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ERA Introduces Declining Block Tariff To Enable Local Manufacturers Increase Production

In January 2020, the Electricity Regulatory Authority (ERA) introduced the Declining Block Tariff structure in the determination of Electricity Tariffs. Under this tariff structure, the electricity consumed by a customer is categorized into different bands so that for units of electricity consumed above a given threshold, the customer pays a lower price per unit.

The Declining Block Tariff initiative is aimed at enabling Industrial Customers to achieve lower marginal costs of production, capture bigger markets and therefore increased production. As a consequence of increased production and energy consumption, the general unit cost of electricity will be affected downwards hence delivering benefits to all customers.

In addition, lower electricity costs will provide a competitive edge for local manufacturers who in turn are expected to displace foreign competition through increased exports and import substitution.

Under this tariff structure, customers pay a Normal tariff for the initial consumption band, which is determined based on each customer’s current level of consumption; and a Lower tariff for energy units consumed over and above the first consumption band/threshold.

For each customer, a threshold is set by ERA so that in any given billing period, any units consumed beyond the set threshold are charged at a lower tariff.

Currently, the Declining Block Tariff structure applies to customers in the Large and Extra-Large Industrial Consumer categories but there are plans to roll it out to other customer categories in subsequent tariff years. However, for any customer in the applicable category, the level of consumption in a given month will have to exceed the set threshold if they are to benefit from the lower tariff (in the lower tariff block/band).

Despite the completion and commissioning of the Isimba Hydropower Plant which added 183 MW of electricity to the national grid, the cost per unit of electricity remains high thus disfavoring manufacturing.

Although Karuma Power Plant is expected to be completed by the end of this year to add an extra 600 MW of electricity to the national grid, it is not clear yet whether the cost of electricity will be lowered.

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The completion and commissioning of the Karuma Plant will bring the generation capacity to about 1,839 MW.

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