Eskom about to put the screws on consumers’ pockets

Consumers will soon be expected to cough up even more for electricity, following Eskom’s latest court victory in their bid to recoup as much money as possible, while plans to build another expensive coal power station also remain on the table.

The ailing state-owned enterprise’s recent court victory allows them to recover R69 billion in equity support from government, which Eskom said was “incorrectly deducted” by energy regulator Nersa since December 2017. The recovery thereof will be done via tariffs allowing for an annual recovery of R23 billion over the next three years.

Nersa had deducted the R69 billion equity injection given to it by the government in its allowable revenue method for the 2019/20, 2020/21 and 2021/22 financial years. Government had made this equity injection to help Eskom service its high debt.

The court, however, found that Nersa “got it horribly wrong” and acted unlawfully when it included the equity injection in its calculation of Eskom’s allowable revenue from 2019 to 2022.

The previous four-year Multi-Year Price Determination (MYPD) made by Nersa has now been been set aside. This leaves electricity customers relying on Eskom for power caught in the middle of what Eskom deems “a healthy development in the South African democracy”.

The only way out seems to be to brace for further electricity tariff increases – unless you are one of the few consumers who can afford to get off the grid.

“At the moment, the average price of electricity is much lower than what it costs to efficiently produce… This decision allows for the narrowing of this gap,” Eskom spokesperson Sinkonathi Mantshantsha explained.

The court victory means Eskom tariffs for the 2021/2022 financial year will increase from 116.72 cents to 128.24 cents per kilowatt hour.

Without taking the effects of the global pandemic into account, rough estimates of tariff increases at consumer level are between 10% to 15%, and a 20% increase on municipalities. Mantshantsha said increases for 2021/22 are estimated to be around 10%.

“Eskom is making every effort to recover outstanding debt from municipalities and other customers. When Eskom makes a tariff adjustment application, the calculations are done as if all billed revenue was recovered. Thus the burden is not passed on to other customers.”

In a statement released after the judgment, Nersa said it would advise on the way forward in due course, but opined: “The judgment, if left uncontested, will not only disrupt the industry, but will further suppress economic recovery, considering the current threat that the country’s economy is facing.”

Another expensive coal power plant on the horizon?

Although yearly tariff increases are not new, Greenpeace senior political advisor Happy Khambule explained that price increases are often so inefficient that they result in people moving away from relying on Eskom, which provides a window of opportunity to renew the call to move towards clean, renewable energy.

“If Eskom was forecasting the same number of people demanding electricity as they are now, there is a problem. People are using less power [from Eskom], at a time where renewable energy prices are reducing.”

Khambule said that since the MYPD started in 2008 and was made systematic in 2013, average electricity tariffs increased from 66c to 128c per kilowatt hour in a few short years.

According to Centre for Environmental Rights (CER) advocate Nicole Loser, renewable energy is on average 50% cheaper than coal, and not nearly as detrimental to the health of residents or the environment as fossil fuels.

Despite this, decisions were made last year by Mineral Resources and Energy minister Gwede Mantashe and Nersa to add a further 1,500 MW of new coal capacity to the country’s energy ‘mix’.

Litigation proceedings are currently underway to provide answers to this decision.

“South Africa is not doing itself any favours by making pro-fossil fuels decisions. This is not the time to be building new coal plants. We need to look at saving money and costs. From a cost perspective, it doesn’t make sense,” Loser explained.

In 2019, the World Economic Forum ranked South Africa second-last out of 115 countries in its annual energy transition report. In 2020, we moved up eight spaces and are now ranked 106th.

South Africa’s transition readiness was given a dismal 38%.

The country will continue to move backwards while the world transitions into providing sustainable energy if our reliance on fossil fuels continues, Khambule said.

Consumers pushed off the grid

Picture: iStock

With no motivation for consumers to remain loyal to Eskom, who recently renewed its load shedding and reduction strategies, Khambule said a definite shift towards renewable energy solutions has been observed.

The imminent tariff increases could convert those on the fence about no longer wanting to rely on Eskom’s inconsistent power supply, which would cut off Eskom’s main revenue stream.

“People are converting to renewables to cover increases in electricity and load shedding. It is the consumer base that is keeping Eskom alive. No one is paying as much as standard electricity consumers,” he warned.

This, he summarised, means Eskom celebrating their recent court victory may not be a win as much as a nail in the SOE’s coffin.

“Even at lower levels of society, people that have been waiting for electricity and now have no prospect of getting it are getting innovative, and are turning to solar energy.”

South Africa’s climate provides significant potential for the domestic use of renewables, and costs within the sector continue to fall.

But if the country continues to rely on coal in its energy mix, further cost decreases in renewable energy may be many years away, Khambule lamented.

Eskom and Nersa’s court battle has nothing to do with ordinary, tax paying citizens, he said. “They’re just caught in between this power struggle.”

“Eskom will keep getting bailouts because powerful stakeholders feel it is important. But it is destroying the fabric of society. Solutions are there and need to be understood. This will lead to job creation within a new industry with new ideas.”

“Fighting Eskom is a losing fight, but the solutions are there.”

Despite Greenpeace predicting the unfavourable ruling which supports Eskom’s bid to claw back as much money as possible, there are many ways that these issues can be resolved, the most significant being a shift away from relying on an ailing SOE, and moving towards an industry geared to provide healthier and more reliable electricity solutions to consumers and the environment, Khambule emphasised.

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