Eskom is in deep trouble
Despite Eskom’s turnaround, the cost of its electricity and its inflation-beating tariff hikes are likely to be the reason the state-owned power utility will continue to struggle.
Eskom made significant strides in reducing load shedding in 2024, bringing the nation a much-needed reprieve after a disastrous 2023.
Load shedding, which peaked at unprecedented levels last year, virtually disappeared in the first half of 2024, largely due to improved energy availability.
In the second quarter of 2024, the electricity available through the national grid was 4.7% higher than a year earlier, offering hope for a more stable energy future.
However, despite these advances, Eskom’s reliance on above-inflation price increases is poised to be its undoing.
Load shedding virtually disappeared in the first half of 2024 after reaching historic heights in 2023.
Energy expert Chris Yelland explained that the data shows this has not been a fluke—Eskom’s unplanned breakdowns for the first 13 weeks of this year were consistently lower than for the first 13 weeks of last year.
This has led to more energy availability and, therefore, less load-shedding.
Despite this positive trend, Eskom’s electricity generation still lags behind year 2000 levels, a sharp reminder of the utility’s long-term challenges.
According to Trade & Industrial Policy Strategies (TIPS), an economic research institution, the demand for grid electricity, while stabilising, remains significantly lower than in previous decades, largely due to the rise of private energy generation.
The private sector’s contribution to the grid has more than doubled since 2008, climbing from 4% in 2010 to 14% by mid-2024.
This shift is partly fueled by the growth of off-grid solar power, now boasting nearly 5GW of capacity, equivalent to almost 10% of the national grid’s installed capacity.
However, Eskom’s reliance on aggressive price hikes is alienating consumers. Since 2008, electricity prices have consistently outpaced inflation.
By mid-2024, the price index for household electricity had risen approximately 350% above headline CPI, making it increasingly unaffordable for many South Africans.
In the second quarter of 2024 alone, Eskom’s prices were 15% higher than the previous year, while inflation was just 5%.
This means that the slight decrease in the demand for alternative energy in 2024 due to the break in load shedding will be short-lived.
This is because Eskom’s prices in the near future will drive households and businesses to seek out more affordable options such as solar and other renewable sources, accelerating the growth of off-grid energy.
Energy experts believe this trend spells trouble for Eskom.
As electricity prices rise, those who can afford to switch to private energy providers are doing so. This shift is rapidly eroding Eskom’s customer base.
Those left behind are primarily low-income households, many of whom cannot afford the ever-increasing tariffs, leading to non-payment.
Eskom is already struggling with over R75 billion in unpaid bills, a figure that is likely to grow as more customers defect from the grid.
Energy analyst Mohamed Madhi argues that Eskom’s above-inflation price hikes are self-sabotaging.
Madhi notes that renewable energy costs are now cheaper than Eskom’s rates and expects renewable energy to become even more affordable within the next 18 months, surpassing Eskom’s baseload pricing.
If Eskom continues to raise prices, Madhi predicts there will be no demand for its electricity in the near future as customers flock to cheaper, cleaner alternatives.
Other experts share this concern. Energy analyst Ted Blom notes that Eskom’s financial instability, exacerbated by its unsustainable price increases, will only push more consumers off the grid, leaving the utility with fewer paying customers.
He emphasises that this vicious cycle will undermine the utility’s viability, making it increasingly difficult for Eskom to cover its operating costs, let alone invest in much-needed infrastructure upgrades.
The private sector’s growing role in electricity generation is further squeezing Eskom.
RMB estimates that the private sector will add over 6,000 MW to the national grid between 2023 and 2025 and an additional 19,300 MW from 2025 to 2030.
This surge in private energy investment highlights the diminishing reliance on Eskom as businesses and households increasingly opt for independent, more reliable sources of power.
While Eskom has made commendable progress in reducing load shedding in 2024, its future remains precarious.
The utility’s strategy of increasing prices above inflation is driving consumers away, leaving it with a shrinking customer base and mounting unpaid bills.
If this trend continues, Eskom may find itself financially unsustainable, outpaced by the growing adoption of affordable renewable energy sources.
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