Eskom’s electricity price hikes are a bad joke
Energy regulator NERSA’s latest blunder in determining Eskom’s allowable price increases has highlighted what a farce the entire process is, where, one way or another, South Africans pay the price.
NERSA announced last week that it had reached a settlement with Eskom over a data error that occurred when processing its sixth Multi-Year Pricing Determination (MYPD6).
As a result of NERSA’s error, Eskom’s customers—municipalities, businesses, industries and South Africans at large—will have to pay over an extra R54 billion to the utility through higher prices.
In direct terms, this will increase electricity tariffs by around 8% in 2026 and 2027.
According to Business Leadership South Africa CEO Busi Mavuso, the blunder highlights how farcical the MYPD process is and underlines how important it is for South Africa to build a more competitive energy market.
Under the MYPD process, Eskom has access to the “regulatory clearing account” (RCA) mechanism.
This effectively allows Eskom to make backwards-looking adjustments to tariffs if costs turn out to be higher than NERSA had expected when the original tariffs were determined.
In theory, Eskom could make adjustments to the benefit of consumers (ie, cut prices) if costs were lower than expected—however, this has never happened, nor is it likely to ever happen.
This is because the RCA is a farce, allowing Eskom to charge tomorrow’s customers for yesterday’s costs, while it is not incentivised to control those costs.
Mavuso said it is unimaginable that any other company would be able to work like this.
Using typical companies as an example, the BLSA CEO said that many businesses in South Africa are under pressure, struggling to boost sales in the weak economy.
In these circumstances, reporting periods are full of cases where companies are trying to control costs and find ways to be more efficient and sustainable.
“Imagine if instead of this strong pressure to maintain cost discipline, these companies could simply pass last year’s costs onto next year’s customers by upping the prices they pay,” she said.
If those customers have nowhere else to turn—like a monopolised energy market—they have no choice but to pay up.
“Would we be seeing any cost discipline at all? Would companies make difficult decisions about what divisions to close or to cut back on bonuses, or drive more efficient production mechanisms? Of course not.”
Eskom price mechanism is absurd
To its credit, NERSA has developed a new methodology called the Electricity Price Determination Methodology (EPDM) rules, which scraps the RCA.
This methodology was supposed to come into effect from 2025/26, but NERSA found they were not practically implementable and withdrew approval for the rules in 2024.
This leaves South Africa with only the MYPD and RCA to go on.
Under the MYPD system, NERSA tries to rein Eskom in by attempting to determine whether costs are “prudently incurred”, setting limits on things like OCGT use and encouraging efficiency.
However, the regulator has failed to limit Eskom numerous times, with Eskom legally challenging and winning against the regulator’s methodology in court, or simply ignoring restrictions like OCGT use.
This has resulted in multiple years of massive price increases, which were supposed to start normalising after 2025—until the latest blunder.
Mavuso noted NERSA also does not have the detailed operational knowledge to determine what is and isn’t “prudent”.
Eskom has long argued that its price applications are “cost reflective”, but this has also been called a farce—mainly because Eskom’s inefficiencies are part of that cost.
This includes having a bloated work force, or widespread procurement corruption where the utility pays significantly inflated prices when buying simple things like mops, shoes or containers.
The most devastating reality, however, is that the MYPD process is a “political dead end” because the costs are already incurred. Someone has to pay the price, and one way or another, it will be South Africans.
“The only decision is whether they should be paid by the consumer or by the government, and therefore taxpayers,” Mavuso said.
“The RCA model assumes that consumer demand is price inelastic, in other words, that no matter what the price, consumers will keep on paying.”
“So, recovery of last year’s costs is basically being extracted from the same consumers,” she said.
Mavuso said that as Eskom prices go up, more customers will turn away from the group and seek out alternatives. This is already happening.
“Even without a competitive electricity market, consumers do have more choices than ever before,” she said.
One avenue South Africans are using to avoid Eskom’s ludicrous prices is turning to rooftop solar. Large companies are also building their own electricity plants.
However, Eskom is pushing back hard against this competition, while also making solar users pay more. Without a truly competitive market, the utility will only keep placing more pressure on its customers.
Mavuso said that the only way that this “absurdity” can be fixed is to accelerate the pathway to competitive electricity markets.
Positively, the country is already on this path, and things are changing. But the CEO said that South Africa should be “single-mindedly focused on getting that done”.
“It is the only pathway to rational pricing of electricity, and that is critical to enabling our economy to grow,” Mavuso said.
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