Electricity Price Surge in 2023: South Africans Brace for Impact

In January, the National Energy Regulator of South Africa (Nersa) granted Eskom, the country’s largest power utility, an 18.65% price hike. Now, Nersa has approved a slightly lower increase of 18.49% for municipal customers, stirring public discontent.

  1. Nersa has approved an 18.49% electricity price hike for municipal customers in South Africa, effective from July 1, 2023, after granting Eskom an 18.65% increase earlier.
  2. The price hike has been met with significant public backlash and has been criticized as unaffordable by municipalities, businesses, and even President Cyril Ramaphosa.
  3. To address financial challenges, the National Treasury will take on R254 billion of Eskom’s debt over three years, while households installing rooftop solar panels can claim a tax rebate up to a maximum of R15,000 in the 2023/24 tax year.

The price increase for Eskom’s standard tariff customers will take effect on April 1, 2023, while municipalities will experience the hike starting July 1, 2023. Nersa explained that key industrial and urban customers would see an 18.65% increase, along with an additional 7.37c/kWh to accommodate the subsidy. This results in a total increase of 29.53%, as the subsidy rises from 5.69c/kWh. Municipalities face a marginally smaller hike since they will not undergo an increase in the first three months (April to June) of Eskom’s financial year, as their financial year commences on July 1.

The regulator clarified that the approved tariffs exclude value-added tax (VAT), the rate of which is determined by Finance Minister Enoch Godognwana. The last VAT increase occurred in 2018, moving from 14% to 15%. Eskom has been instructed to publish the approved Schedule of Standard Prices for 2023/24 on its website and communicate the changes to all customers.

Nersa’s decision to increase prices has been met with significant public backlash from cash-strapped South Africans, who have already faced restricted access to electricity due to consistent load shedding throughout the year. South Africa has endured an almost continuous state of load shedding since September 2022. The price hike has been deemed unaffordable by municipalities, businesses, and even President Cyril Ramaphosa, who suggested that Eskom and Nersa delay or stagger the increase to alleviate pressure on South Africans.

Despite the widespread opposition, Nersa’s approval is final and can only be overturned through legal procedures. President Ramaphosa has since retracted his comments, recognizing the regulator’s independence. Eskom has welcomed the price hike, although it falls short of the requested 32%. The financially troubled power utility maintains that tariffs must reflect electricity production costs to resolve financial issues, service debt, and undertake critical maintenance.

A significant obstacle for Eskom is the non-payment of bills by municipal customers, which has resulted in a municipal debt exceeding R50 billion. To address these financial challenges, the National Treasury has agreed to assume R254 billion of Eskom’s debt over three years – R168 billion in capital and R86 billion in interest.

The Treasury stated, “Because of the structure of the debt relief, Eskom will not need further borrowing during the relief period. The government will finance the arrangement through the R66 billion baseline provision announced in the 2019 Budget and R118 billion in additional borrowings over the next three years.”

Dissatisfied customers may view the tariff hikes as further motivation to disconnect from Eskom’s grid. In response, the Treasury has introduced a rooftop solar tax break. From March 1, 2023, to March 2024, households installing rooftop solar panels can claim a rebate of 25% of the panel costs for the 2023/24 tax year, up to a maximum of R15,000.