Wiktor Wise
Electricity prices in South Africa have been on an upward trajectory for several years, with the national power utility, Eskom, implementing a series of tariff increases. In April 2021, electricity prices rose by 15.63%, followed by a further increase of 9.61% in April 2022. The trend continued into 2023, with an 18.65% hike, and a 12.74% increase already approved for the next financial year. These price hikes have sparked concerns about affordability, the impact on businesses, and the broader economic implications for South Africa. With Eskom remaining the dominant supplier of electricity in the country, citizens have limited choices, and the rising costs are passed on to consumers.
| Characteristics | Values |
|---|---|
| Electricity price increase in 2021 | 15.63% |
| Electricity price increase in 2022 | 9.61% |
| Electricity price increase in 2023 | 18.65% |
| Electricity price increase in 2024 | 12.74% |
| Electricity price increase in 2025 | 36.1% |
| Reason for increase | Higher fuel costs, higher procurement from independent power producers (IPPs), depreciation of power generation assets |
| Electricity supplier | Eskom |
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What You'll Learn
Court order success against NERSA
In 2021, Eskom had a court order success against NERSA, which allowed them to increase electricity prices by an average of 15.63% in April 2021. A further increase of 9.61% was approved for April 2022.
Eskom's court victory against NERSA is part of a broader context of electricity tariff increases in South Africa. From 2007 to 2022, electricity tariffs increased by 653%, while inflation over the same period was only 129%. This has resulted in electricity prices increasing fourfold in real money terms over 14 years.
The National Energy Regulator of South Africa (NERSA) has been accused of unlawfully approving municipal electricity tariffs. In October 2022, a court ruling found that NERSA had been setting municipal electricity tariffs unlawfully for over a decade. The court ordered NERSA to change its methodology and base electricity tariffs on the cost of supply, as outlined in the Electricity Regulation Act.
The civil rights group AfriForum has been actively involved in challenging NERSA's approval of municipal electricity tariffs. They brought an urgent court application against NERSA, seeking to spare municipal electricity users from tariff hikes. The court ruled in AfriForum's favour, and municipalities that had not submitted cost-of-supply studies were required to charge the electricity rates approved for the 2023/24 financial year.
NERSA has welcomed the High Court's decision to dismiss Eskom's urgent relief application to increase tariffs for the 2020/21 and 2021/22 financial years. However, NERSA has regularly lost court challenges by Eskom regarding tariff determinations.
The ongoing legal disputes between Eskom and NERSA, as well as AfriForum's interventions, have significant implications for electricity pricing in South Africa.
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Restructuring of electricity supplier Eskom
Eskom is the only electricity utility in South Africa and has a monopoly on the country's electricity supply, with around 16.8 million subscribers. It was founded by the Electricity Act of 1922 and generates approximately 95% of the electricity used in South Africa.
Eskom has been criticised for its exorbitant electricity tariff increases, which have been far above the inflation rate. In 2023, for example, Eskom increased tariffs by 18%, while inflation was only at 4.4%. As a result, some companies have started generating their own electricity, and individuals have moved to rooftop solar systems, causing a 2% drop in Eskom's electricity sales.
In 2019, the South African government acknowledged that Eskom was in serious need of restructuring. In February of that year, President Ramaphosa announced that the government would split Eskom into three new state-owned entities, each focusing on generation, transmission, and distribution. This restructuring aimed to address the serious operational and financial problems facing the company.
As part of the restructuring, a new transmission entity called the National Transmission Company of South Africa (NTCSA) was established as a wholly-owned subsidiary of Eskom. This entity is responsible for setting up thousands of kilometres of transmission lines to ensure electricity reaches where it is needed. The Transmission Development Plan (TDP) for 2020-2029 outlines Eskom's plans to increase its transmission infrastructure by approximately 4,800 km of extra-high-voltage transmission lines and over 35,000 MVA of transformer capacity over ten years.
Trade unions have expressed concerns about the potential job losses resulting from the restructuring. Between 2020 and 2021, two thousand employees lost their jobs, and six thousand more jobs are reportedly at risk.
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High electricity costs hurt businesses
South Africa's state-owned electricity company, Eskom, has applied for a 36.1% electricity price hike from April 2025. This is in addition to the 15.63% and 9.61% increases in 2021 and 2022, respectively. The high electricity costs in South Africa are detrimental to businesses, affecting their sustainability and profitability.
The increases in electricity costs have a negative impact on businesses of all sizes, from small and medium-sized enterprises to large industrial corporations. Rising energy costs lead to increased operational expenses, making it challenging for businesses to remain profitable, particularly in energy-intensive industries such as manufacturing and retail. For instance, the manufacturing and retail sectors are estimated to lose approximately R1 billion per stage, per day due to scheduled power cuts.
High electricity costs also result in increased running costs for businesses. Some firms are forced to invest in backup generators as an alternative to the unreliable grid electricity, reducing their ability to invest in more profitable ventures. The frequent load shedding and power outages constrain economic wellbeing by reducing output from electrical appliances and discouraging investments in new welfare-improving and income-generating technologies.
Moreover, the unreliable electricity supply affects businesses in various sectors, including retail, service, manufacturing, and industry. The persistent load shedding causes frustration among businesses and industries, impacting their productivity and profitability. The economic losses due to power interruptions are estimated to cost between one and five percent of the GDP of countries across Sub-Saharan Africa.
To mitigate the impact of rising electricity costs, some companies have installed their own generation capacity, such as rooftop solar systems. However, this has resulted in a drop in electricity sales for Eskom, leading to a decrease in revenue. As a result, Eskom has warned that it is pricing itself out of the market.
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Lack of investment in electricity
South Africa's electricity prices have been increasing at an alarming rate, with a 36.1% hike expected in 2025. The power utility company, Eskom, has requested and received approval for numerous tariff increases in recent years, with a 15.63% increase in 2021, 9.61% in 2022, and 18.65% in 2023. These increases are often far above the inflation rate, which has led to concerns about the affordability of electricity in the country.
One of the critical factors contributing to the escalating electricity prices in South Africa is the lack of investment in the electricity sector. This lack of investment has been a significant concern for South Africa's energy framework and has resulted in a mismatch between electricity supply and demand. As a result, Eskom, the sole supplier of almost all of the country's electricity, has struggled to meet the growing demand, leading to a rise in prices.
The lack of investment in electricity infrastructure has also hindered the country's ability to transition to more sustainable and environmentally friendly energy sources. South Africa has a heavy dependency on coal-fired power, which is not only harmful to the environment but also subject to fuel cost fluctuations. The failure to invest in alternative energy sources and new power generation assets has contributed to Eskom's financial challenges, with the company citing higher fuel costs and depreciation of assets as reasons for requesting tariff increases.
Moreover, the lack of investment in electricity has limited the development of a competitive electricity market in South Africa. With Eskom maintaining its monopoly as the primary supplier, consumers have little choice but to rely on Eskom's electricity, regardless of the costs. This lack of competition has reduced the incentive for Eskom to maintain competitive pricing, and the company has been accused of "pricing itself out of the market."
The South African government has acknowledged the need for restructuring and policy adjustments to address these issues. However, as of 2022, the restructuring process was still ongoing, and the effectiveness of these changes in attracting investment remains to be seen. In the meantime, communities and businesses are encouraged to explore alternative energy technologies and implement energy-saving measures to mitigate the impact of rising electricity costs.
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Dependency on coal-fired power
South Africa has a heavy reliance on coal-fired power, with approximately 80-85% of the nation's electricity generated via coal-fired power stations. This dependence is a key reason why electricity prices have increased.
Firstly, South Africa has an abundance of cheap coal, which has been a low-cost fuel source for electricity generation. This has led to a lack of investment in alternative energy sources and infrastructure. As a result, South Africa is now facing a massive energy shortfall, with an estimated 4,000-6,000MW of power missing from the grid every day, resulting in frequent blackouts.
Secondly, the two newest coal-fired power stations, Medupi and Kusile, have been plagued by cost overruns and design flaws, and are not operating at full capacity. This has further exacerbated the energy shortfall and led to an increase in electricity prices as Eskom, the country's sole electricity supplier, has had to invest in alternative energy sources and infrastructure to compensate for the lack of coal-fired power.
The South African government has acknowledged the need to restructure the energy sector and move away from coal-fired power to renewable energy sources. The Renewable Independent Power Producer Programme aims to increase the share of non-hydro renewable energy sources from 9.3% in 2023 to 17% by 2032. The government also plans to decommission and repurpose outdated coal-fired power plants, with seven facilities scheduled to shut down by 2032.
However, the transition to renewable energy will not be a quick fix for South Africa's energy shortfall. The development of renewable energy sources requires significant time and investment, and the country will continue to rely on coal-fired power for the next decade. In the short term, South Africa may need to consider gas-fired power as an alternative, although this option is also limited by the lack of necessary infrastructure.
In conclusion, South Africa's dependence on coal-fired power has contributed to the increase in electricity prices due to the lack of investment in alternative energy sources and infrastructure, resulting in an energy shortfall and frequent blackouts. While the country is taking steps to transition to renewable energy, this process will take time, and coal-fired power will continue to dominate the energy sector in the coming years.
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Frequently asked questions
Electricity prices in South Africa have increased due to several factors, including:
- The need for restructuring of the national power utility, Eskom.
- Eskom's success in court against NERSA in early 2021, which allowed them to increase prices.
- High fuel costs, higher procurement from independent power producers, and depreciation of power generation assets.
- South Africa's energy framework, which is based on the World Energy Trilemma Index, promoting a balanced approach between energy security, affordability, and sustainability. However, the country currently struggles to meet these goals due to misaligned energy policies, lack of investment, and dependence on coal-fired power.
South Africans have limited choices for their energy sources, with Eskom being the sole supplier for nearly all the country's electricity needs. As a result, ordinary citizens are forced to rely on electricity supplied by Eskom, regardless of the costs. The price hikes negatively affect businesses, with enterprises of all sizes highlighting that utility costs, mainly electricity, impact their sustainability.
There are several measures that can be implemented to address the issue:
- The government can adjust its policies to ensure that increases in electricity tariffs are in line with the rate of inflation, making them more affordable for citizens.
- Communities can conserve electricity at a household level to reduce the country's overall energy consumption.
- Businesses can explore alternative energy technologies and implement energy-saving measures.
- Review and adjust subsidy policies to ensure that users have access to affordable electricity, especially in cases of negative financial situations.
