The fixed (maintenance) charge is very high? - Why do we have to pay a fixed charge when we are paying for power consumed?

Friday, 24 August 2018

Fixed charge is a revenue protection mechanism that seeks to assure investors certain forms of revenue certainty and hence serve to incentives investment in the sector. This form of revenue certainty is usually required by financiers especially in an environment of poor performance history. Sometimes it is required to hedge risks faced by operators in the event that extraneous factors prevent them from performance. The two forms of revenue inflow, fixed and energy charges mean different things to the GenCo and DisCos. For the GenCo, fixed charges are designed to ensure that as long as the power plant is capable of power generation a certain charge is administered based on available capacity while the energy charge is used to cover those other variable inputs like fuel. In the event therefore that the GenCo is prevented from generating power due to extraneous factors even when capable of doing so, this fixed charge is paid. For the DisCos whereas all cost for power distributed have been variablised (fully accounted for) as energy charge, the fixed charge component serves to cover those aspects of operational costs that have to be maintained even if power has not been generated. This is a standard internal practice and hence not just limited to Nigeria. Recently the fixed charges payable by customers were reviewed downwards by the electricity regulator. Please refer to the article ‘Can tariff ever go down’ on this website under the topic of the week section for further details on this.

About IWIN

The Independent Energy Watch Initiative (I-WIN), an enterprise of Energy ConServ and the Roundtable for the Growth and Development of Power (RODEP), is an online/web based power sector portal that strives to engage stakeholders and the Nigerian public on topical issues in the power sector.

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