Changes for South Africa’s electricity price pain

South Africans are paying five times more for electricity in 2024 than they did in 2010 due to repeated above-inflation increases from Eskom.

Electricity Minister Kgosientsho Ramokgopa has declared the government’s intention to create a new electricity pricing plan to limit future increases in the cost of energy.

Ramokgopa’s comments followed protest action in Johannesburg, the country’s economic hub, over the implementation of a R230 fixed fee for prepaid electricity users.

“There is an uproar across the country. We have seen this R200 surcharge being implemented and the effect it has had,” he said.

“Many municipalities have the same cost structure. It is important that we resolve this problem by working with municipalities.”

Energy analyst and managing director of EE Business Intelligence, Chris Yelland, warned earlier this month that this would increase the likelihood of social unrest.

“City Power’s prepaid electricity prices are 76% to 49% higher than those of Eskom, in the range of consumption considered,” Yelland said.

City Power is 100% owned by the City of Johannesburg and is responsible for most of the electricity distribution and retail sales in Johannesburg.

The prepaid electricity price increases of 61% to 33% are 47 to 20 percentage points higher than those of Eskom in the range of consumption considered.

“City Power’s prepaid electricity prices and price increases hit low consumption, and therefore poorer prepaid electricity customers, much harder than those with higher consumption.”

He said this disparity and increases for poor households are dangerous and may increase the risk of social unrest.

South Africans, in general, have experienced significant increases in the price of electricity in recent years, with households paying five times more for electricity in the 2024/25 financial year than they did in 2010.

These increases are shown in the graph below in comparison to headline inflation.

Partner and renewable energy expert at BDO Nato Oosthuizen explained that this increase is due to Eskom’s dire financial situation.

Eskom currently sits with over R400 billion in debt and its cost to produce electricity has risen steeply in recent years.

The situation is expected to deteriorate as households and businesses turn to alternative energy sources like rooftop solar, reducing their reliance on Eskom’s electricity.

As the private sector increasingly adopts solar rooftop solutions, Eskom will experience a decline in revenue.

The situation is further aggravated by private Independent Power Producers (IPPs) providing services to the mining, industrial, corporate, and private markets, some of Eskom’s biggest customers.

This revenue drop will create more severe financial challenges for Eskom, possibly leading to difficult choices such as restructuring the business and considering layoffs.

In addition to seeking more reliable electricity sources, households and businesses are shifting away from Eskom due to its rising energy costs.

According to Oosthuizen, average electricity prices in the government’s 2024/25 financial year are 5.5 times higher than in 2010.

The move towards small-scale renewable energy by households and businesses has resulted in a greater proportion of non-paying customers for Eskom.

To counteract the lost revenue, Eskom is imposing significant electricity price hikes, which, in turn, drives more paying customers to install solar PV systems to reduce costs, thereby accelerating this trend.

Oosthuizen explained that as the country starts to feel the impact of this progression, a decline in Eskom’s revenue will become increasingly evident, and the trend may accelerate.

This could spell even tougher financial times ahead for the utility, and some difficult decisions, such as business restructuring and perhaps even retrenchments, may need to be considered, he said.

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