Eskom warns of price hikes if it loses customers to private traders

 ·19 Jul 2024

Eskom Generation has objected to the applications for trading licences by private groups, saying that it currently goes against the rules set out by regulator Nersa.

It also noted in its objections that the granting of the licences could result in Eskom customers being taken over by the new traders, which could result in “further pressure” on remaining customers.

The utility presented its objections to Nersa’s electricity subcommittee on Thursday (18 July) during the public hearing on applications for Generation Licence and Trading, and Import and Export Licence.

Presenting on behalf of Eskom’s distribution division, head of legal services Mohlago Masekela said that the granting of the licences would see the companies end up supplying the same areas that Eskom does.

“In 2020, Nersa approved rules that prohibited this activity,” she said.

Nersa’s approved and issued rules for Licensable Distribution Areas of Supply prohibit the following activities:

  • Licensees supplying the same area or customers within another licensee’s area of supply, except for legacy cases.
  • A licensee electrifying end-users and/or customers within an area that is eligible for licensing simply to “pre-book” that area.
  • A licensee logging a dispute on an unlicensed electrified area after the supply area is energised.
  • A licensee supplying an area that qualifies as a licensable area without Nersa’s approval.
  • Electrification of municipal rezoned areas.
  • Licensees giving potential customers, existing customers, or standalone customers exclusive supplier conditions for the provision of electricity supply.

“Eskom Holdings is objecting because of the Nersa approved and issued riles, which prohibits two or more licensees supplying the same area,” Masekela said.

If the licences are granted, Eskom argued that this would compromise the efficient, effective, sustainable and orderly development and operation of electricity supply infrastructure.

It added that it would also lead to “cherry picking” of customers.

This is evidenced in one of the applications noting that the licensee would not supply residential customers or small commercial customers, but rather large power users and bilateral customers.

Eskom said this would have “unintended consequences”.

Notably, under the current rules, accommodation is made for cross-subsidies for certain tariff categories.

“If a group of contributing customers are removed from this cross-subsidy base, it will exert further pressure on the remaining customers,” the group said.

Masekela said that Eskom is willing and available to work with Nersa or to take part in a process to reassess the rules.

However, until such time as this has been addressed, it will continue to object to the licence applications wherever Eskom customers would be taken over.

The Eskom death spiral

Energy experts have long warned that Eskom faces a ‘death spiral’ due to increased competition and its own inefficiencies in generating electricity.

While its latest objections relate to private licence applications, the availability of alternative power through private solar and other renewable projects already poses a huge risk to its customer base – and getting more private traders on board will only speed this up.

The group’s inefficiencies have led to multiple applications for double-digit tariff hikes over the years, with the latest 12% hike hitting households and businesses in 2024.

Former Eskom CEO Andre de Ruyter warned after his ouster that the utility’s modus operandi of applying for massive price hikes for electricity each year would ultimately come back to bite it hard.

He said that Eskom customers who can afford to do so will ultimately migrate away from Eskom’s grid, leaving only those who cannot afford to pay for electricity to consume the utility’s services. Price hikes are unavoidable and necessary—but the outcome seems inevitable.

Eskom already faces a non-payment crisis. Money owed to Eskom by its customers—municipal customers in particular—is in the tens of billions of rands, and there is no easy path to recovering this.

Independent energy expert Mohammed Madhi noted earlier this year that other sources of energy, like renewables, are getting cheaper, while Eskom is hiking prices by exorbitant amounts each year, pushing its inefficient power production costs onto customers.

Another independent energy analyst, Pieter Jordaan, has noted a permanent loss in demand on Eskom’s grid of around 1,500MW, which translates to 13 TWh or 6.5% of lost sales for Eskom in 2024.


Read: A massive win for Eskom – that will hit South Africans where it hurts

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