Good news about electricity prices in South Africa

Independently produced renewable power is becoming more affordable in South Africa, offering Eskom an opportunity to procure capacity more cheaply and potentially relieve consumers of higher-than-inflation price increases.

This is according to the Council for Scientific and Industrial Research’s (CSIR) energy centre head, Dr Thabo Hlalele, who told eNCA that Eskom’s aggregated electricity tariffs have increased by 190% since 2014.

“We have seen in our analysis that there were years during the early 2000s when the annual increase was slightly below inflation,” Hlalele said.

“However, since 2008, we’ve noticed the annual increases being above the CPI.”

A recent MyBroadband comparison found that electricity price increases took a wild swing in 2008 — shortly after South Africans first experienced load-shedding.

Consumers were slapped with a massive 27.50% price hike that year, followed by an even bigger 31.30% increase in 2009.

The following three years also saw price hikes of around 25%, with the average electricity tariff increasing from 19.80c/kWh to 188.07c/kWh between 2007 and 2024.

However, Hlalele says that the CSIR noted in its report that the cost of renewable energies, such as wind and solar, has decreased by over 80%.

“We have also seen many generation technologies decreasing in terms of the tariff they can achieve,” he said.

“For example, the recent bid window run by the IPP (Independent Power Producer) office showed very interesting prices of around 50c per kilowatt hour for solar and wind.”

The Independent Power Producer Procurement Programme enables South Africa to procure energy capacity from independent producers.

“We expect that the more you add some of those renewable resources, the more you will be able to control the energy component of the electricity price,” Hlalele said.

The report shows that the solar energy cost per kWh decreased from roughly R2,75 during the first bid window to R0.50 in the sixth bid window.

Solar power generation showed the most dramatic price change, whereas onshore wind production decreased from just over R1 per kWh in the first bid window to R0.50 in the sixth.

The chart below from the CSIR’s report shows these changes over time.

Eskom’s costs not only about energy prices

Lowering the energy component of the electricity price is key to reducing tariffs, given that Eskom’s pricing regime is tied to its costs. This means that an increase in cost should reflect tariff increases and vice versa.

However, other factors currently influence Eskom’s costs, including financing its debt from years of mismanagement and crisis spending.

Eskom said at the launch of its 2024/25 summer outlook at the end of last year that despite having risen significantly since 2010, its tariffs still do not reflect the cost of producing electricity.

Energy analyst Chris Yelland said the utility’s unbundling into separate entities is key to solving this problem.

“If you want to get the price affordable, first of all, one has to institute some significant reforms that will cut out waste, theft and non-payment, fraud, and all other inefficiencies within Eskom,” Yelland said.

“You cannot just paper this over with a bit of accounting. The restructuring and unbundling of Eskom is key to this.”

Yelland explained that ghost vending, the process of loading electricity meters with illegal tokens, has cost Eskom roughly R27 billion a year and has been going on for some time.

However, he says this loss has been lost “in the amorphous mass of the greater Eskom accounting.” Therefore, hiding this is no longer possible because Eskom has been unbundled and ring-fenced into generation, transmission, and distribution.

“Now that it is ring-fenced, this R27 billion of losses by Eskom distribution per year stands out like a sore thumb,” Yelland argues.

The same can be said for all the other factors that have led Eskom to need to increase its prices, such as procurement corruption, municipal debt, and inefficiencies within its supply chain.

The article has been updated to show the price of procuring renewable energy as per kilowatt and not per megawatt.