South African households could pay R6,858 more every year for electricity

South African households could be paying up to R6,858 more every year for electricity after the National Energy Regulator of South Africa (Nersa) approved a tariff increase of 12.7% for Eskom’s direct consumers.

This is based on calculations by Standard Bank LookSee using the increase that will be rolled out on 1 April 2025, followed by a rise of 5.36% in 2026 and 6.19% in 2027. 

The utility’s wholesale prices to municipalities will be similarly increased, resulting in a compound increase of 26.09% by 1 April 2027 compared to current prices.  

The above inflation increase is expected to hit household budgets hard, particularly as they are already paying almost 34% more for electricity than they were two years ago. 

The regulator will decide on municipal tariffs later in the year. However, municipalities are expected to apply to pass the increased costs on to customers.

Nersa chairperson Thembani Bukula said the organisation’s challenge in regulating the electricity industry has always been and remains “the delicate balancing of the often conflicting requirements of all of the stakeholders”.

“We must ensure that Eskom is sustainable in the short- and long-term. At the same time, we’re required to ensure that Eskom’s electricity services are affordable,” he said.

“This is never an easy task, for inevitably, it is also influenced not just by our methodologies and rules but also by the greater economic environment locally and internationally.”

Standard Bank LookSee calculated just how much extra South Africans households will have to fork over for electricity if municipalities pass their rising costs on to consumers. 

A household with a monthly electricity bill of R500 will pay R63.50 more per month, translating into an annual increase of R762. The increases naturally progress higher for households that spend more on monthly electricity.

For example, a household spending R4,500 on electricity per month will see its bill rise by R571.50 per month and have an annual increase of R6,858. 

These increases are shown in the table below, courtesy of Standard Bank LookSee. 

This incredible rise in prices has made many South Africans unable to afford electricity. 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.

As a result, demand for rooftop solar solutions is rising, with the LookSee platform experiencing renewed interest in its offering. 

This renewed interest tripled the average number of visits to LookSee’s Solar Loan finance page compared to the beginning of 2024. 

While Eskom’s electricity tariffs are rising, the cost of installing a solar system is coming down in some cases as lower component prices and finance options improve affordability. 

“With demand at more manageable levels, we have seen the cost of components dropping by up to as much as 30% since the beginning of the year,” head of LookSee, Marc du Plessis, said.

This may end up with the utility entering a death spiral, with declining demand for its product forcing it to raise prices to maintain its revenue. 

The head of responsible investing at Old Mutual, Tanya Mongwe, explained how the declining usage of Eskom’s electricity forces it to raise prices and, in turn, encourages people to reduce their reliance on the utility. 

Mongwe said some of Eskom’s biggest customers have significantly reduced their reliance on the utility for electricity, with mining companies leading the way. 

As these companies reduce the electricity consumption generated by Eskom, the utility’s revenue is negatively impacted. 

The only way Eskom can try to recover this revenue is by hiking prices. This trend has exacerbated the need for the utility to raise tariffs to cover its increased operating costs. 

Mongwe also said the trend will likely accelerate as the government moves towards creating an open market for electricity by mid-2026, where Eskom will be forced to compete against other generation sources for sales. 

In the short term, it has already impacted Eskom’s sales and forced the company to apply for further increases in the above inflation in the coming three years. 

This is shown in the graphs below, courtesy of Mongwe and Old Mutual.