Eskom’s existential threat

South Africa’s state-owned power utility faces an existential threat, with many wealthier customers installing rooftop solar systems to avoid power interruptions and rapidly increasing electricity fees.

Many of these customers are likely reliable when it comes to paying their electricity bills, and as electricity tariffs continue to increase, more will likely switch to alternative power sources, further reducing demand for its services.

Impower energy expert Matthew Cruise recently warned that this could create a never-ending cycle where the number of good customers, or those who pay their bills on time, continues to decline.

This would significantly impact Eskom’s revenue generation, forcing it to request more extensive annual tariff adjustments.

Cruise also noted that Eskom’s revenue generated from electricity sales declined by 3% between 2023 and 2024, adding that the figure has been declining for the past 10 years.

“This is despite increased electricity availability and reduced load-shedding for a significant period,” he stated.

“Even if Eskom’s power stations were fully functional, it would still face declining energy use because customers are leaving the grid.”

Eskom even alluded to the spiral in its annual results, highlighting embedded self-generation as likely to significantly impact electricity sales volumes and, thus, the revenue it generates.

The power utility reports an annual electricity sales figure in gigawatt-hours (GWh) in its integrated reports each year.

Over the past decade, electricity sales peaked at 219,979GWh in 2015/16 and declined to 183,311GWh in 2023/24 — a decline of nearly 37,000GWh.

The steepest declines came between 2019/20 and 2020/21, and from 2021/22 to 2023/24.

It should be noted that a large portion of the decline likely also relates to load-shedding towards the end of the period, during which Eskom couldn’t sell electricity as it implemented the rotational power cuts.

As electricity sales decline, Eskom is forced to apply for higher electricity tariff adjustments each year to generate revenue for its operations and to manage its significant debt.

The chart below tracks Eskom’s annual electricity sales from 2014/15 to 2023/24.

Eskom shooting itself in the foot

Rising electricity prices in South Africa have made solar installations, in particular, far more economically viable, with many households and businesses turning to them to reduce their electricity bills.

Many consumers use grid-tied systems that can use grid power when solar generation is insufficient.

However, Eskom has been cracking down on solar users in the country, incentivising many consumers to ditch the power utility entirely.

The National Energy Regulator of South Africa (Nersa) recently approved Eskom’s retail tariff plan. The new schedule requires Eskom’s direct customers to adopt the Homeflex time-of-use (ToU) tariff.

The ToU tariff includes an unavoidable fixed fee that is higher than tariff plans with flat tariffs.

The Homeflex ToU also enforces higher tariffs during peak demand periods to discourage customers with solar from consuming grid power.

The state-owned utility also wants customers with rooftop solar to install extra equipment and obtain additional sign-offs to be registered. These can carry a high cost.

EE Business Intelligence managing director and energy expert Chris Yelland recently warned that the new requirements give customers nothing in return, further incentivising them to ditch the utility.

“Let’s say they paid R150,000 and now Eskom says to them: you need to now pay another R30,000,” said Yelland.

“Their choice is to either pay R30,000 to Eskom and get nothing in return, or invest that R30,000 in upgrading their system.”

He added that the R30,000 could be used to increase battery storage or install a generator to provide power during cloudy periods with low solar generation.

“People will say to Eskom: Go ahead. I want nothing further to do with you,” he said.

Yelland also raised concerns about how the trend could impact poorer electricity users in the country, saying it’s vitally important that Eskom keeps richer South Africans on the grid to subsidise poorer users.

“I worry that Eskom may actually be making a big mistake here,” he said.