Eskom, municipalities facing electricity revenue crunch

Eskom and South Africa’s municipalities face a potentially massive revenue crunch as private companies and households reduce their reliance on the grid for electricity, which provides the largest portion of municipal revenue. 

Importantly for Eskom, this will force municipalities to cut their electricity purchases from the utility as their customers will simply use less. 

Recent data from Stats SA highlights the significant dependence of South African municipalities on electricity sales for revenue generation.

According to Stats SA’s quarterly financial statistics of selected municipalities survey, electricity sales constitute the primary source of income for municipalities in South Africa.

Municipalities purchase electricity from producers like Eskom and resell it to households, businesses, and other institutions. 

The surplus generated from this trade serves as a crucial source of revenue for municipalities.

In the first half of 2023, municipalities spent R50.2 billion on electricity purchases while generating R60.0 billion from electricity sales.

Stats SA emphasises that the R9.8 billion difference represents a surplus that municipalities can utilise to cover other expenses.

“Electricity sales account for a substantial portion of the revenue pie. It is typically the largest revenue stream,” Stats SA stated.

The ongoing electricity supply disruptions caused by Eskom’s load shedding are hindering municipalities’ ability to generate consistent revenue from electricity sales, posing a significant financial challenge.

However, the biggest loser from this over the long term will not be municipalities – it will be Eskom. 

This is feedback from energy expert Chris Yelland, who told 702 that a decline in revenue from electricity sales by municipalities would result in them buying less from Eskom. 

“Just because there is a decline in revenue from electricity sales does not necessarily mean there will be a decline in net revenue or surplus generated by municipalities. There should be a corresponding decline in municipalities purchasing electricity from Eskom,” Yelland said. 

The decrease in demand for electricity from customers will result in municipalities needing to purchase less electricity from Eskom, resulting in minimal impact on their budgets. 

This has played out in the first six months of 2023. Municipal electricity purchases decreased by 0.8% compared to the first six months of 2022. 

Many factors have resulted in this decline, from increased load-shedding, a weak economy resulting in decreased demand, and the rapid increase in alternative energy sources. 

Some of South Africa’s largest metropolitan areas have significantly reduced electricity purchases. 

Nelson Mandela Bay cut its purchases by 15%, Johannesburg by 10%, and Buffalo City by 6%. 

This has resulted in lost revenue for Eskom in the millions and potentially billions of rands. 

Yelland does not expect this to be an immediate issue for Eskom as it is actively encouraging South Africans to use less electricity to reduce load-shedding, so reducing demand is in the utility’s interest. 

However, this will be a significant issue for Eskom over the long term. 

“They will have to reinvent themselves in the face of changing circumstances, changing technology. Eskom and municipalities will have to look carefully at their business models and adapt to these changes,” Yelland said.