PSF advocacy efforts pay off in electricity pricing
By Paul Ntambara
Electricity is an important component of modern life. Even those that live primordial-like lives are indirectly impacted by its generation; the clothing, tools and containers are all a function of energy. In the modern world, electricity is such an essential necessity and factor of production that allows for the robust growth of the service and industrial sectors almost in equal measure.
It is for these and other quests that the Government of Rwanda continues to invest a lot of effort and resources in power generation, transmission and distribution despite the challenges.
One of the major challenges facing businesses and households alike in the country is the high cost of electricity. The resurgence of the industrial sector has meant a huge surge in demand for electricity yet there is short supply.
The increasing electricity costs have resulted in high commodity prices of products produced locally making them less attractive on the market. Consequently many industries/factories have been forced to scale down production and, in some cases, close shop.
The demand for power is further complicated by the increasing demand for power during peak times. To generate power during these periods not only stresses the installed capacity but also adds to the most expensive power sources to be dispatched during these specific times of the day.
The electricity demand profile within Rwanda is linked to a dominant domestic (household) profile. Household electricity consumption is estimated at 45 per cent of the total consumed within the country while industries consume approximately 30 per cent.
In line with its advocacy role, the Private Sector Federation (PSF), responding to the high electricity cost concern raised by the Chamber of Industry, is working out a plan with the Energy, Water and Sanitation Authority to make electricity more affordable to industrial users, especially during off-peak hours; 5pm-11pm. This is after the realisation that the installed electricity generation capacity within Rwanda is barely holding up to the increasing growing domestic demand for power.
Extent of the problem
Electricity service provision in Rwanda is faced with a number of challenges namely;
• High industrial tariff
• High thermal generation cost
• Narrow reserve margin
• Electricity system instability
Rwanda depends on expensive thermal resources, diesel in particular and heavy fuel oils. This dependency accounts for approximately 40 per cent of the country’s 100MW installed energy capacity. Hydropower accounts for 59 per cent and methane gas stands at 1 per cent.
Introducing Time of Use Tariff
To address the mismatch between electricity demand and supply, EWSA in partnership with the Private Sector Federation has come up with a plan that will allow industries operate at reduced costs and at the same time increase power supply to households.EWSA has introduced the following tariff structure for industrial customers;
• Rwf105 from 7.00am to 5.00pm (o% decrease)
• Rwf140 from 5.00pm to 11.00pm (33% increase)
• Rwf80 from 11.00pm to 7.00am (24% decrease)
Under the plan, industrial consumers will be able to save a portion of between 10% and 16% of their monthly electricity bills. The country shall also benefit from the increased reserve margin to the international norms (between 15 and 20%), improved level of system stability and secured daily maximum power demand.
Industries operating between the peak hours of 5pm and 11pm will see their energy costs increase by 33 per cent, from the current Rwf105/ kWh to Rwf140/kWh. Industries working off peak hours between 5pm and 7am will incur lower energy costs with a reduction of 24 per cent at Rwf80.
Introducing time of use tariffs will allow shifting of the load between peak periods. Generating power during peak load periods is very expensive. Adoption of this plan by industries will lead to reduced power bills for the industrial customers and system generation stability.
According to Antoine Manzi, the Director of Trade and Advocacy at PSF, local industries should embrace the new pricing scheme to benefit from the low electricity tariffs. He acknowledges that high energy cost is one of the major challenges affecting business in Rwanda. He says that PSF’s mission is to see businesses thrive and therefore a study on the electricity problem and how effectively it can be handled has been commissioned.
“PSF is conducting a study on the impact of electricity costs on local businesses; we hope the results of this study will help us identify new ways of solving the energy problem,” he says.
Jean Marie Vianney Rutembesa: Director of Finance at UPROTUR
• Producers of building and construction materials, mattresses
The new pricing scheme that encourages factories to work off peak hours (11pm-5am) fits our work plan. It was long overdue. We were planning to close some factories because of the high electricity costs but with this incentive, we are going to continue with production.
The cost of production was very high making products from outside the country cheaper. So, the intervention by EWSA and PSF is commendable. Our products are on demand mainly during the construction period which is usually at its peak after the rainy season. We are going to try out the new pricing scheme and then make an assessment thereafter.
Our workforce will fit in the new work plan because they work in shifts. There will be no need for them to work extra hours. What we will have to do is to provide transport for them at night.
Claude Mansell: Director General Minimex Ltd
• Producers of top grade maize meal
The effort of EWSA and PSF is good because it brings in some flexibility in the pricing scheme. Because of this measure, the energy may get utilised in a more balanced way which may result in a better performance of EWSA.
In general, the chance that the supply will go down at peak time is higher than at low time, and the new pricing scheme discourages companies to work during the evening peak. However Minimex doesn’t have the possibility of taking advantage of the new pricing scheme because our operations go on 24 hours a day.
We don’t have the flexibility to stop work at 5 pm and restart at 11 pm because the demand for maize flour is high. So we work nonstop. Some companies have this flexibility but in the processing industry where there is high demand that option is non existent.
We have communicated our concern and we hope that EWSA and PSF will discuss our case and other companies in similar circumstances with a view of coming up with a solution.
The benefit of the new pricing scheme is that if other companies take advantage of it, and will not work so much between 5pm and 11pm there might be less downtime. Down-time of electricity supply is our main concern. For us, the pricing scheme should be such that it encourages working at night without discouraging companies like ours not to work during peak hours. We cannot afford not to work during that time; the discouragement should be less than what it is now.