Another massive electricity price hike hitting South Africans soon

 ·15 Jan 2024

Despite having the worst year of load shedding in 2023, and many analysts noting it is firmly here to stay in 2024, South Africans must prepare for another double-digit Eskom tariff increase this year.

In December 2023, the High Court of South Africa rejected the requests for a judicial review on the revenue decision and tariff approval made by The National Energy Regulator of South Africa (Nersa) regarding Eskom’s fifth MultiYear Price Determination (MYPD5) application for the 2023/24 and 2024/25 fiscal years.

The judgement followed applications by the Democratic Alliance (DA) and the South African Local Government Association (Salga) to review the Nersa decision on Eskom’s MYPD5 revenue application.

The High Court found that “when all is considered and the detailed and extensive reasons furnished by Nersa is compared with the attacks on its decisions, none of the review grounds pass muster,” the court said.

“All relevant factors have properly and in detail been considered, the conclusions reached were neither arbitrary nor irrational, and the issue of cross-subsidisation was considered at the appropriate stage,” it added.

Therefore, The High Court found that both the DA and Salga review applications must fail.

This means Nersa’s approved 18.65% increase in electricity prices for 2023 and 12.74% hike effective April 2024 will stand.

This is even though Eskom has failed to meet key conditions placed on it by Nersa aligned with its MYPD5, according to independent energy analyst Pieter Jordaan.

Due to the high cost of the diesel fuel used in Open Cycle Gas Turbines (OCGTs), an average utilisation rate – also called a load factor – of 1% is typically regarded as the utility-scale standard for this energy supply.

In Eskom’s price determination, due to the worsening power situation in South Africa, Nersa relaxed the 2023/24 load factor to 6%. This relaxation was conditional on Eskom reducing its breakdowns (UCLF) from 31% (2022/23 FY) to 20% and improving plant availability (EAF) from 57% (2022/23 FY) to 65%.

However, Eskom has failed to meet these conditions for the 2023/24 financial year to date, with UCLF averages at 33% and EAF at 55%. Meanwhile, the OCGT load factor stands at 20%.

Breakdowns (UCLF)20%33%
Energy availability (EAF)65%55%
OCGT Load factor6%20%

Eskom in dangerous territory

Former Eskom CEO Andre de Ruyter noted last month that while the R254 billion debt-relief package is essential for Eskom’s recovery, it alone would not be enough.

He mentioned that he would have included one more requirement in the debt relief package: that Eskom obtains cost-reflective tariffs from Nersa, which has often granted Eskom less than what it has asked for.

“If we do not get them, Eskom doesn’t get cost-reflective tariffs, then in three to four years’ time, the entity will be back at Treasury’s door with a begging bowl, asking for more, because its costs will be higher than its revenues,” he said.

However, on the flip side, De Ruyter said that Eskom’s current path would see an end-point where the utility will eventually be left with a customer base of people who cannot afford electricity and, therefore, don’t pay for it.

Echoing similar sentiments, Jordaan said the recent democratisation and decarbonisation of electricity production, driven by the private sector, means that future price hikes will price Eskom out of the market – as many would simply move to alternative sources of energy.

Read: South Africa’s big plan to end load shedding is seriously flawed

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