COMPARATIVE REVIEW OF GLOBAL APPROACHES TO ELECTRICITY TARIFF SETTING

The report examines various global regulatory models for electricity revenue determination, including rate-of-return, incentive-based, performance-based, and market-based pricing. It details the technical process of Cost of Supply (CoS) studies—comprising functionalisation, classification, and allocation—and discusses the trade-offs between fixed and variable tariff charges. The document concludes that South Africa should move toward unbundled, cost-reflective tariffs supported by regular, audited CoS studies and a more robust, incentive-driven revenue determination methodology to support its transition to a wholesale market.

• Rate-of-return regulation is a foundational model for natural monopolies and early-stage markets, but it can encourage 'gold plating' (overcapitalisation) and cost-padding if not combined with efficiency benchmarks.
• Incentive-based regulation, such as CPI-X, promotes cost reduction and innovation by allowing utilities to retain efficiency gains, though overly aggressive targets can lead to underinvestment and quality erosion.
• Performance-based regulation (PBR) aligns utility profits with specific policy goals like decarbonisation and reliability, but it requires high regulatory capacity and data maturity to prevent 'gaming' of metrics.
• Market-based pricing improves economic efficiency and attracts private investment through competitive wholesale signals, but it exposes consumers and retailers to extreme price volatility without safeguards like price caps or hedging.
• Socially or politically determined tariffs can protect vulnerable users but often lead to financial distress for utilities and require massive state bailouts if not decoupled from the utility's cost-recovery framework.
• A Cost of Supply (CoS) study is a structured analysis used to ensure fairness and transparency by aligning tariffs with real cost drivers across generation, transmission, distribution, and customer service.
• The report identifies a tension in tariff design between fixed charges, which provide revenue stability for utilities, and variable charges, which encourage energy conservation and support distributed energy resources (DERs).
• For South Africa, the report recommends that NERSA mandate unbundled retail tariffs (excluding lifeline tariffs) that clearly separate wholesale components, distribution network charges, and transparent subsidy charges.
• The report suggests South Africa should implement a national CoS template with predetermined allocation rules, including the use of coincident peak for shared capacity and non-coincident peak for local networks.

APA

SALVOLDI, S. (2025). COMPARATIVE REVIEW OF GLOBAL APPROACHES TO ELECTRICITY TARIFF SETTING. Public Affairs Research Institute. https://pari.org.za/wp-content/uploads/2025/12/tariff-setting28-11-25-1.pdf

Chicago

SALVOLDI, SHIRLEY. COMPARATIVE REVIEW OF GLOBAL APPROACHES TO ELECTRICITY TARIFF SETTING. Public Affairs Research Institute, 2025. https://pari.org.za/wp-content/uploads/2025/12/tariff-setting28-11-25-1.pdf.

Wikipedia

{{cite report |last1=SALVOLDI |first1=SHIRLEY |title=COMPARATIVE REVIEW OF GLOBAL APPROACHES TO ELECTRICITY TARIFF SETTING |publisher=Public Affairs Research Institute |date=November 2025 |url=https://pari.org.za/wp-content/uploads/2025/12/tariff-setting28-11-25-1.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{salvoldi2025comparative, author = {SALVOLDI, SHIRLEY}, title = {{COMPARATIVE REVIEW OF GLOBAL APPROACHES TO ELECTRICITY TARIFF SETTING}}, institution = {Public Affairs Research Institute}, year = {2025}, month = nov, url = {https://pari.org.za/wp-content/uploads/2025/12/tariff-setting28-11-25-1.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }