Implications of Migration to Cost-reflective Tariffs in Eswatini's Electricity Sector

The study investigates the possible impacts of migrating to cost reflective tariffs in Eswatini’s electricity sector. This involves assessing the electricity consumptions patterns of the different electricity customer categories in relation to the electricity tariffs to estimate potential responses to future price changes that might be induced by cost-reflective tariffs. For the domestic customer category, the study uses the own-price elasticity method while for the non-domestic customer it estimates the elasticities using the Seemingly Unrelated Regression adopted from Inglesi-Lotz and Blignaut (2011). The study finds that a 2 cent real increase in electricity tariff is associated with a decrease in average consumption of 185.6 kWh for the domestic customer. Average elasticity over the 21-year period is -0.58 implying that domestic customers do not respond much to changes in electricity tariffs. For the non-residential customers, the industrial customer group is the only group significantly impacted by changes in electricity tariff. The elasticity coefficient for the industrial customer group is -0.157, which implies that even though this customer group responds to changes in electricity tariff, a proportionate increase in electricity price results in a less than proportionate decrease in electricity consumed. Overall, the study finds that demand for electricity for both domestic and non-domestic customer group is not responsive to changes in electricity tariff, that is, demand is inelastic. This means the cost reflective tariffs will most likely decrease intensive use of electricity in Eswatini, especially for low income households, which will make extending the grid and supplying electricity to low income households a much more expensive endeavour for the utility. The study recommends that before implementing the cost-reflective tariffs, the energy regulator (ESERA) should ensure that the utility (EEC) establishes efficiency improvements on the supply and distribution of electricity in Eswatini. In the long-run Eswatini should expedite national plans to increase local production of power to reduce the cost of power.