South Africans should be paying 75% less for electricity
Eskom wants to increase electricity prices by 36% on 1 April 2025, but research shows that the power utility already charges far too much.
Eskom applied to the National Energy Regulator of South Africa (Nersa) to increase prices by 36% next year, followed by 11.81% on 1 April 2026 and 9.10% on 1 April 2027.
This price increase has drawn sharp criticism from many experts who warned that many South African households cannot afford it.
EE Business Intelligence founder and energy analyst Chris Yelland said Eskom’s price increase application is preposterous.
“After price increases of two to five the inflation rate for many years, how can Eskom apply for a 36% price increase seven times the inflation rate on 1 Apr 2025?” he asked.
The South African Human Rights Commission warned that Eskom’s proposed electricity price hikes could spark social unrest in South Africa.
Commission chair Chris Nissen said people in poor communities struggle to make ends meet, and the planned price hikes could ignite social unrest.
“As the commission, we foresee that these kinds of issues are sparks in our community that can ignite unrest,” Nissen said.
Eskom argues that it needs such a high price increase to improve its financial sustainability by migrating to cost-reflective prices.
However, Nissen said Eskom’s dismal financial situation and high debt burden were caused by years of mismanagement and corruption.
He said Eskom now wants to recover its debt from the poorest of the poor in South Africa through high electricity price increases.
He added that increasing electricity prices to address the debt and place the burden on struggling South African households is misguided.
“Poor households should not pay the price for wrongdoing for this in power,” Nissen told Cape Talk.
South African electricity prices should be 75% lower
Eskom argues that it needs to recover the cost of producing electricity and that price increases are the only way to achieve this.
However, the concept of cost-reflective prices is misguided when working with a monopoly like Eskom because its costs are not market-related.
For example, during the era of state capture, Eskom gladly paid R238,000 for a mop and R80,000 for knee guards. The power utility’s costs are, therefore, highly inflated.
The same goes for Eskom’s bloated workforce, years of above-inflation salary increases, and irregular, fruitless, and wasteful expenses.
Most South Africans do not like paying for the years of corruption and mismanagement at Eskom.
BusinessTech examined the cost of producing electricity to see how much more South Africans are now paying for electricity than they should.
Between 1994 and 2006, when Eskom was well-run, electricity price increases were closely aligned to inflation.
Things started to change in 2007 when load-shedding first hit South Africa. Incidentally, Jacob Zuma was also elected as ANC President at the end of 2007.
From 2008, electricity price increases rapidly rose, far exceeding the inflation rate. This trend continued for 15 years.
Corruption and mismanagement at Eskom caused the cost of producing electricity to skyrocket.
In 2006, Eskom spent R147,748 to generate a single GWh of electricity. In 2023, the cost ballooned to R1,504,467 per GWh.
This should never have happened. Adjusting the 2006 cost to the average inflation rate from 2006 to 2023 means Eskom should pay R380,819 to generate a GWh of electricity in 2023.
There are many reasons it currently costs Eskom R1,504,467 instead of R380,819 to produce a GWh of electricity.
Unfortunately, most of these reasons relate to corruption and mismanagement. It includes massively overpaying for the Medupi and Kusile power stations.
If Eskom continued to be well-run between 2007 and 2023, its cost to produce electricity would have been around 75% lower.
Simply put, South African households and businesses should be paying 75% less for electricity than they currently do.
The chart below shows how Eskom’s electricity production costs racker inflation from 1994 to 2007 and then outstripped inflation for the next 15 years.