LEC paradox: customers up as sales fall

SONY DSC

KANANELO BOLOETSE

MASERU – While the total number of the Lesotho Electricity Corporation (LEC)’s customers is increasing, the average electricity consumption per household is dropping annually. In its latest tariff application to the Lesotho Electricity and Water Authority (LEWA), LEC requested an increase of 32.6 percent across consumer categories from April 1. This increase will take LEC’s minimum tariff from about M0.72 per kilowatt-hour to almost M0.96 per kWh.

Critics argue as tariffs rise, the problem of plummeting electricity sales is only likely to worsen which will further force prices up, leading inexorably to a worsening of the situation. In its application to LEWA, the LEC blamed the predicament it finds itself in – increasing customers and declining sales – on the government’s “massive electrification programme” which is targeting poor rural households.

It said there had been “a negative relationship between the number of customers that are connected to the grid, as opposed to sales which registered a declining trend”. “This can be attributed to the fact that the massive electrification programme that has been ongoing connects low consuming customers,” LEC said. This situation implies that, “LEC is connecting customers that cannot meet the company’s operation and maintenance costs of supplying electricity to them (customers)”.

Research on Rural Household Electrification in Lesotho by Dr Moeketsi Mpholo and his colleagues from the National University of Lesotho (NUL), indicates that the LEC customer base has increased from around 25,000 in 2001/02 to approaching 210,000 in 2016/17 although the average consumption per household decreased by over 60 percent during the same period.

Energy Economist, Kanono Thabane, told Public Eye this week that as a consequence of decreasing average consumption per household, capital invested in the expansion of the power grid was flowing back very slowly to LEC, through electricity sales.

Thabane said: “Demand normally matures slowly, over 2 to 3 years and even later, as consumers wire their houses, invest in appliances and make a switch from other fuels for lighting, cooking and heating. Unfortunately, this progression is difficult to predict, making returns on investment in grid extension to poor rural people uncertain.”

In accordance with Section 24(6) of the Lesotho Electricity Act of 2002, LEWA has invited electricity Supply Industry (ESI) stakeholders and the general public to make and forward their comments on the application for consideration before a final determination could be made. Different stakeholders who spoke to Public Eye this week indicated that due to the increasing costs of supplying electricity that is provided by LEC, many customers may resort to alternative energy sources, even those that are not renewable.

They said as a result of losing customers, tariff prices for the remaining customers will need to increase in order to cover the grid and infrastructure maintenance costs. This will create further incentive to use other energy sources. It hints at what has become known globally as the “utility death spiral”. The utility death spiral process is this: consumers aiming to keep their energy bills down begin to opt out of utility provided energy and generate their own.

Utilities are forced to raise their prices for their remaining customers to cover the costs of maintaining infrastructure, which will, in turn, lead to yet more consumers and organisations opting out of the grid, eventually leading to the collapse of utilities.

Already, the World Bank has announced over US$50 million (about M750 million) funding to boost Lesotho’s efforts to improve electricity access to thousands of Basotho.

On January 30, the World Bank announced that thousands of Basotho living in rural and peri-urban areas will have better access to reliable and affordable electricity as a result of US$40 million in new financing from the International Development Association (IDA) and an additional US$12.9 million from the Scaling Up Renewable Energy Programme (SREP) for Lesotho’s energy sector.

It said the project, titled ‘Lesotho Renewable Energy and Energy Access Project’, which is largely targeted at people living in remote areas, aims to expand access to electricity to diverse consumers with varied needs, including households, rural communities and in the outskirts of urban areas, small and medium enterprises and economic centres that are on or off the grid.

“The project will also provide technical assistance to build capacity of both public and private sectors to ensure sustainable provision of electricity in Lesotho,” World Bank said. Thabane told Public Eye that Lesotho’s Electrification Master Plan of 2018 indicates that electrification should be done either through grid connections or mini-grid. He said mini-grids were decentralised power systems which generate, sell and distribute electricity to rural areas which are very far from the existing grid.

“Through this method of electrification, the cost of transmitting electricity in the mountains of Lesotho can be reduced,” he said. Currently, only less than 50 percent of households in Lesotho have access to electricity. “Mr Speaker, only 43 percent of Lesotho households are connected to the electricity,” Finance Minister Dr Moeketsi Majoro said recently while presenting his budget speech for the 2020/2021 financial year in parliament.

As with many of the world’s poorer countries, there is a significant divide between urban and rural areas in Lesotho. The majority of the population (58 percent) is concentrated in the rural parts of the country where they mostly depend on subsistence farming for survival. More than half of these people are deemed poor.

About 61 percent of the rural population is poor, while only 28.4 percent of the poor live in urban areas, according to the National Strategic Development Plan (NSDP) II. When broken down by region, it is evident that rural communities contain the vast majority of the country’s poor. Access to electricity, which is still deemed a luxury, therefore is predominantly enjoyed in urban areas, where over 60 percent of households are connected to the grid and this goes down to below 20 percent in rural areas.

The rest of the population relies on multiple fuel sources to meet their energy needs.  “Cabinet has directed that means be found to expedite the connection of the remaining households as well as all schools and health centres,” Majoro said last week. But Thabane indicated that “increasing connections is quite expensive in Lesotho given the physical terrain to reach the rural areas which are from the existing electricity grid”.

He stated that even though it is expensive to implement grid tied, as it yields low returns on investment, “politicians will forever demand that rural electrification be done through subsidised methods”. “At the end of the day, LEC is the one that suffers because they are investing heavily on connections and the returns are very low, thus affecting its sustainability,” he said. LEC has made an application to LEWA for allowable revenue of about M1.2 billion, which would translate to a hike of 32.6 percent across consumer categories from April 1.

The LEC submission, which is available on LEWA’s website, includes a request of M558 million for electricity purchases from the Lesotho Highlands Development Authority (LHDA), ESKOM and Mozambique’s EDM, M316 million for operational expenses and M55 million for network repairs and maintenance, among others. LEC stated in its application that the current tariffs “are uneconomical, non-cost reflective and totally unsustainable and will in the near future attract a possible bailout from the government”.

“The current tariffs are below the actual cost LEC is paying to transmit, distribute and supply electricity to the country. Due to the non-cost reflective tariffs, LEC will in future fail to attract the envisaged private sector investment which is key in improving transmission, distribution and supply of power to meet the ever increasing demand,” it said. The power utility also stated that no investor is willing to invest in a loss making venture.

Leave a Reply

Your email address will not be published.