South Africa’s 1,722% electricity price pain

The average price of Eskom electricity has increased by over 1,722% since South Africa became a democracy, significantly outpacing inflation of 451.9% over the same period.

MyBroadband analysed the average electricity tariffs charged by Eskom from 1994 to 2024.

Eskom updates its tariffs for direct customers annually in April and municipal wholesale charges every July.

From April 1994 to March 1995, the average electricity tariff was 10.32 cents per kWh. 30 years later, it had risen to 188.07 cents, nearly a 19-fold increase.

We found that the annual adjustments during this period were generally below or in line with inflation up to 2007, the first year in which load-shedding was implemented.

Between 2003 and 2004, the electricity price was actually reduced slightly from 16.09 cents to 16.04 cents.

From 2008 onwards, however, Eskom has mostly implemented double-digit price hikes, with the biggest being a 31.3% increase in April 2009.

The graph below shows how Eskom’s average electricity tariffs have changed over the past 30 years compared to what they would have been if adjusted in line with inflation.

Despite significantly increasing electricity prices from 1994 to 2024, Eskom’s financial situation has deteriorated.

The utility was profitable until the early 2000s. It was so well run that the Financial Times named Eskom Power Company of the Year in 2001.

Things have changed dramatically since then. Years of state capture and the much-delayed, corruption-riddled constructions of Kusile and Medupi crushed the company.

Eskom has repeatedly recorded annual losses and seen its debt balloon to over R400 billion.

In recent years, its electricity sales volumes have also dropped substantially due to load-shedding and the rapid adoption of private rooftop solar by homes and businesses.

The table below shows the key differences between Eskom’s financial and electricity sales performance in 1994 and 2022, the last year it reported a full set of results.

Big changes in the pipeline for tariff adjustments

Eskom’s tariff hikes are subject to approval from the National Energy Regulator of South Africa (Nersa).

The regulator recently adopted vastly different rules that the power utility must follow to determine its tariffs, dubbed the Electricity Price Determination Methodology (EPDM).

It is unclear when exactly the EPDM will come into effect, as Nersa has acknowledged the transition away from the current Multi-Year Price Determination (MYPD) method will take time.

One of the major changes will be doing away with the Regulatory Clearing Account (RCA), which allows Eskom to recoup shortfalls in revenue due to unexpected expenses and overestimated sales through price increases in future years.

Eskom has slammed the new rules for a myriad of reasons, including:

• The proposed EPDM has not been used anywhere in the world —  It is an untested methodology with no practical examples of successful implementation.
• The EPDM’s rules extend beyond Nersa’s mandate — The regulator has no jurisdiction over customers in terms of the Electricity Regulation Act and should focus on recovery of licensee costs
• The rules ignore the concept of sales forecasts — Tariffs are a function of costs (revenue) divided by volume. The EPDM makes no provision for how volume will be handled.
• Linking compensation with merit order dispatch could result in extreme prices and strained assets, most likely negatively impacting residential users.
• Nersa mixes up costs with tariffs and incorrectly assumes revenue will be fully recovered when tariffs are determined, placing huge risk on fiduciary responsibilities of entities with the absence of risk-mitigation strategies like the RCA
• Using system profiles for costing instead of the customer’s unique load profile is fundamentally flawed.
• The EPDM lacks legal and regulatory framework and ignores existing legislation — including Nersa’s own Codes.
• Nersa wishes to change electricity pricing policy to dictate policy decisions on subsidies.

Eskom has also taken issue with several shortcomings in the practical implementation of the EPDM.

There are no detailed methodology and implementation guidelines on how licensees should apply for revenue or tariff allowances and how they will be assessed. Furthermore, no readiness assessments have been done to determine how and when stakeholders will be able to implement the EPDM.

In addition, Eskom warned that centralised Nersa opinions would be used to make tariff decisions and raised questions over the regulator’s capacity to implement its own rules, which has proven a “recognised” challenge.