South African electricity price crisis

Eskom’s sales have steadily declined over the past decade, putting pressure on the utility to raise prices to ensure its revenue growth can cover increased operating costs. 

This can result in a death spiral for the utility, where its raised prices force customers to find alternative energy sources. 

Over the past few years, companies and households have invested heavily in alternative sources of energy to Eskom to mitigate the impact of elevated levels of load-shedding. 

The company has seemingly solved the load-shedding crisis in 2024, with power cuts last being implemented towards the end of March. 

However, companies and households are still looking to reduce their usage of electricity from Eskom. 

This is largely due to the utility’s repeated above-inflation increases in electricity tariffs in South Africa over the past decade. 

The head of responsible investing at Old Mutual, Tanya Mongwe, explained how the declining usage of Eskom’s electricity forces it to raise prices and, in turn, encourages people to reduce their reliance on the utility. 

Mongwe said some of Eskom’s biggest customers have significantly reduced their reliance on the utility for electricity, with mining companies leading the way. 

As these companies reduce their electricity consumption generated by Eskom, the utility’s revenue is negatively impacted. 

The only way Eskom can try to recover this revenue is by hiking prices. This trend has exacerbated the need for the utility to raise tariffs to cover its increased operating costs. 

Mongwe also said the trend will likely accelerate as the government moves towards creating an open market for electricity by mid-2026, where Eskom will be forced to compete against other generation sources for sales. 

In the short term, it has already impacted Eskom’s sales and forced the company to apply for further increases in the above-inflation in the coming three years. 

This is shown in the graphs below, courtesy of Mongwe and Old Mutual. 

Data from Standard Bank shows that this trend is not slowing down, as interest in solar financing has rebounded as Eskom looks to hike its tariffs. 

Rooftop solar installations more than doubled in South Africa at the height of load-shedding in 2023 but have since declined sharply as Eskom’s operational performance improved.

However, Standard Bank has said a new trend has emerged as electricity tariff increases drive renewed interest in solar installations.

Data from Standard Bank’s LookSee home efficiency platform shows a notable rise in visits to its Solar Loan finance page. 

While these visits do not represent actual applications from South African consumers, they indicate that households are now considering alternative energy sources to combat rising electricity costs.

“Interest in our Solar Loan started climbing in July as many municipalities rolled out their annual electricity tariff hikes,” executive head of LookSee, Marc du Plessis, said. 

“We continued to see a steady increase with additional spikes in interest following reports that Eskom was asking for another significant increase in electricity tariffs for 2025.”

This renewed interest tripled the average number of visits to LookSee’s Solar Loan finance page. 

Eskom’s latest Generation Adequacy Report also shows that rooftop solar installations continue to accelerate. It estimated that installed rooftop solar was at 6,141 MW by the end of October, up from 5,203 MW at the end of 2023.

Du Plessis attributed this increase in the absence of load-shedding to the increasing pressure rising electricity tariffs are placing on households.

“The past 15 years have seen tariff increases far outpacing inflation, and Eskom is now asking for a 36% increase for direct customers and a 43.5% increase for municipalities for 2025.”

“These escalating prices are placing enormous strain on household budgets, and many are looking for ways to reduce their reliance on the grid. Solar power is the most effective way to do this,” he said.

Lower component prices and enhanced finance options have improved the affordability – and thereby accessibility – of residential solar installations, driving increased demand. 

“With demand at more manageable levels, we have seen the cost of components dropping by up to as much as 30% since the beginning of the year.”

This article was first published by Daily Investor and is reproduced with permission.