Eskom’s 800% electricity price hike
In the span of 15 years, Eskom has increased electricity prices in South Africa by around 800%, and the utility is continuing to hike prices that South Africa’s economy and consumers cannot afford.
The power utility recently said that South Africans will need to pay more for electricity if the country ever wants to return to “normal” tariff hikes, warning that more pain will follow if energy regulator Nersa doesn’t allow it to happen.
In Eskom’s latest multi-year price determination applications (MYPD6), the group announced the massive electricity price hikes it is seeking over the next three years:
- 36.15% from 1 April 2025 to 31 March 2026
- 11.81% from 1 April 2026 to 31 March 2027
- 9.10% from 1 April 2027 to 31 March 2028
Eskom said that Nersa has consistently refused to allow Eskom to make pricing cost-reflective, exacerbating the group’s financial difficulties and effectively kicking the can further down the road.
Despite the utility’s insistence that these increases are unavoidable, it has faced severe scrutiny from consumers and experts.
In an interview with SABC, Energy Analyst Mthunzi Luthuli called these price increases “ridiculous”.
“I think there needs to be an investigation to see why it is that Eskom needs these kinds of revenues to run their business.”
Luthuli said that despite making incredibly high revenues, the utility has continuously failed to turn a profit.
For example, despite making a revenue of R259.54 billion for the year that ended March 2023, the company still made a loss of R24.21 billion, according to its financial results.
As a result, Eskom has had to keep increasing its prices at steep rates every year, going up by around 800% in 2007 to 2022/2023.
“It’s just ridiculous, and on top of that, they continue to request annual increases of 36%. It’s crazy, something needs to be looked at,” Luthuli said.
He added that Eskom cannot possibly justify these kinds of increases, and that normal economic factors aren’t behind this decision.
“This whole thing is political and is driven by economics and the deregulation of the electricity sector,” he speculated.
“What I think is happening is that the powers that be have been lobbied to increase the prices of electricity so that when private players come into the market they can make healthy profits.”
“It’s not something that is driven by normal economics. Definitely not.”
Unfortunately, South Africa’s economy, businesses and poor consumers will be paying for this “political and economic plot.”
Those who can afford to go off-grid will continue to do so, but most poor households won’t be able to.
“So they will continue to be subjected to these high electricity prices, and they are the people that can least afford these prices, so that’s a problem.”
“It’s very unwise for Eskom and for the government to move in this direction because you will definitely, definitely get social and political instability.”
Over and above the effect the increase will have on consumers, Luthuli explained that high electricity prices affect businesses.
“It affects all sectors of society and all sectors of the economy.”
“They make the cost of running businesses higher, which means that you limit the ability of businesses to grow. You limit the ability of businesses to employ more people, and you make your businesses or their products uncompetitive in the marketplace.”
“We really need to put a handle on this and stop these ridiculous price increases by Eskom.”
Even if South Africa does move off the grid, people will still be affected by Eskom’s high prices.
Renewable energy sources, such as solar and wind power, have periods of downtime, like when the sun isn’t shining. During these periods, Eskom would need to fill the gap and act as a backup or “battery” for the country.
“For Eskom to be on standby in that sense costs a lot of money, and people would be paying a high price per unit for that kind of electricity.”
He explained that this is because consumers will have to pay high emergency tariffs for this electricity.
Furthermore, as more people go off the grid, Eskom’s assets—power plants and infrastructure—may become stranded, leading to significant financial losses for the country.
Mismanagement of major construction projects like Medupi and Kusile is another major problem area for Eskom.
By the time Kusile is completed, it will cost twice what it was initially budgeted for, which Luthuli called “ridiculous.”
“We need more transparency on the cost structure of Eskom and who is being paid what and why.”
Eskom’s primary energy costs are a big part of this, especially coal procurement, which is the biggest single cost item on their income statement.
Coal contracts need to be scrutinised to ensure that the right people are being paid a reasonable amount.
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