South Africans who use Eskom electricity set for a decade of pain

Electricity prices are unlikely to fall over the next decade, as interventions by Eskom and the government will take years to bear fruit. 

These interventions include a new Electricity Pricing Policy and the creation of Eskom Green to invest in renewable energy generation. 

There is also the creation of an open, competitive electricity market where private players will compete against Eskom’s generation facilities. 

Energy expert and EE Business Intelligence MD Chris Yelland told Newzroom Afrika these are all the right steps and will drive down electricity prices.

However, the benefits will only be felt in a decade when cheaper means of generating electricity are abundant, and Eskom’s cost of producing energy falls. 

Electricity prices will continue to rise in the meantime, putting significant pressure on households and businesses. 

Increases are still on track to be double, and even triple, the Reserve Bank’s inflation target of 3%, complicating its efforts to keep inflation under control. 

“The minister and Eskom’s chairman are at pains to point out that Eskom 2.0 is not going to result in price reductions in the short and medium term,” Yelland said. 

“It is more of a long-term goal that is perhaps five to ten years away. This is not a quick fix where we will see the price of electricity come down within five years.” 

Yelland said there are doubts that prices will ever come down, with a more realistic outcome being a slower rate of price increases. 

“What we are going to see, I hope, is the rate of increase being slower. The price of electricity is still going to increase, but at a slower rate,” Yelland said. 

“The increases should, over time, become slower and slower and eventually, I hope, we will see price reductions in the coming years.”

This echoes the sentiment of Electricity Minister Kgosientsho Ramokgopa, who said the aim is to keep electricity price increases at or below the inflation rate. 

Doing this will make electricity more affordable in the medium to long term as household and business incomes grow at a faster rate than the price increases. 

Easy to say, hard to do 

The long-term plan to reduce electricity prices in South Africa hinges on the promise of private-sector competition and Eskom Green. 

Both have the same fundamental premise – investing in cheaper, renewable energy generation will bring down the final price of electricity. 

As private companies do this and can sell electricity through the grid, it will force Eskom to adapt to compete, and innovation will be rewarded. 

To adapt, Eskom will invest in cheaper generation technology and seek to cut costs across the company. 

Cutting costs will directly reduce the utility’s cost of producing electricity, which is the main driver behind its requests for higher tariffs. 

However, Yelland pointed out that not all the reasons for Eskom’s high electricity production costs are operational. 

Eskom’s cost base has risen significantly in recent years due to its surging financing costs. These are interest payments on its debt. 

As the utility’s debt burden skyrocketed to R450 billion, its debt-servicing costs rose substantially. 

This has been partially addressed through the National Treasury’s debt-relief package and Eskom’s improved financial performance. Its debt burden has now fallen to R320 billion. 

However, this trajectory is threatened by the rise in municipal debt owed to Eskom and rising non-payment from customers. 

This not only impacts Eskom’s revenue but also threatens to undo the debt-relief package given to the utility, taking it back to square one. 

All the while, the utility will have to invest billions in new generation technologies and maintain its coal-fired power plants. 

“Eskom Green is very new, and it has not even been operationalised yet. That will ultimately result in lower-cost electricity, but in years to come,” Yelland said. 

“It will have to invest heavily in green energy while working to eliminate theft and non-payment across the grid.”