The Department of Mineral Resources and Energy is actively examining how electricity prices can be reduced across South Africa. As part of this effort, the department has officially assigned the South African National Energy Development Institute (SANEDI) the task of conducting a detailed review of the country’s electricity pricing framework. This move signals a more hands-on approach by government in reworking the cost mechanics behind a utility that millions depend on each day. This initiative is part of a broader government-led effort to restructure how electricity is priced and delivered to households.
Key Takeaways
- Electricity Pricing Overhaul Underway: The Department of Mineral Resources and Energy has commissioned SANEDI to review South Africa’s electricity pricing structure, aiming to reduce costs for households while maintaining Eskom’s financial sustainability.
- Affordability Crisis Affects Millions: Rising electricity costs are pushing many South African families into energy poverty, with some forced to choose between essential items like food and electricity. The government acknowledges this burden and is prioritising reforms.
- Renewables Offer Long-Term Relief: Although past investments in coal and renewables have driven up tariffs, the maturing renewable energy sector now presents an opportunity to lower electricity costs by offsetting the high expenses of coal-based generation.
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Presidential Acknowledgement of Strain on Consumers
Towards the end of the previous year, President Cyril Ramaphosa acknowledged that government-led energy reforms are essential for improving the country’s energy security. One of the key aims is to ease the financial pressure currently placed on consumers through electricity tariff increases. He noted that unless action is taken soon, household affordability may deteriorate even further, fuelling public dissatisfaction and economic stagnation. He recognised that the cumulative effect of rising electricity costs has contributed to the financial stress experienced by both South African households and businesses.
President Ramaphosa has emphasised that any new pricing structure must strike a delicate balance. While it is important for Eskom to remain financially viable, this objective should not come at the expense of ordinary consumers, many of whom are already overburdened. Experts have warned that if tariff increases continue unchecked, Eskom risks losing paying customers altogether as more households explore solar and alternative off-grid solutions. The goal is to find a pricing path that allows Eskom to operate sustainably without disproportionately affecting the people who rely on electricity daily for basic needs.
Energy Minister Warns of Worsening Affordability Crisis
Most recently, the Minister of Electricity and Energy, Kgosientsho Ramokgopa, echoed these concerns and warned that the current cost of electricity is becoming increasingly unaffordable. He stated that many households are being pushed into a state of energy poverty, where electricity is no longer an accessible or manageable monthly expense. This trend is particularly severe in lower-income communities, where energy costs can consume up to 30% of a household’s income, according to recent estimates.
In efforts to respond to this growing problem, Minister Ramokgopa confirmed that the department is in the process of overhauling the national electricity pricing policy. This revision aims to address structural cost inefficiencies and make energy more affordable for the average household.
He added that without reform, the affordability gap between high- and low-income users will continue to widen, exacerbating inequality and social discontent.
Households Forced to Prioritise Food Over Electricity
The minister elaborated on the severity of the problem during a weekend interview with broadcaster eNCA, explaining that the high cost of electricity is having a direct impact on the disposable income of families. Many South Africans are now forced to make stark choices between essential goods, such as food, and purchasing electricity units. For countless families, when it comes down to deciding between electricity or a loaf of bread, food understandably takes precedence. Ramokgopa stressed that it is the state’s obligation to confront this problem head-on, rather than retreat from it. He described the situation as “morally unacceptable” and warned that continued inaction may lead to increased social unrest.
In light of these challenges, SANEDI has now been officially instructed to begin work on reassessing the entire electricity pricing structure in South Africa. The aim of the review is to find viable ways of reducing electricity costs, while simultaneously ensuring continued access to energy services across all communities. This mandate includes engaging with stakeholders such as municipalities, consumer advocacy groups, and the private sector to design a pricing system that is fair, transparent, and viable in the long term.
Historical Pricing Structure No Longer Sustainable
Professor Sampson Mamphweli, who serves as head of the energy secretariat at SANEDI, expressed agreement with both the President and the Minister. He noted that South Africa’s historically low electricity tariffs were once a key advantage in attracting industrial investment and driving economic growth through job creation. However, he pointed out that these lower tariffs were not truly reflective of the actual costs of generating electricity.
Over time, rising maintenance expenses associated with South Africa’s ageing coal fleet have significantly increased the real cost of electricity generation. Despite this, consumer prices did not keep pace, leading to long-standing under-recovery of operational costs. This has led to years of financial instability at Eskom, forcing government to inject billions in bailouts while still grappling with infrastructure failures and load shedding.
Understanding the Cost Structure Behind Tariffs
Professor Mamphweli explained that the current pricing system does allow electricity producers, including Eskom, to recover operational costs and earn a minimum acceptable profit. This profit margin is vital, as it funds the ongoing maintenance and expansion of South Africa’s generation, transmission, and distribution infrastructure. Without it, the system risks becoming financially unsustainable. However, he warned that continual reliance on outdated coal infrastructure, without proper reinvestment, is a major cost driver that urgently needs to be addressed.
Opportunity to Use Renewables to Reduce Coal Costs
While government equity injections have previously filled the gap created by below-cost tariffs, Eskom has consistently advocated for a shift towards cost-reflective pricing to support its long-term stability. Now that load shedding is reportedly under better control, Minister Ramokgopa is focusing attention on the issue of electricity pricing.
Professor Mamphweli confirmed that SANEDI has been tasked with examining the existing framework, along with identifying possible interventions that could lead to reduced energy costs. Part of this mandate also includes strategies for expanding access to electricity for the estimated four to five million households in South Africa that are still without any connection to the grid. The department is also expected to propose region-specific pricing models that reflect local infrastructure costs and community needs.
Fixed Charges Under Review in Certain Municipalities
One of the areas SANEDI is likely to explore is the structure and implementation of fixed monthly charges. Professor Mamphweli cited the example of the City of Johannesburg, which removed the R126 fixed charge previously added to customers’ bills each month, regardless of their energy usage. These fixed fees are typically allocated towards infrastructure maintenance, such as the upkeep of transformers and transmission lines.
Although eliminating fixed charges may benefit low-usage customers in the short term, it creates a funding gap for municipalities. This shortfall often leads to difficult budgetary trade-offs, where municipalities either revise their budgets or scale back on other essential public services. Critics argue that removing fixed charges without a long-term replacement plan could destabilise municipal finances and lead to service delivery failures.
Legacy Costs and Delays at Coal Plants Burden Consumers
Professor Mamphweli also acknowledged the significant financial missteps that have added to electricity costs. Notably, the Medupi and Kusile power stations have experienced repeated cost overruns and delays, with nearly R400 billion spent over the course of 18 years. Design errors and issues with emissions technology have added further complications. However, the decision was ultimately made to complete these projects rather than abandon them, as they represent the most modern coal facilities in the national fleet.
According to Professor Mamphweli, the expected lifespan of these plants ranges from 40 to possibly 60 years, which means that over time, South Africa should still realise value from these substantial investments. However, the benefits remain deferred, and consumers are currently bearing the financial burden of these historical delays and design failures.
These plants, though costly, are now viewed as necessary evils in Eskom’s broader strategy to retire older, less efficient stations.
High Initial Costs of Renewable Energy Added to Tariffs
In addition to the costs associated with coal, consumers are also indirectly covering the initial high costs of renewable energy development. When Independent Power Producers (IPPs) were first introduced, South Africa’s renewable energy sector was still in its infancy. As a result, the early adoption phase involved premium tariffs that were built into Eskom’s pricing. In effect, the relatively lower cost of coal-based electricity was used to cross-subsidise the early renewable projects. This model helped kick-start the country’s renewables industry but came at a financial cost to the average consumer.
Fortunately, the renewable energy sector has matured significantly, and the costs associated with renewable power generation have decreased over time. Professor Mamphweli pointed out that there may now be an opportunity to reverse the earlier subsidy. Without pre-empting the results of SANEDI’s ongoing review, he suggested that the now-lower renewable tariffs could help reduce the overall cost of electricity by offsetting the more expensive coal-based generation. Industry analysts believe this could mark a pivotal shift in energy affordability, provided the policy framework evolves fast enough to support it.
Framework Review in Early Stages, More Announcements Expected
The process of reviewing the electricity pricing framework remains in its early stages. Minister Ramokgopa is expected to make a formal announcement in due course, outlining the specific areas of focus for the pricing review, as well as the institutional structures that will support the initiative. Insiders suggest that the announcement may come as early as the next quarter and could include pilot programmes in selected municipalities.
Conclusion
South Africa is entering a critical phase in its energy reform journey, with the government taking concrete steps to reassess and redesign the way electricity is priced. Faced with growing public frustration, outdated infrastructure, and affordability challenges, officials are turning to SANEDI and other institutions to create a more balanced and inclusive pricing model. The evolving role of renewable energy and the ongoing review of fixed charges and tariff structures indicate a shift toward a more cost-effective and equitable energy future. The success of these reforms will hinge on how well they balance financial sustainability, accessibility, and fairness for all consumers.
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