Eskom wants an increase in electricity tariffs of up to 44% next year

20 Jun 2024

Eskom will ask SA’s energy regulator for an electricity tariff increase of 36.15% in 2025 for customers it directly charges and supplies. Customers relying on electricity supply from local authorities (municipalities) could also be slapped with an increase of 43.55%.

Eskom plans to apply for an increase of up to 44% in the electricity tariffs it charges customers, and if the power utility has its way, the increase could be implemented as early as April 2025.

Daily Maverick has seen a confidential draft document by Eskom detailing increases in electricity tariffs for its financial years from 2026 up to 2028 that it plans to submit to the National Energy Regulator of South Africa (Nersa). The document, dated May 2024, also details the revenue Eskom wishes to generate from the tariff increases.

The draft document is the first of many steps that Eskom is required to follow in Nersa’s revenue application process, which, after a lengthy public comment and hearing process, will determine the average price of electricity to consumers.

In the draft document, Eskom wants to ask Nersa for an increase in the standard tariff it charges non-municipal customers of 36.15% during its financial year 2026; 11.81% in 2027 and 9.10% in 2028. These are customers directly charged by Eskom and supplied with electricity by the power utility.

If approved by Nersa, the first increase would be implemented from 1 April 2025.

Customers relying on electricity supply from local authorities (municipalities) would also be hit hard as Eskom is considering increases of 43.55% in 2026; 3.36% in 2027 and 11.07% in 2028, with the first increase set to be implemented on 1 July 2025.

Revenue generation

These large increases would pave the way for Eskom to potentially generate revenue (by charging customers for electricity usage) of R446-billion, R495-billion, and R537-billion for 2026, 2027, and 2028 respectively.

Eskom wants to convince Nersa again to award it tariff increases that are reflective of its costs to generate, transmit and distribute (though its role in this matrix will soon change).

However, for many years Nersa has disagreed with Eskom on its tariff wishes and the revenue it should generate from charging electricity to customers. This has resulted in the regulator often approving a significantly lower tariff for Eskom than the power utility desired.

For example, Eskom asked for a 20.5% tariff increase for 2022/23, but Nersa granted an increase of only 9.61%. For its 2024/25, Eskom was granted an increase of about 13% despite asking for a 32% adjustment.

Eskom has long argued that it does not generate enough revenue from electricity sales to fund its operations without financial assistance from the government (in the form of taxpayer-funded bailouts) and to service its smothering debt load of more than R200-billion.

Read more in Daily Maverick: Eskom posts record R23.9bn financial loss

It is not clear if Eskom has formally submitted an application to Nersa, which would confirm the percentage increases in electricity tariffs that are contained in the draft document.

Eskom told Daily Maverick only that it was not in a position to comment on the matter, which is still subject to consultations with players such as the National Treasury and the South African Local Government Association (Salga).

“Eskom must respect the confidential consultation process with Salga and the National Treasury. Once Nersa has published the revenue application according to its processes, Eskom will engage on the matter,” said the power utility.

In motivating for the proposed percentage increases, Eskom has cited operational and financial challenges it faces, and the opening up of South Africa’s electricity market that will end its 100-year monopoly.

Eskom argues that it faces pressure to increase its electricity generation capacity due to the delayed implementation of the country’s renewable energy programme.

In its confidential document, Eskom said that from 2019 to 2023, more than 8,000MW of capacity (largely from solar photovoltaic power and wind) was not available to the national grid as envisaged by the Integrated Resource Plan of 2019.

Read more in Daily Maverick: IRP2019: coal dominance continues, with nods to renewables – and nuclear

“In addition, it is unlikely that further capacity that was expected to be made available timeously will occur. This includes the dispatchable 1,500MW of coal and 3,000MW of gas capacity,” Eskom has warned in the draft document, adding that its coal-fired power stations are forced to step in to fill the generation capacity gap.

Eskom said further weakening its financial situation and operational strength is its response to the effects and aftermath of State Capture as well as criminality, in the form of fraud, corruption, theft and sabotage.

“Over time, these issues have eroded Eskom’s operational and financial sustainability as well as its reputation and relationships with key stakeholders.”

Then there is the problem of Eskom’s inability to recover electricity payments from municipalities. Arrears have continued to escalate to unsustainably high levels, with Eskom saying the debt stood at R74.43-billion by the end of April this year.

The leaked document says the debt has grown by R15.9-billion “year-to-date” – Eskom’s financial year runs until 31 March. This is arguably an indication that the scheme launched by the National Treasury and Eskom — in which the arrear electricity debt of municipalities will be written off over the years, subject to certain conditions — is largely not having the desired effect of reducing the municipal debt load.

Read more in Daily Maverick: Municipalities hoping to access R56-billion in Eskom-related debt relief must meet certain criteria

Eskom also wants Nersa to review Eskom’s tariff structure because the Electricity Regulation Bill – which recently passed through the National Council of Provinces – is expected to bring fundamental changes to the electricity market and introduce competition.

Read more in Daily Maverick: Future looks sunny for expanding renewable energy sector in SA

The Bill is crucial for Eskom’s unbundling as it will pave the way for establishing a state-owned transmission system operator that will operate the national grid and enable the competitive trading of electricity.

The transmission operator is set to be operationalised by 1 July 2024.

It is understood that when the Bill comes into law, Eskom tariffs will still be regulated, as they are currently. However, the pricing of contracts between a buyer and seller of electricity, such as a municipality (buyer) and independent power producer (seller) would be open and set competitively.

Eskom is preparing for a possible negative impact on its revenue generation profile as a result of this Bill, and this is why the power utility is pushing for tariffs that are reflective of its costs.

Nersa uses a formula to determine Eskom’s return on assets (ROA), which in turn determines what it can claim for costs — such as depreciation and those related to energy generation — through the tariff.

Eskom, through its application to Nersa, wants the ROA increased, which it said would improve its financial position and reduce the chances of it approaching the government for financial assistance – once again. DM

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

Revenue generation