South Africa’s electricity price pain

South Africans will pay over five times more for electricity in 2025 than in 2010, as Eskom has implemented multiple above-inflation increases in its electricity tariff while its performance has declined.

This is feedback from Nato Oosthuizen, partner and renewable energy expert at BDO, who said difficult decisions will have to be made regarding Eskom’s finances in the coming years.

The utility is already in a dire financial situation, with debt above R400 billion and the cost of producing electricity increasing.

This is only set to be exacerbated by reduced demand for Eskom’s electricity from households and businesses as they have adopted alternative energy sources, such as rooftop solar.

As the private sector starts to entrench its alternative energy footprint with the increase and expansion of solar rooftop solutions, Eskom’s revenue will suffer.

The impact is compounded by private Independent Power Producers (IPPs) servicing the mining, industrial, corporate and private markets, some of Eskom’s biggest customers.

A decline in revenue would spell even tougher financial times ahead for the utility, and some difficult decisions may need to be considered, such as business restructuring and perhaps even retrenchments

Aside from a need to find more reliable sources of electricity, households and businesses have also shifted away from Eskom due to the rising cost of energy supplied by the utility.

Oosthuizen said that average electricity prices in the government’s 2024/25 financial year are 5.5 times higher than 2010 levels.

The move to small-scale renewable energy by households and businesses has left Eskom with a higher percentage of non-paying customers.

Eskom is implementing very high electricity price increases to compensate for the lost revenue. This, in turn, drives more paying customers to install solar PV to save costs, accelerating the trend.

Eskom’s tariff increases have significantly outstripped inflation since load-shedding began in 2008, with the tariff increasing by 653% over the last 15 years while inflation increased by only 129% over the same period.

This sharp increase is shown in the graph below.

Source: Power Optimal

study by South African Reserve Bank economists Zaakirah Ismail and Christopher Wood last year showed why electricity has become so expensive in South Africa.

They found that Eskom’s skyrocketing finance costs, which have more than doubled over the past decade, have been a primary driver of the increase in electricity tariffs, while the utility’s other costs have increased slightly above inflation.

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

Eskom’s ballooning costs have been driven primarily by increased financing costs, with the utility’s expenditure growing significantly since 2007 without a corresponding performance improvement and added revenue.

Between 2007 and 2021, Eskom spent R680 billion with generally poor results, said Ismail and Wood.

Major projects during this time included the return of three end-of-life power stations to service, the development of two additional peaking plants and the construction of two very large new power stations, Medupi and Kusile.

The latter two plants were particularly riddled with cost overruns and breakdowns, requiring an additional R33 billion to complete.

Much of this new generation capacity was rolled out quickly, with major governance challenges and a dearth of technical knowledge in a utility that had not built a new power station in 20 years.

This resulted in very high costs and a substantial debt burden for Eskom.

By the end of 2022, Eskom’s annual gross finance costs were R44 billion, exceeding employee costs (R33 billion) and equalling about half the value of the utility’s own generation costs (R84 billion).

Source: Review of administered prices in South Africa: The electricity tariff

Latest news

Partner Content

Show comments

Recommended

Share this article
South Africa’s electricity price pain