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Energize The value of prepaid sub-meters: enabling energy and business...
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The value of prepaid sub-meters: enabling energy and business efficiencies

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by Zachariya Lockhat, Recharger Prepaid Meters  –  

Zachariya Lockhat

South Africa’s electricity supply has been under constraint for over a decade now, and while steps are in progress to correct this at the macroeconomic level, the issues with the utilities providers continue to filter down to all consumers. The good news is that, from a business perspective, prepaid metering systems can play a significant role in helping with energy efficiencies.

A possible solution to the problem of managing costs more efficiently is prepaid sub-metering, whereby customers buy electricity upfront and use it until the prepaid amount is consumed.

How prepaid metering works

The prepaid sub-meter draws its electricity supply directly from the utilities provider’s meter and is installed after the primary utility provider’s meters, before the DB board in the tenant’s premises. The private sub-meter does not replace the primary government meter.

Sub-meters are programmed to ensure that they will only supply electricity to your tenants from the primary supply if there are units available on the sub-meter. Once the units have depleted, the supply will be cut off and your tenant would have to purchase a new voucher and load it onto the sub-meter in order to have electricity back on.

The landlord is reimbursed for the electricity vouchers purchased by the tenant on the sub-meter to settle the bill / cost on the primary utility provider’s meter. The government has  passed a law (the Electricity Regulation Act, 2006) which ensures that only the original property owner would receive a primary supply.

Prepaid sub-metering works across scale

The potential business efficiencies to be gained are very clear from the perspective of the individual as well as in a landlord-tenant arrangement. However, we can and must think along bigger picture lines also. In addition to the residential sector of the market, prepaid metering also lends itself extremely well to commercial and industrial usage. For commercial usage, we see the use of prepaid metering systems in all commercial buildings, including hotels, offices and shopping malls. Industrial usage could include product manufacturing facilities and processing plants.

At the same time, prepaid meter usage has advantages for the utilities providers too: it will help to slow and hopefully reverse the poor monitoring and billing of electricity consumption, as well as illegal connections, which all result in an overall trend of poor revenue collection and even consumer disputes going to court.

Problem/ solution scenarios

Late last year, the South African Local Government Association (Salga) threw its hat into the ring to back a proposal from an inter-ministerial task team to install prepaid meters for electricity and water in order to recoup billions owed to municipalities[1,2]. The debt is not only a problem for the utilities providers but is also a broader national issue because it has huge implications for the economy of the country. Part of the solution to deal with the debt owed could lie in the installation of prepaid meters.

While this issue continues, a study published in 2015 in the American Economic Review [3], as a joint undertaking between representatives of the University of California and the University of Cape Town, discussed a local example in which over 4,000 customers on monthly electricity billing were assigned prepaid electricity meters for their electricity consumption [4].

The study found that: “Electricity use falls by about 13% as a result of the switch, a decrease that persists for the following year. This creates a trade-off for the utility: revenue from consumption falls but more of it is recovered on time and at a lower cost. The benefits to the electric utility outweigh the costs, on average, though results are very heterogeneous. Poorer customers and those with a history of delinquent payment behaviour show the greatest improvement in profitability when switched to a prepaid meter. These findings point to an important role for metering technologies in expanding energy access for the poor.”

Another study published by the IAE Business School in 2009 found that “…the advantages of the system are linked to a reduction of arrears in accounts receivable, and operational and financial costs on the part of the service provider, as well as to a better allocation of resources for the consumer” [5].

Conclusion

We believe that prepaid metering offers an excellent solution for the developing world in terms of electricity consumption and its monitoring, billing and promotion of efficiencies. We know that high rates of customers defaulting on utility bills present a barrier to the expansion of electricity access in the developing world.

Prepaid electricity metering, on the other hand, offers a technological solution to ensuring timely payment. We know that poorer households buy electricity more often and in smaller increments, and are most likely to buy on payday. These patterns suggest difficulties smoothing income, and reveal a preference for small, frequent purchases that is incompatible with a standard monthly electricity billing cycle.

We propose that as a result of the wide-spread installation of sub-prepaid meters, the utilities provider themselves, as well as the landlords of buildings, would not have to spend as much time chasing after payments, physically cutting people off and/or spending time in court. All parties could, instead, benefit from an increase in payments and a decrease in time-wasting initiatives that would therefore, in turn, allow them to be more efficient with their core businesses.

[1] https://www.iol.co.za/news/politics/salga-backs-water-and-electricity-prepaid-meters-to-recoup-billions-37310226

[2] https://pmg.org.za/committee-meeting/27497/

[3] https://www.aeaweb.org/articles?id=10.1257/aer.p20151096

[4] https://www.theigc.org/data-item/data-prepaid-electricity-metering-costs-benefits-and-potential-for-scale-up/

[5] https://pdfs.semanticscholar.org/0cd1/82f0d781b7b752502f2999ce31edf6154f32.pdf

Contact Shaun Clarke, Recharger Prepaid Meters, tel: 087 158-4800, marketing@recharger.co.za

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