera) has adopted a new tariff determination methodology aimed at attracting new investors into the country’s struggling power generation industry.
Zimbabwe is hamstrung by chronic power shortages and attendant load-shedding, which has virtually increased costs of production for industry.
In 2004, government conducted the first cost of service study which recommended the levels of tariffs which should be charged and the methodology to be used in determining electricity tariffs.
The tariffs proved uncompetitive for investors to make a return on investment consequently leaving power utility Zesa with a monopoly over the country’s power supply.
Zera then commissioned another study in 2013, which revealed that at the current production levels and cost, the unit cost was higher than the existing tariff at 9,86c/KwH.
This is in comparison to the Sadc region’s average tariff of 14c/KwH.
“After considering various options and taking into account Zimbabwe’s electricity situation the study recommended that the tariff setting should be based on the Rate of Return (ROR) methodology,” Zera chief executive Gloria Magombo said.
ROR is based on the principle that the revenue to be earned by the electricity producer should be equal to the cost to supply electricity, plus a fair return on the asset rate base.
“The methodology ensures that any investor gets a fair return on capital invested. Zera adopted the ROR methodology for determination of tariffs for new investors in the electricity industry,” she said.
The authority has over the years begun adjusting tariffs prevailing in the market towards cost reflectivity.
Magombo said that after the study was completed, the power utilities were recommended to institute efficiency improvements which include reduction of non-technical distribution losses, improved revenue collection, increased efficiency of thermal power plants and optimisation of operations and maintenance costs.
Zimbabwe’s power deficit situation worsened in the year 2007 when the Southern African Power Pool also began facing a net energy deficit.
Government now realises the need to embark on an aggressive power generation expansion drive in order to meet demand as it presently outstrips generation capacity.
The study also identifies areas of improvement and where the power utilities can increase efficiencies.