Three big Eskom threats

Energy analyst Chris Yelland identified municipal arrears, high electricity prices, and pollution as critical threats to Eskom’s sustainability.

Yelland, who serves as managing director at EE Business Intelligence, told Daily Investor that Eskom is currently on the right track in terms of securing the country’s electricity supply.

He said the utility has a good team and has made significant strides in improving its performance.

The success of Eskom’s operational turnaround is evident in the fact that South Africa did not experience load-shedding for most of 2024.

However, Eskom is not out of the woods yet, as the utility still faces significant challenges.

The first threat Yelland identified was municipal arrears – one of Eskom’s most pressing problems.

It was recently revealed that South Africa’s municipalities owed Eskom R95.4 billion by November as they struggled to collect revenue from customers. 

Eskom chairman Mteto Nyati warned in the utility’s annual report that the billions that South African municipalities owe Eskom are hindering its plan to restructure and separate its distribution unit.

Eskom completed the unbundling of its transmission business last year, a major step in the process of restructuring and splitting the utility into three units. That means the focus now turns to the separation of the distribution arm. 

“The municipal debt challenge has the potential to jeopardize the distribution separation as well as threaten the financial viability and sustainability of the future distribution industry,” Nyati said.

Yelland described municipal arrears as a “massive threat” to Eskom’s sustainability.

He explained that this problem has been kicked down the road for too long, and addressing it needs to be a top priority for both Eskom and the government.

Municipal arrears not only threaten Eskom’s financial health but also have consequences for businesses and households. 

Eskom previously cited non-payment from municipalities as one reason the utility requests above-inflation electricity price increases.

In 2024, Eskom said it had to ask for a 36% increase in electricity prices, partly because the government was unable to rein in delinquent municipalities.

“This is unsustainable,” Eskom CFO Calib Cassim said at the time. “Government needs to address this.”

In a more recent briefing to the portfolio committee on Energy and Electricity, Eskom CEO Dan Marokane said that if this matter is not resolved, it will put even more pressure on the tariff increase quantum the utility will need to request.

In addition, he warned it would undo the positive impact of National Treasury’s debt relief programme has had on Eskom’s finances, particularly its debt.

The government granted Eskom a R254 billion debt-relief package last year to help the utility strengthen its financial position and repair and upgrade power plants.

While these efforts have paid off in allowing Eskom to focus on addressing its electricity production shortfalls, the utility’s finances will not improve unless the issue of municipal debt is resolved.

This ties in with the second threat to Eskom that Yelland identified – high electricity prices.

Since 2007, electricity prices in South Africa have risen by 927%.

Therefore, Eskom’s request to Nersa for a 36% price increase to cover the rising cost of producing electricity was met with severe opposition.

Eskom requested total revenues of R446 billion for the 2026 financial year, R495 billion for 2027, and R537 billion for 2028.

The proposed average price hikes for Eskom’s direct customers are 36.15% from 1 April 2025 to 31 March 2026.

For the subsequent years, the utility is seeking increases of 11.81% from 1 April 2026 to 31 March 2027 and 9.10% from 1 April 2027 to 31 March 2028.

While this request has not yet been approved, South African households, businesses and the government have spoken out against it.

This incredible rise in prices has priced many South Africans out of being able to afford electricity.

In addition, the government has been growing increasingly concerned that these price hikes risk spiralling out of control and that the government’s policy of providing free basic electricity is not working.

Yelland told Daily Investor that electricity is becoming increasingly unaffordable, which will have severe consequences for the economy. 

“I do worry that, and it has been pointed out by various stakeholders, this could even spill over into social unrest,” he said.

However, these high price hikes also present a threat to Eskom.

While many households switched to rooftop solar and other alternative energy sources over the past few years to avoid Eskom’s power cuts, many also saw it as a way to avoid the utility’s high prices.

This has seen Eskom’s sales steadily decline over the past decade, putting pressure on the utility to raise prices to ensure its revenue growth can cover increased operating costs. 

This can result in a death spiral for the utility, where its raised prices force customers to find alternative energy sources, necessitating even more price hikes to avoid a loss.

“The consequences to Eskom are increasing levels of non-payment by municipalities who can’t collect the money from people that can’t afford to pay and also debt and non-payment,” Yelland warned.

Yelland identified pollution as the third threat, which stems from the government allowing Eskom to breach the country’s emission standards to keep the lights on.

Yelland said the government has allowed Eskom to get away with this for years because the utility “holds the country for ransom” by threatening power cuts if they are not allowed to breach the emission standards.

In April last year, the utility, stung by reports about the health impacts of emissions from burning coal, said it’s spending billions of rands to reduce them and has an ambitious target to reduce the output of one of its most dangerous pollutants. 

Eskom said it’s committed to a R67 billion plan to cut emissions and aims to reduce its output of particulate matter by 70% by 2035.

Still, from six months to September 30, the company’s particulate emissions were at a 31-year high and 42 times the level of plants in China, the world’s biggest producer of power from coal. 

The company’s emissions are becoming a threat to its operations. It’s been charged criminally for breaching emission limits at its Kendal power plant.

More recently, environmental groups Groundwork Trust and Earthlife Africa filed a legal challenge against South Africa’s Minister of Forestry, Fisheries & the Environment, Dion George, and the national air quality officer. 

BusinessDay reported that this challenge stems from the department’s decision to permit eight Eskom power stations to deviate from minimum emissions standards.