Eskom is shooting itself in the foot

Eskom’s latest double-digit electricity price hike is now in effect – and several experts, including former CEO Andre De Ruyter, say these price hikes are unsustainable despite being necessary.

Last month, Eskom was granted a 12.74% increase for its direct customers by the National Energy Regulator of South Africa (Nersa).

This increase is coupled with a 25.64% affordability subsidy. The average increase for key industrial and urban tariffs will be 13.29%, which is due to the increase in the affordability subsidy charge.

The affordability subsidy charge is given as a subsidy to the Homelight 20A tariff and is determined by Nersa.

Eskom explained that it is paid by the non-municipal large industrial and urban tariffs and exists because of historically lower Homelight 20A tariff increases.

Nersa also granted a 12.72% increase to municipal customers. However, while Eskom’s prices go up today, municipalities will only increase their customer tariffs on 1 July.

According to an economic bulletin published by the South African Reserve Bank (SARB) – written by economists Zaakirah Ismail and Christopher Wood – since load shedding started in 2008, electricity has increased by a shocking 450%, drastically outstripping CPI by 352%, with inflation recorded at 98% over the same period.

Unsustainable

While the everyday South African will only feel the pinch of the tariff increase in July, many experts have already raised concerns regarding increases, including former CEO Andre De Ruyter.

Following the implementation, several economists have noted that this increase will further burden cash-strapped South Africans and businesses that have also been hit with consecutive fuel price increases since February 2024.

“South Africans find themselves in a very tough position, and those who can afford it will simply move to other forms of electricity such as solar,” said economist Mudiwa Gavaza in an interview with Newzroom Afrika.

From the beginning of 2023 to the end of 2025, RMB estimates that the private sector will add over 6,000 MW to the grid.

From 2025 to 2030, it will add a further 19,300 MW.

Independent energy expert Mohammed Madhi told eNCA that renewable electricity prices, like solar PV, decrease year-on-year while Eskom prices increase.

Madhi argues that Eskom is shooting itself in the foot with the above-inflation electricity price increases.

“We have already reached the point where renewable electricity prices are cheaper than Eskom’s rates,” he said.

However, only wealthier South Africans can afford these alternative options, while poorer citizens still rely on Eskom.

Andre de Ruyter explained that if this trend continues, Eskom will be left with only non-paying customers, who can either not afford electricity or refuse to pay, which includes private citizens and municipalities.

Despite these red flags, De Ruyter added Eskom needs more electricity price hikes to survive.

He said that the latest Eskom bailout granted last year is insufficient, and the power utility will be back at the National Treasury’s door begging for more money if electricity tariffs don’t match the cost of electricity generation.

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