Kissing Eskom goodbye getting cheaper than ever

Eskom’s latest price increases make it more attractive and sustainable for companies and households to generate their own power and kiss Eskom goodbye.

Eskom is in a death spiral, where it continues to raise prices to make up for selling less electricity and, in turn, sells less electricity.

From 1 April 2024, South Africans will pay much more for electricity when Eskom increases its prices as part of its drive towards “cost-reflective” pricing.

The National Energy Regulator of South Africa (Nersa) approved a 12.74% electricity tariff hike for the 2024/25 financial year, which will take effect on 1 April 2024.

Combined with Eskom’s 2023 electricity price hike of 18.65%, South Africans will pay 33.8% more than two years ago.

Eskom’s general manager of regulations, Hasha Tlhotlhalemaje, warned that more price increases are in store as part of the company’s migratory path to cost-reflective tariffs.

Independent energy expert Mohammed Madhi told eNCA that the latest price increases are needed to keep Eskom afloat.

He explained that the price increase only covers a portion of what Eskom needs because of its rising cost base.

The rising cost base includes increased maintenance costs, rising debt servicing costs, and an eroding market share because of solar PV installations.

In turn, Eskom is forced to make the same or more revenue from fewer clients. The only way is to increase prices.

“The 12.74% electricity price increase is not the end of the story. We will see similar increases for at least five to ten years,” he said.

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

Renewable electricity prices, like solar PV, decrease year-on-year while Eskom prices increase.

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

He added that baseload power through renewable energy will be cheaper within the next eighteen months than Eskom’s baseload pricing.

“If Eskom continues with its price increases, nobody will need its baseload electricity eighteen months from now.”

Companies and households will be able to install renewable energy with battery backup, which produces cheaper electricity than Eskom.

This means that Eskom is pricing itself out of the market, making it more attractive for South Africans to produce their own electricity.

Eskom can be left with mainly non-paying customers

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 an increasing number of 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.

South Africans experienced the worst load-shedding in the country’s history in 2023, with 335 days of load-shedding in the year.

This saw a significant uptick in solar installations from both businesses and households.

South Africa imported over R16.5 billion worth of solar panels in the first nine months of 2023, equal to over 4,500 MW in generation capacity.

RMB estimates that the private sector will add over 6,000 MW to the grid from the beginning of 2023 to the end of 2025 and 19,300 MW from 2025 to 2030.

However, only wealthier South Africans can afford these alternative options, while poorer citizens still rely on Eskom.

De Ruyter explained that if this trend continues, Eskom will be left with only non-paying customers. This includes private citizens and municipalities.

This article was first published by Daily Investor and is reproduced with permission.