Andre de Ruyter’s warning about Eskom is coming true

Eskom is losing its wealthier customers who can afford to defect from the grid and invest in alternative power solutions like solar panels.

This is largely due to the utility’s high electricity tariffs, which have far outpaced inflation over the past decade.

If this trend continues, Eskom will be left with only lower-income and non-paying customers, who are currently being cross-subsidised by wealthier customers.

This is something former Eskom CEO Andre de Ruyter previously warned would happen, saying the utility’s current path would leave it with only poor and non-paying customers.

The Bureau for Economic Research’s (BER) Robert Botha explained in a recent note that Eskom’s cost path is unsustainable, with electricity tariffs having seen far above-inflation growth over the past two decades.

Botha pointed out that between 2004 and 2024, there were only three years when the average tariff increase from Eskom did not exceed inflation as measured by the consumer price index (CPI). 

In fact, he said average tariffs increased by 1,027% over this period, whereas CPI increased by 191%.

Botha explained that this has far-reaching consequences for Eskom, consumers and municipalities across South Africa.

In South Africa, municipalities are constitutionally responsible for the provision of services, including electricity.

Therefore, they are responsible for about 40% of electricity distribution in South Africa and derive roughly a quarter, or 25%, of their revenue from electricity sales.

However, Botha explained that Eskom’s steep tariff hikes have reduced the room for municipalities to markup their electricity sales, squeezing their margins.

He pointed out that both markups and gross margins on municipal electricity have been on a downward trend since at least 2007.

Gross margins decreased from around 37% in 2007 to 14% in 2024, whereas markups decreased from about 60% in 2007 to 18% in 2024.

The graph below, courtesy of the BER, shows how Eskom’s electricity tariffs have risen compared to inflation between 2004 and 2025, with forecasts for 2026 and 2027.

Eskom losing its most important customers

The impact of Eskom’s high electricity tariffs not only leads to lower revenue for municipalities, but also limits their ability to use electricity surpluses to cross-subsidise other services and indigent households.

This impact is aggravated by the fact that the unreliability and cost of electricity are motivating people to defect from the grid, leading to further revenue loss for municipalities and Eskom. 

Both explained that grid defection refers to when households and businesses go completely off-grid, severing all ties with Eskom and the national grid.

While not very common, partial defection from the grid is, which is when households and businesses remain connected to the grid but install their own generation capacity.

Botha said between March 2022 and the first quarter of 2023, the uptake of small-scale embedded generation in South Africa increased by 350%. 

This had a significant impact on municipal revenue. For example, Buffalo City lost R350 million in electricity sales as a result of small-scale embedded generation.

This presents a notable risk to Eskom and municipalities, as Botha warned that wealthier customers are more likely to defect. 

“The danger in this situation is that municipalities and Eskom are not only losing revenue but also losing customers who are often responsible for cross-subsiding indigent households,” he said. 

“Therefore, the current situation risks widening the gap between the energy-rich and energy-poor.”

This reflects a warning previously expressed by De Ruyter, who said in a 2023 interview with BusinessDay Spotlight that Eskom’s current cost path is unsustainable. 

“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 said.

Eskom already faces severe challenges with non-payment from citizens and municipalities, with municipal debt to the utility currently standing at around R100 billion.

In Eskom’s latest interim results for the six months through September 2025, the utility warned that non-payment of municipal debt continues to pose a systemic risk to the electricity industry and Eskom’s financial sustainability. 

“This stems from poor municipal financial management practices, including unsatisfactory revenue collection and inadequate credit control,” Eskom said. 

“Excessive electricity and water losses due to a lack of maintenance exacerbate the challenges faced by municipalities.”

The effect of Eskom’s high electricity tariffs could also be seen in the utility’s latest results. While Eskom reported a 4% increase in revenue, it also reported a 3% reduction in sales volumes.

Therefore, Eskom’s higher revenue was primarily derived from the tariff hikes implemented in the 2025 financial year, rather than increased sales, as partial grid deflection continues to rise.