Eskom’s collapse

Over the last 15 years, the amount of electricity generated in South Africa has declined by nearly 4,000 GWh due to the rapid deterioration of Eskom’s performance.

Eskom has a proud history. For 85 years, the power utility provided South Africa with reliable, affordable electricity.

Eskom even won the Power Company of the Year at the Global Energy Awards in 2001, showing just how great a power utility it used to be.

Fast forward two decades and Eskom has become a company in freefall that struggles to keep the lights on.

Over the last 15 years, Eskom’s financial and operational performance plummeted, and it is now selling less electricity than it did in 2008.

Eskom is even starting to import power from neighbouring countries in southern Africa, like Botswana and Zambia, which have more electricity capacity than they require.

This rapid deterioration can be shown in data released by Statistics South Africa (Stats SA), which tracks the amount of electricity available for distribution in the country.

In the latest report – for November 2023 – the organisation published a graph showing the steep decline in electricity generated in South Africa. This is shown below.

In a cruel one-two combination for South Africans, the price of electricity over the same period has jumped 446%.

The current electricity pricing regime ties prices to Eskom’s costs, resulting in years of mismanagement and crisis spending being passed on to consumers.

South Africa’s energy system faces a dual crisis of rising costs and declining performance.

Household electrical costs have risen by 60% since 2017, and the recently announced price increases for the 2023/24 financial year of 18.7% will maintain the pressure on consumers.

Despite the large price increases, it has been inadequate to cover Eskom’s growing financing needs.

With declining electricity demand, a costly and debt-fuelled build programme, and expensive short-term diesel usage, Eskom’s needs appear increasingly unaffordable for South Africans facing the steepest inflation in recent history.

Most price increases in the electricity tariff occurred after 2007, coinciding with the first wave of load-shedding.

Between 2007 and 2017, the average Eskom tariff increased by 333%. By 2022, it had increased 450%, consistently exceeding headline inflation by a substantial margin.

This drives inflation in South Africa, and as electricity is a universal input in producing goods and services, it raises the cost base of the entire economy.

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