Massive 36% electricity price hike for 2025 – how Eskom justifies the numbers

Eskom wants a 36% price increase for electricity next year, with the primary energy costs associated with the company’s coal-related costs being the most significant contributors.

Roy Havemann from the Bureau for Economic Research’s (BER’s) Impumelelo Economic Growth Lab broke down the latest price increase proposal.

Markets are awaiting the National Energy Regulator of South Africa’s (NERSA’s) decision on Eskom’s application for the massive tariff increase, including an 11.8% hike in 2026 and a 9.1% hike in 2027.

Of the 36% increase for 2025, 11.2% of the requested tariff increase comes from an increase in primary energy costs, mainly coal-related costs.

Conversely, the increased use of independent power producers (IPPs) reduces the requested tariff by 2.3%.

IPPs, many of whom supply renewable energy projects, play a small part in keeping prices down and shielding South Africans from load shedding.

Six years after the publication of the ‘Tito Paper’ and its subsequent reforms, 6GW of non-Eskom electricity has been installed, saving South Africa from six stages of load shedding.

Havemann also highlighted a 2022 study commissioned by Eskom, the “Macroeconomic impact assessment of Eskom’s pricing path toward cost reflectivity” by Genesis Analytics and the University of Pretoria, which recently came to light.

“The paper argues that increasing electricity prices will be a positive factor in growth,” said Havemann.

“The channels are stability of electricity supply, improved efficiency of electricity use and a reduction in the fiscal burden—which is positive for national borrowing.”

“Without these positive benefits, the study does find a rather substantial negative impact from only the increase in the cost of electricity.”

The paper states that changes in electricity prices are most likely to impact the competitiveness of an industry that faces international competition or competition from firms or industries that are less electricity-intensive.

Thus, electricity-intensive industries in the Mining, Industrial, and Agricultural sectors are the most likely to see their competitiveness negatively impacted by electricity price increases, particularly if they compete in international markets.

Tariff increases can also adversely impact Eskom’s revenue generation as customers look to secure electricity from alternative sources of supply, such as IPPs.

This has been an oft-talked-about topic among energy analysts who point to a pricing ‘death spiral’ for the power utility, where higher prices end up pushing customers away, resulting in the need for even higher prices.

Former Eskom CEO Andre de Ruyter warned that such a scenario would result in Eskom being left with customers who cannot afford to move to alternatives, but also who cannot afford the utility’s prices, continuing the damaging trend of non-payment.

Haveman said that the paper’s points about price increases driving economic growth will likely form the basis of Eskom’s argument to NERSA to approve the tariff hikes.

Nevertheless, NERSA has historically granted lower tariff increases than Eskom’s requests. For 2023/24, Eskom asked for a 32% price hike and was ultimately granted a 19% increase instead.

Eskom’s 36% price increase would be for the 12 months to March 2026 and would be followed by 11.8% and 9.1% for the following two years.

Eskom’s argument

Eskom has argued that it needs a 36% increase due to the government’s inability to get delinquent municipalities to pay their debts.

Eskom, which received a R250 billion bailout from the government, said that the increase is needed to stop the indebted company from returning to the authorities for further help.

“We are striving to be more self-sufficient and not remain a burden on government finances,” Hasha Tlhotlhalemaje, Eskom’s general manager for regulation.

That said, the increase would mean electricity prices have jumped by over 600% since 2006.

Minister of Electricity and Energy Kgosientsho Ramokgopa said that the increase would undermine economic growth and deepen poverty, with the government potentially intervening to keep prices lower.

The state-owned company has R400 billion in debt, and municipalities owe the power supplier R78 billion as of July 2024.

Tlhotlhalemaje and Calib Cassim, Eskom’s CFO and former interim CEO, also said the huge hike was needed as the NERSA has consistently erred in adjudicating its requests and awarding increases that don’t reflect its costs. 

Even with the massive increase, Eskom’s annual revenue would reach R446 billion, which is still below the 73% rise, and it would need to meet a return on assets equal to the weighted cost of capital. 

Read: 15 cities South Africans are dumping – including Durban, Pretoria, and even Sandton