Eskom will bleed billions to private power

Eskom expects to lose billions in revenue due to individuals and businesses being allowed to generate more of their own electricity without a licence from Nersa.

However, even though such large losses are predicted, they make up a small fraction of Eskom’s total revenue.

Energy minister Gwede Mantashe recently published the amendment to the Electricity Regulation Act that will allow the private generation of electricity of up to 100MW without needing a licence.

This was after President Cyril Ramaphosa announced that government would be raising the licensing threshold from 1MW to 100MW.

While the move has been welcomed by private business and energy experts, it could put a dent in Eskom’s revenue, as many businesses and communities could consume a large chunk of their electricity from their own solar or wind installations.

Eskom told MyBroadband the impact of the 100MW reprieve on its revenue would be significant.

However, it only expects the effect to be seen from 2024 onwards, as it will take time for private projects to come online.

Eskom has estimated revenue losses based on three scenarios for private generation uptake in the country — high, medium, and low.

For the 2024/2025 financial year, it predicts revenue losses could range from R156.57 million to R1.17 billion.

By the following year, it estimates this loss could increase to between R939.69 million and R2.35 billion.

Finally, for the 2026/2027 financial year, it calculated a low uptake scenario loss of about R1.25 billion, while high private generation uptake could cost it about R3.1 billion.

These figures are based on the currently approved tariffs, so they are likely to change as annual price changes come into effect.

The table below summarises Eskom’s estimated revenue loss due to government raising the licencing threshold from 1MW to 100MW.

Eskom is not only facing the prospect of revenue loss among private users but also from the public sector.

Changes to the Electricity Regulations on New Generation Capacity made in October last year enable municipalities in good financial standing to develop their own power generation projects.

Three major metropolitan municipalities of some of South Africa’s largest cities – Johannesburg, Cape Town, and Durban – are looking into acquiring private generation.

Eskom said it expects a loss in revenue due to self-generation by municipalities of around R1.7 billion per year over the next six years, as shown in the table below.

Even at their worst, the losses to private generation would likely make up only a tiny portion of Eskom’s total revenue.

For example, in the 2019/2020 financial year, Eskom collected net revenue of about R209.1 billion.

The company also maintained its tariffs were much cheaper than those offered by independent power producers (IPPs).

Its average Megaflex tariff for the 2021/2022 financial year is 123.86c/kWh. Of this amount, 96.31c/kWh is for energy-related charges.

IPP wholesalers currently charge an average energy price of 210.80c/kWh to Eskom, making this power around 119% more expensive.

The power utility told MyBroadband it would need to restructure its tariffs to mitigate the revenue loss.

“Eskom supplies energy, network and retail services and these should be separately reflected in the tariff charges,” Eskom stated.

The restructuring is necessary to ensure that the reduction of grid power consumption due to self-generation offsets only the variable energy portion of its tariff, Eskom said.

Other services that will still be needed to deliver energy or provide backup/standby supply must not be affected by the decline in demand for its power plants.

“Eskom has made proposals to Nersa in this regard and is awaiting their decision,” the utility said.

Eskom added that it would continue to try and ensure that its tariffs reflect its costs to meet this goal.

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