How Electricity Tariffs Work: Consumption, Demand & Service Charges Explained
Understand your South African electricity bill. Learn how Consumption (kWh), Maximum Demand (kVA), and Service Charges combine, and how your Power Factor affects your final cost.
Understanding the Three Core Components
Electricity tariffs are complex instruments supply authorities use to manage network behavior. They are structured around three core components: Consumption (kWh), Maximum Demand (kVA), and Service Fees. Understanding these charges, particularly how your Power Factor impacts your kVA demand and how Time-of-Use tariffs elevate peak costs, is vital for every South African business looking to control energy spend.
For commercial and industrial users in South Africa, most tariffs (including municipal and Eskom rates) utilize a Time-of-Use (TOU) and/or Maximum Demand structure. The differential between Peak and Off-Peak TOU rates can be over R2.00 per kWh in some regions.
Consumption Charges: The Energy You Use
Consumption charges reflect the total amount of energy consumed on-site. This is the portion of the bill that most people are familiar with, typically measured in kilowatt-hour (kWh)—the same "unit" measured in domestic settings. This component usually accounts for 50% to 100% of the total bill.
Consumption can be billed via several methods: Flat Rate (a single price per kWh regardless of when it's used), Time-of-Use (TOU) where rates change based on when the energy is used during the day, or Stepped Tariff where the price per kWh increases or decreases as total consumption crosses predefined usage thresholds. Crucially, your Power Factor does not directly affect these charges.
Maximum Demand: The Capacity You Require
As sites grow larger, supply authorities introduce a Maximum Demand Charge, measured in kVA (kilo-volt-amps). This charge is levied because the supplier must maintain the infrastructure and capacity required to supply your maximum load at any moment—even if that maximum only occurs for a single 30-minute period in a month.
Maximum Demand is calculated based on the highest kVA pulled during a short period (typically 15 to 30 minutes) in a billing cycle, or a calculated charge based on your contracted Notified Maximum Demand (NMD) capacity level you agree not to exceed. Maximum Demand in kVA is directly affected by your Power Factor. A poor Power Factor increases your total kVA demand, inflating this portion of your bill (which can be up to 45% of the total).
Service Fees and Penalties
These are fixed or variable charges that are generally smaller than the consumption or demand charges, but are necessary to understand for full optimization. Service Fees are fixed fees (monthly/daily) based on connection size or a contracted NMD, covering administrative charges and the fixed cost of connecting to the grid.
Penalties include Reactive Energy Charges for poor Power Factor (based on the total reactive energy kVARh measured) and Excess NMD Charges when a contracted Notified Maximum Demand is exceeded. These severe penalty fees are designed to discourage overloading the supply network and are based on the amount exceeded.
Understand and Control Your Electricity Spend
Without real-time metering to shift non-essential loads out of peak windows, businesses are guaranteed to pay significantly more than necessary for their energy consumption. Tariff optimisation is essential for South African businesses to control costs and avoid penalties.
Key Takeaways
Understanding Consumption, Demand, and Service charges is essential for controlling your electricity spend
TOU tariffs can create R2.00+ per kWh cost differentials between peak and off-peak periods in SA
Poor Power Factor directly increases Maximum Demand charges and triggers Reactive Energy penalties
Understanding NMD contracts and reactive energy charges helps you avoid severe financial penalties