Big changes planned for electricity prices in South Africa

Electricity and Energy Minister Kgosientsho Ramokgopa has said he is in the process of reforming South Africa’s electricity pricing policy to protect the poor from price hikes, according to Sunday Times.

The Minister said that once Eskom’s generation issues have been resolved and load-shedding is in the past, South Africa will face an electricity pricing challenge, as in other parts of the world.

Ramogkopa’s actions concern the National Energy Regulator of South Africa (Nersa) approving a 12.7% Eskom electricity tariff hike for the 2025/26 financial year after the power utility had applied for a 36.15% increase.

The effective increase is 26.09% over three years, a significant reduction from the 66% increase for which Eskom had applied.

Now that Ramokgopa is confident in Eskom’s ability to resolve load-shedding, his priority is making electricity affordable to the poor.

Nersa’s decision-making process considered affordability for vulnerable sectors such as indigent customers and some industrial sectors.

It also took into account submissions from its stakeholders.

However, the Minister said Nersa’s policy of approving Eskom’s tariff hikes does not include ways to protect the poor from these increases.

Thus, the ANC has said that the government must review this policy, which Ramokgopa said has been passed on to him.

Because Nersa follows policy, the way to mitigate the effect of price increases on the poor is to “change the policy, and Nersa will change the equation,” he said.

However, if this issue is left unchecked, Ramokgopa believes the consumer’s ability to afford electricity will soon become the country’s most significant issue.

Therefore, he hopes to finalise this by the end of the year and make it available for public participation.

Despite the policy’s lack of mechanisms to protect the poor, Eskom has applied for lower tariffs for Homelight 20A households in the past.

Eskom Homelight 20A — the electricity rates applied to informal settlements — only saw a 10% increase for the 2024 financial year instead of 18.65%.

While Eskom accomplished a significant turnaround in the past year, managing over 300 days without load-shedding, its ageing generation fleet continues to be a thorn in its foot.

Professor Samson Mamphweli recently pointed out how this has become a significant economic burden to Eskom, causing it to apply for price increases.

The Power utility’s generation business has consistently reported losses over the past five and a half financial years, showing no sign of improvement.

This means the power utility’s other two segments, which seem to have stabilised and are on the road to improvement, have to compensate for the continuous burden that is the generation division.

The generation arm of Eskom posted a R4.3 billion loss in its interim results for the six months ending 30 September 2024.

In contrast, the power utility’s transmission division reported a R21.5 billion profit while distribution posted an R857 million loss.

However, the generation arm’s losses posted after the first half of the financial year are typically disproportionally lower than at the end of the twelve months.

At the end of the previous financial year, generation realised a R36 billion loss, over three times the R10.9 billion loss reported after six months in September 2023.

Transmission and distribution both realised a profit at the end of March 2024, with only distribution making a loss at the end of September 2023.

The transmission and distribution arms have noticed an improvement in performance since the end of the 2019 financial year, when both reported losses.

Since then, these divisions have stabilised, with transmission in particular recording a substantial increase in profit.

However, generation has not made a profit since September 2017. Since the end of March 2018, the business has seen a constant increase in losses at the end of every financial year.

The first few losses since September 2017 were relatively minor — R3 billion at the end of March 2018 and another R3 billion six months later.

Then things went south fast, with a R24 billion loss reported at the end of the 2019 financial year and another R23.3 billion loss reported 12 months later.

This improved to a R20.2 billion loss at the end of March 2021 but then shot up again to R28 billion in March 2022. Since then, it has continued to increase.

The table below shows losses and profits reported at the end of every six months from the beginning of the 2020 financial year for each of Eskom’s energy divisions.