electricity

 

The cost of electricity is increasing. Coupled with the financial impact of the pandemic and the instability of our power supply, the rising cost of electricity is certainly a matter not to be ignored.

In this article, we give an overview of the latest tariff increase that was approved by the Gauteng High Court, how much it will cost, as well as the reasoning behind the increase. We also discuss the impact on the vulnerable industrial sectors, and pose solutions to lessen the impact of the rising electricity costs. 

The tariff increase explained

South Africans are expected to experience a sharp increase in electricity costs. This is a result of the Gauteng High Court ruling that R10 billion be added to Eskom’s allowable revenue for the 2021/2022 financial year. This increase comes at a time after a recent a R6 billion increase was approved by the regulator, which started in April 2021. As stated by the National Energy Regulator of South Africa (NERSA), this will result in an average tariff percentage increase of 15.63% in 2021/2022.

The ruling follows the allowance of Eskom’s application to recover R23 billion in the 2021/2022 financial year, as per a court judgement that was handed down in July 2020. It was found by the court that NERSA should not have included a R69 billion government bailout into the calculations when it was determining the tariff increase for the utility.  As a result, NERSA must now add the required R69 billion which will be broken up into three amounts of R23 billion, which will be added to electricity tariffs over the next three financial years.

Instead of the R23 billion being recovered, R10 billion was agreed, as NERSA had already decided on other Eskom applications that will cause a tariff increase in the 2021/2022 financial year.

How Much Will the Tariff Increase Cost?

As per the court ruling, the average standard tariff for Eskom customers will increase by 5.44c/kWh, resulting in the aggregate average standard tariff for direct customers being 134.30c/kWh.

Why Has There Been an Increase in Electricity Tariffs?

According to the power utility, the order will contribute to the “user pay” principle and it will likely reduce the financial burden of the government supporting Eskom. This will allow the government to focus on other priorities. The “user pay” principle is a pricing approach that is based on the idea that the most efficient allocation of resources will occur when the consumer pays the full cost of the goods that they consume.

Eskom also stated that the implementation of this order will enable the power utility to move towards addressing the revenue shortfalls that it had experienced, and will allow the company to recover the incurred costs to produce electricity. This will help improve Eskom’s financial sustainability.

Is all lost for the poor and the vulnerable industrial sectors?

Not entirely… Eskom’s Chief Financial Officer, Calib Cassim, welcomed the decision made by the Gauteng High Court and stressed that poor residential customers will still be supported by the free basic electricity programme as well as affordable subsidies provided for in the NERSA tariff decision.

Industrial sectors that have been identified as vulnerable have been considered by NERSA and have both short-term and long-term negotiated pricing agreements which was put into effect by the Department of Mineral Resources and Energy.

Can these rising electricity costs be avoided?

The implementation of energy-efficient measures and alternative power, such as a solar system, can reduce reliance on the electricity grid. Although the initial cost of a PV system can be high, the increase in electricity tariffs has reduced the duration of the return on investment.

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