The recent bout of load-shedding reminded us of the fragility of the national electricity grid, despite welcome progress over the past year. Beyond Eskom’s inability to maintain production, the challenges reflect deep-seated changes in both demand and supply.
In response, we need a more innovative and honest discussion of what a fit-for-purpose national electricity system should look like. Clearly, Eskom cannot sustain its old monopoly and SA has to relinquish its disproportionate reliance on coal. But it’s not clear what new system will provide better solutions for businesses and families.
The structural crisis in the national electricity system reflects fundamental changes in the economy and technology, as well as past missteps at Eskom. To start with, more than 15 years ago Eskom decided to invest in two gargantuan new coal plants at Medupi and Kusile.
Long delays in completing the plants ultimately led to the load-shedding crisis in 2022/23. They also escalated Eskom’s financing costs. Then, from 2020 Eskom’s coal prices rose by more than a third in constant rand. In the past decade it began to pay closer to the global price, which soared in 2022 after Russia’s invasion of Ukraine.
Eskom’s response to rising costs was to ask the regulator for aggressive tariff hikes. As a result, last year its revenues rose to 4% of GDP, up from under 2% in the late 2010s and below 3.5% before the pandemic. From 2020 to 2024, Eskom tariff increases averaged 7% above inflation, up from 2% annually in the five years to 2020.
As its revenues jumped Eskom’s sales declined, thanks to a combination of consumer resistance and, in the 2020s, continual breakdowns. Its output is now almost 25% lower than in 2010. Half of the fall happened over the past five years. Given Eskom’s huge sunk costs, the decline in sales means its unit costs for electricity have climbed, aggravating the upward pressure on tariffs. This is what a utility death spiral looks like.
The expansion in independent power suppliers means sales of grid electricity overall did not shrink as fast as Eskom’s output alone. Private producers now generate 13% of electricity on the grid. As a result, total grid sales dropped only 11% from the early 2010s and 6% from 2019.
While grid sales fell, both the economy and the population grew, resulting in plummeting electricity intensity. Grid electricity used per R1m of GDP has dropped almost 25% in the past 15 years, with a 6% decline from 2019. Each South African now uses on average 27% less grid electricity than in 2010 and 12% less than in 2019.
Rapid growth in off-grid energy has partially offset the fall in on-grid sales. In the three years to 2024 off-grid capacity registered with the National Energy Regulator of SA climbed from under 0.2GW to almost 11GW. Off-grid generation mostly uses new renewable technologies, with generation costs far below Eskom’s huge coal plants. Two thirds of all registered off-grid capacity comes from solar and a quarter from wind.
These investments in renewable energy will pay for themselves over time, but the initial costs are high. Most users cannot manage the initial investment. Given SA’s deep economic inequalities, the main beneficiaries have been established businesses and rich households. According to the general household survey, in 2023 only 1% of households among the poorest 60% had solar panels, compared with 11% in the richest decile.
Ultimately, Eskom’s enormous but inefficient investments from the early 2010s mean it cannot compete with newcomers in generating electricity, whether on or off the grid. The question is how SA will manage the shift to a fundamentally new electricity model using more modern technologies.
Reliable, affordable electricity has been a critical economic advantage for SA over the past century. The question is how to sustain it while shifting to profoundly new models of generation, financing and use.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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