South African households can expect big changes to electricity prices
The energy department is focusing on how the price of electricity can be lowered in South Africa, and has already tasked the South African National Energy Development Institute (SANEDI) with reviewing the country’s pricing framework.
At the end of last year, President Cyril Ramaphosa said the government has been working on reforms to help improve the country’s energy security and lower electricity costs.
Ramaphosa acknowledged that electricity prices at tariff adjustments further strained households and businesses in South Africa.
Because of this, he said it is vital that we settle on a tariff path that enables Eskom to achieve financial sustainability while not placing an undue burden on electricity consumers.
Last week, Electricity and Energy Minister Kgosientsho Ramokgopa echoed Ramaphosa’s sentiment and said the cost of electricity in South Africa is unsustainable and is driving many households into energy poverty.
To fix the issue, Ramokgopa said the department is revising the electricity pricing policy to address the cost of electricity. “It’s unaffordable,” Ramokgopa said in an interview with broadcaster eNCA over the weekend.
“I mean, it’s dealing a major blow to the disposable income of households,” he said. He added that for many families, the choice comes down to buying a loaf of bread or replenishing electricity units.
“The choice is easy. They are going to buy a loaf of bread,” he said. Ramokgopa reiterated the government’s responsibility to intervene.
“The state has got a duty not to be retrenched, but to be at the forefront of the resolution of this preeminent problem,” he said.
Following Ramokgopa’s concerns about South Africa’s rising electricity prices, the South African National Energy Development Institute (SANEDI) has been tasked with reviewing the country’s electricity pricing framework to reduce costs and improve energy access.
Professor Sampson Mamphweli, head of the energy secretariat at SANEDI, agreed with the minister and the president, noting that South Africa’s historically low electricity prices were a competitive advantage.
“Our electricity price used to be very low to attract investment and to support industry so that industry can then produce the much-needed jobs,” said Mamphweli.
However, the low tariffs were not cost-reflective, and what consumers paid was less than the actual cost of generation, largely due to the increasing maintenance costs of the ageing coal fleet.
“Our pricing framework allows for cost recovery and a minimum allowable profit,” explained Mamphweli.
“That minimum allowable profit is the money that Eskom and any other electricity producer uses to maintain their generation, transmission, and distribution systems.”
Renewables could subsidise cost of coal—bringing costs down
While the government previously bridged the shortfall through equity injections, Eskom has been pushing for cost-reflective tariffs to ensure financial sustainability.
With load shedding now under relative control, Mamphweli said Minister Ramokgopa is turning his attention to electricity pricing.
“He has requested SANEDI, the entity I work for, to look into the pricing framework and other ways to bring the cost of electricity down,” he said.
The mandate also includes exploring how to extend electricity access to the estimated four to five million households still living without power.
One area SANEDI may explore is the structure of fixed charges. “In the City of Johannesburg, they removed the R126 fixed charge that people pay monthly regardless of usage,” Mamphweli said.
“That charge mainly goes toward maintaining infrastructure like transformers and transmission lines.”
“So while there may be low-hanging fruit, removing such charges creates a funding gap that municipalities have to cover, often by revising budgets or cutting other services.”
Mamphweli also addressed the cost overruns and delays at Medupi and Kusile power stations, where nearly R400 billion has been spent over 18 years.
“There were issues, design flaws and emissions technology problems, but we had to choose between abandoning the projects or completing them,” he said.
“They are our newest coal plants and will outlast the older fleet. Their lifespan can exceed 40 years, possibly up to 60, so we’ll eventually see value for money, though it’s deferred.”
He acknowledged that consumers are now indirectly paying for historic missteps, not just at Medupi and Kusile, but also through the initial costs of South Africa’s renewable energy programme.
When Independent Power Producers (IPPs) were introduced, the renewable sector was undeveloped, leading to high upfront costs.
“We had to pay a premium for renewable energy, and that premium was worked into Eskom’s tariffs,” Mamphweli explained. “In effect, the lower coal-based tariffs subsidised renewables.”
However, the situation has now shifted. The renewable energy sector is more mature, and prices have come down.
Mamphweli said that there’s an opportunity to reverse the subsidy without pre-empting SANEDI’s work, using lower renewable tariffs to offset the higher costs of coal-based generation.
The review of the pricing framework is still in its early stages, and the minister is expected to announce the details, including specific focus areas and supporting structures, in due course.
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