The User Pays's Principle and the Electricity Sector: A South African Case

  • Michael Maphosa National Energy Regulator of South Africa, Pretoria
DOI: https://doi.org/10.22610/jebs.v10i5(J).2497
Keywords: User pays’ principle, electricity, South Africa, developmental state

Abstract

This paper discusses the user pays's principle (UPP) within the South African developmental state concept. The essence of the paper is to ascertain whether UPP can be implemented in the electricity sector without necessarily harming the developmental state agenda taking into account the challenges of inequality, unemployment and poverty in South Africa. In this paper, we present the arguments in support of the UPP in the electricity supply industry (ESI) and its building blocks. The paper analyses the role of regulatory authority in the implementation and adoption of the UPP. Finally, the paper analyses the role of UPP in the developmental state concept and the challenges of implementing it. The analysis shows that adoption of inclining block tariff (IBTs) was based on the individual's perceived ability to pay and not on UPP while the free basic electricity (FBE) policy is a government-funded initiative meant to provide electricity to poor households. The paper also found that the ESI currently has high levels of inefficiencies in production and use, procurement and operation of utilities, cross-subsidisation, infrastructure and maintenance backlogs which may hinder the full implementation of UPP. Lastly, although the full implementation of UPP could incentivise efficient operation of the ESI and attract the much-needed investment in the sector, the UPP system will pose serious challenges considering the country’s three main problems: inequality, unemployment and poverty. 

Downloads

Download data is not yet available.

References

Burger, P. (2014). How suitable is a ‘developmental state’ to tackle unemployment, inequality and poverty in South Africa? Chattopadhyay, P. (2004). Cross-subsidy in electricity tariffs: evidence from India. Energy Policy, 32(5), 673684. Delmon, J. (2017). Public-private partnership projects in infrastructure: an essential guide for policymakers. Cambridge University Press. Engel, E., Fischer, R. & Galetovic, A. (2013). The basic public finance of public-private partnerships. Journal of the European Economic Association, 11(1), 83-111. Fattouh, B. & El-Katiri, L. (2013). Energy subsidies in the Middle East and North Africa. Energy Strategy Reviews, 2(1), 108-115. Hall, N. L., Jeanneret, T. D. & Rai, A. (2016). Cost-reflective electricity pricing: Consumer preferences and perceptions. Energy Policy, 95, 62-72. Hobman, E. V., Frederiks, E. R., Stenner, K. & Meikle, S. (2016). Uptake and usage of cost-reflective electricity pricing: Insights from psychology and behavioural economics. Renewable and Sustainable Energy Reviews, 57, 455-467. Kanakoudis, V. & Gonelas, K. (2014). Developing a methodology towards full water cost recovery in urban water pipe networks, based on the “user-pays” principle. Procedia Engineering, 70, 907-916. Kirschen, D. S. & Strbac, G. (2004). Fundamentals of power system economics. John Wiley & Sons. Iossa, E. & Martimort, D. (2015). The simple microeconomics of public‐private partnerships. Journal of Public Economic Theory, 17(1), 4-48. Maphosa, M. & Mabuza, P. (2016). The trade-offs between pro-poor and cost-reflective tariffs in South Africa: A regulatory perspective. Journal of Economics and Behavioural Studies, 8(6), 206-215. National Planning Commission. (2012). National Development Plan 2030: Our future–make it work. Pretoria: Presidency of South Africa. National Treasury. (2015). 8th Tax Statistics Bulletin. Pretoria, South Africa. Nazemi, A. & Mashayekhi, M. (2015). Competitiveness assessment of Iran's restructured electricity market. Energy Economics, 49, 308-316. Nelson, T. & Orton, F. (2013). A new approach to congestion pricing in electricity markets: Improving user pays pricing incentives. Energy Economics, 40, 1-7. Nijhuis, M., Gibescu, M. & Cobben, J. F. G. (2017). Analysis of reflectivity & predictability of electricity network tariff structures for household consumers. Energy Policy, 109, 631-641. Ouyang, X. & Sun, C. (2015). Energy savings potential in China's industrial sector: from the perspectives of factor price distortion and al locative inefficiency. Energy Economics, 48, 117-126. Pagano, M. A. & Perry, D. (2008). Financing infrastructure in the 21st century city. Public Works Management & Policy, 13(1), 22-38. Patterson, W. (2013). Transforming electricity: The coming generation of change. Rout ledge.
Rogers, P., De Silva, R. & Bhatia, R. (2002). Water is an economic good: How to use prices to promote equity, efficiency, and sustainability. Water Policy, 4(1), 1-17. Snyder, T. P. & Stegman, M. A. (1986). Paying for growth: Using development fees to finance infrastructure (No. Third Printing, 1989). Willems, B. & Ehlers, E. (2008). Cross-subsidies in the electricity sector. Competition and Regulation in Network Industries, 9(3), 201-227. Williams, A. W. (1995). Should the user pay? Transportation, 22(2), 115-134.
Published
2018-11-03
How to Cite
Maphosa, M. (2018). The User Pays’s Principle and the Electricity Sector: A South African Case. Journal of Economics and Behavioral Studies, 10(5(J), 51-58. https://doi.org/10.22610/jebs.v10i5(J).2497
Issue
Vol 10 No 5(J) (2018)
Section
Research Paper

Copyright (c) 2018 Michael Maphosa

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.