As the government pats itself on the back for more than 200 days without load-shedding, its next serious concern should be the millions of South Africans who find electricity so expensive its availability matters little because they cannot afford to use it.
About 45% of South African households experience energy poverty, having limited or no access to the provision of modern, affordable, and reliable energy sources that meet their daily needs. Research shows that affordability is the main driver of energy poverty in South Africa. This is perhaps unsurprising given that Eskom has increased its tariff in real terms by about 600% since 2007.
Given this chronic energy poverty, what are we to make of Eskom’s recent announcement that it wants to increase the electricity tariff by a massive 36% (44% for municipal customers) for 2025/26, by 12% for 2026/7 and 9% for 2027/28 — tariff increases of about 60% in just three years? If approved by the National Energy Regulator of South Africa, how many new households will they plunge into energy poverty?
Kgosientsho Ramokgopa, the minister of electricity & energy, has said these tariff requests have “huge implications” that will have “a disproportionate impact on the poor”, indicating last month that the methodology used for calculating electricity tariffs was under review. This appears too little too late for Eskom’s current request as Ramokgopa stated earlier this month that an unnamed government “policy intervention” could be suspended for five years, “to provide some degree of relief”.
That Peter is to be robbed to pay Paul shows the extent of the electricity tariff crisis. A crisis that has its roots not only in the “capture” of Eskom, but in a host of ineffective and contradictory policies in the energy sector.
That renewables are cheaper and will reduce Eskom’s costs is something the government has known for at least a decade
The government intervention meant to address energy poverty, the provision of free basic electricity (FBE) to qualifying households, is a failure. First, the amount of free electricity offered is too little, and second, only 20% of the targeted beneficiaries actually receive FBE. Despite the Treasury transferring funds to municipalities for 10-million recipients, only 2-million receive FBE because municipal systems are so dysfunctional, and oversight so poor, that the funds get absorbed into general budgets.
In addition, the FBE allocation of 50kWh per household per month is inadequate. Even in 2010, research from EarthLife Africa showed that 200kWh was required as a minimum to shield households from energy poverty, a figure that the Public Affairs Research Institute (Pari) states should now be 350kWh. The FBE system needs a complete overhaul.
As well as overhauling FBE, the entire funding model for Eskom needs to be revised. Some within civil society say that if Eskom cannot produce affordable electricity, then the cost-recovery model that dictates tariffs is not fit for purpose. As Tracey Ledger from Pari argues, the cost recovery model “is an extremely effective model for ensuring that poor households remain poor, and that inequality is firmly entrenched”. The fundamental and inherently moral question that needs to be asked is, should a public entity providing an essential public service be governed by cost reflective pricing?
Some will balk at rejecting the cost-recovery model, asking where funds will come from, but, as load-shedding has so painfully demonstrated, access to affordable electricity is essential for socioeconomic growth, be it at factory or household level. Access to affordable electricity supports the creation of small businesses, improves educational outcomes, and fosters food security, all of which increase household incomes and expenditures to the benefit of the economy.
We must not forget that the main reason Eskom cannot produce affordable electricity is because two decades of corruption and managerial incompetence caused its costs and debts to spiral. Costs and debts that the Treasury is determined not to see repeated, and which the current management of Eskom mercifully appears not to want to repeat.
A closer look at the 36% tariff application from Eskom also reveals costs have increased due to poor policy choices (more managerial incompetence) by government, and sweetheart deals Eskom signs with major energy users.
More than 8% of the tariff increase is the result of the government’s decade-long refusal to transition away from coal to cheaper renewable energy sources. Put simply, and acknowledged by Eskom, it is costing significantly more to generate electricity from coal rather than renewables. This unnecessary cost is a result of the previous department of mineral resources & energy’s determination to thwart the rollout of renewables in favour of pleasing entrenched coal interests, many of which are politically connected.
A further 1.6% of the tariff comes from the implementation of the carbon tax on Eskom. Despite being pitifully low by international standards, and already delayed by six years for Eskom, Ramokgopa recently stated that its implementation could be delayed yet further to ease tariff increases. Once again, if government had not stymied the development of renewables, the amount of carbon tax to be paid by Eskom would be significantly less.
That renewables are cheaper and will reduce Eskom’s costs is something the government has known for at least a decade. This fact was recently acknowledged by Ramokgopa, who stated that the more renewables there are in the energy mix “the greater the possibility of us making electricity affordable”.
Six percent of the tariff comes from secret deals that Eskom signs with large customers. Known as Negotiated Price Agreements (NPAs), these deals are shrouded in secrecy. What little evidence there is, for which we can thank the media and civil society, illustrates that NPAs result in massive discounts for large customers. For example, in 2014 it was revealed that the foreign owners of the Hillside smelter in Richards Bay were paying 22c per kWh, compared to R1.40 per kWh for domestic customers.
Hillside’s current owners, the Australian company South32, signed a new 10-year NPA with Eskom in 2021, the details of which are secret. Such is the secrecy around NPAs that it is not known how many exist, though the Treasury has asked Eskom to explain why it recently signed 10 more, in addition to similar deals signed with Glencore last year. In terms of tariff policy, NPAs are only supposed to exist if companies would not be sustainable on standard tariffs. The same year that South32 signed its 10-year NPA it reported a record dividend of R6bn. These NPAs result in Eskom’s ordinary customers, including those experiencing energy poverty, directly cross-subsidising big businesses, many of which are foreign-owned and take most of their profits overseas.
It is obvious that the cost-recovery model which manages Eskom’s tariffs needs to be completely and intelligently revised. It is also obvious that the government urgently needs to fast track a massive expansion in renewable energy to realise a just transition that leaves no one behind, including those enduring energy poverty.
Sadly, despite the rhetoric around energy poverty from Ramokgopa, government electricity generation plans abandon least-cost procurement and seem set to introduce yet more unnecessary costs into the energy mix. The draft Integrated Resource Plan (2023) artificially curtails the amount of renewables that can be built, while greatly expanding more costly gas generation. In addition, the government’s witless determination to pursue new nuclear power promises to bring the most expensive form of utility-scale electricity generation into the energy mix. Until these fundamental problems are addressed, South Africans should sadly expect yet more double-digit tariff increases from Eskom.
• Thabo Sibeko is the programs manager at Earthlife Africa Johannesburg, with a focus on stopping coal and other fossil fuels, while also promoting a just transition, through the organisation’s Renewable Energy initiative.
• Dr Neil Overy is an environmental researcher, writer and photographer. He has worked in the nonprofit sector for more than 20 years and is a research associate in Environmental Humanities South at the University of Cape Town.
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