Community organisations presenting as to why NERSA should say No to Eskom’s MYPD6 tariff increase of 36% in Lephalale at the Limpopo public hearings
23 October 2024: As the government pats itself on the back for providing South Africans with over 200 days with no load-shedding, its next serious concern should be the millions of South Africans who find electricity so expensive that its availability matters little because they cannot afford to use it.
Approximately 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 energy 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 approximately 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 approximately 60% in just three years. If approved by the National Energy Regulator of South Africa, what will these increases mean for those experiencing energy poverty, and how many new households will they plunge into energy poverty?
Kgosientso Ramokgopa, the Minister of Electricity and Energy, has stated that 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 in South Africa. A crisis which has its roots not only in the ‘capture’ of Eskom, but in a host of ineffective and contradictory policies in the energy sector.
Community protests outside the Gauteng NERSA public hearings on Eskom’s 36% tariff increase application for MYPD6.
The government intervention meant to address energy poverty, the provision of Free Basic Electricity (FBE) to qualifying households, is a failure. Firstly, the amount of free electricity offered is too little, and secondly, only 20% of the targeted beneficiaries actually receive FBE. Despite Treasury transferring funds to municipalities for ten million recipients, only two million receive FBE because municipal systems are so dysfunctional, and oversight so poor, that FBE 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 which 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 have been saying for some time that if Eskom cannot produce affordable electricity, then the cost-recovery model that currently 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 baulk at rejecting the cost-recovery model, asking where funds will come from, but as loadshedding 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 why Eskom cannot produce affordable electricity is because two decades of corruption and managerial incompetence has caused its costs and debts to spiral. Costs and debts that 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.
Over 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 Eskom significantly more to generate electricity from coal than it would if it were generating it from renewables. This unnecessary cost is a result of the previous Department of Mineral Resources and 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’.
An amount of 6% 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 was paying 22c per kWh for its electricity, compared to R1.40 per kWh for domestic customers.
Hillside’s current owners, the Australian company South32, signed a new ten-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 actually exist, although Treasury has asked Eskom to explain why it recently signed ten 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 R6 billion. These NPAs result in Eskom’s ordinary customers, including those experiencing energy poverty, directly cross-subsiding 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 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. Furthermore, 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.
This article was first published in https://www.timeslive.co.za/sunday-times/business/opinion/2024-10-27-electricity-is-back-but-who-can-afford-it/
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