Eskom getting replaced

Eskom’s local and international electricity sales are plummeting, forcing it to increase prices, making it even less attractive as its customers move to more affordable options.

This was revealed in Eskom’s group annual results for the 2024 financial year, covering 1 April 2023 to 31 March 2024.

Eskom said the last year was challenging given the urgent need to deliver on the Generation Recovery Plan to address South Africa’s energy crisis.

The challenges were seen in the power utility’s finances. Diesel usage increased to R33.9 billion, and sales volumes declined by 3% year-on-year.

Eskom reported a loss after tax of R55 billion, which it said was mainly due to the derecognition of a deferred tax asset of R36.6 billion.

However, even without the derecognition of a deferred tax asset, its finances are still in a dismal state, with a net loss before tax of R25.5 billion.

Eskom said it faced several systemic operational, financial, and sustainability issues that are being intensely focused on.

“Consequence management and interventions are being actioned to address reportable irregularities raised relating to legacy management control issues,” it said.

One of its biggest challenges is municipal debt, which is expected to reach R110 billion by March 2025.

Calib Cassim, Eskom’s group chief financial officer, said it was important to find a sustainable solution to the municipal arrear debt challenge.

The power utility previously said municipal debt posed an existential crisis that, if not addressed, may require another bailout.

Eskom CEO Dan Marokane added that it was important to allow Eskom to migrate to cost-reflective tariffs.

He said this was important for Eskom’s financial sustainability and to foster a competitive future electricity supply industry that attracts investment.

“An inadequate tariff path will continue to constrain Eskom’s financial position, leading to insufficient investment to sustain and expand our infrastructure,” he said.

He said it would perpetuate past operational challenges and may also necessitate further reliance on Government support beyond March 2026.

Eskom in a death spiral

While Marokane wants to significantly increase prices to improve Eskom’s financial position, this will aggravate another problem—declining electricity sales.

Eskom’s latest annual report revealed that its local and international electricity sales declined from 198 GWh in 2022 to 183 GWh in 2024.

Despite the lower sales, Eskom’s costs increased significantly over the two years. This is a double-whammy for the power utility.

Due to its bloated workforce, corruption, mismanagement, and inefficiencies, Eskom’s cost base is much higher than it should be.

Cost-reflective tariffs mean Eskom must significantly increase prices to compensate for lower sales.

However, it comes with a challenge. The higher Eskom’s prices, the more customers will move to alternative energy solutions.

Solar PV with battery backup is cheaper than Eskom, and many businesses and households have moved mostly off-grid.

Independent energy expert Mohamed Madhi said price increases are needed to keep Eskom afloat.

Due to the migration to alternative energy, Eskom is forced to make the same or more revenue from fewer clients. The only way is to increase prices.

Madhi argues that Eskom is shooting itself in the foot with the above-inflation electricity price increases.

“We have already reached the point where renewable electricity prices are cheaper than Eskom’s rates,” he said.

Former Eskom CEO Andre de Ruyter warned that if the current trend continues, Eskom will be left with mainly non-paying customers.

De Ruyter said that more South Africans are turning to alternative power solutions, like solar PV and battery backup, for their electricity needs.

These are typically Eskom’s paying customers, which means it may soon be left with customers who cannot afford or refuse to pay for electricity.

“If you extrapolate from current trends, Eskom will eventually be left with a customer base of people who cannot afford electricity and therefore don’t pay for it,” he warned.

Renowned economist Dawie Roodt said South Africa will have many electricity generation suppliers and private sector players in the future.

“We are slowly, through a back door kind of way, privatising Eskom. That is what is going to happen in the end,” he said.

Roodt predicted that Eskom would go the same way as South African Airways, which means it will become irrelevant in most people’s lives.