350% increase in a decade: how expensive is electricity in South Africa compared to other countries?

27Sep
by Sean Moolman  
0

Electricity prices in South Africa have dramatically outpaced inflation over the past decade (ever since the 2008 electricity supply shortage crisis). Recently, Eskom has won a court case allowing it to recover historical ‘losses’ or under-recoveries (the so-called regulatory clearing account or RCA).

Please note: we have published an update to this article in 2019 with more recent Eskom price increase data. Please see the article here.

After a brief respite in 2017 (when an increase of only 2.2% was granted by NERSA, the National Energy Regulator of South Africa), Eskom has submitted an application to NERSA for a 19.9% electricity tariff increase in 2018, and might still add additional RCA applications.

We have previously (in 2015) compared Eskom’s electricity price increases to inflation over the period 1988 to 2015, and have decided to update this comparison.

Below is the Eskom tariffs from 1988 to 2017, plotted against CPI (Consumer Price Index) or inflation over the same period. The dotted lines are projections over the next 3 years, based on Eskom’s 19.9% application for 2018, and further increases of 8% in each of 2019 and 2020 (this could be much higher if further RCA recoveries are granted).

Over a period of 10 years, Eskom’s electricity prices have increased by about 356%, whilst inflation over the same period was 74%. This means that electricity prices have increased 4 times faster than inflation over this period. Whilst South Africa had some of the least expensive electricity in the world in the early 2000’s, the question now is: how expensive is electricity in South Africa compared with the rest of the world in 2017?

 

We decided to investigate. The graph below shows 2017 residential (household) electricity prices for a selection of developed and developing countries in US dollars. South African prices for 2007, 2017 and 2018 (all in 2017 money) are indicated in yellow, and other African countries are indicated in green. (Note: most countries have a range of residential tariffs that vary according to use, location and other factors. The tariffs in the graph are based on a middle-class urban household with consumption of 400 kWh of electricity per month.)

As can be seen from the above graph, whilst South Africa used to be one of the least expensive countries in the world in terms of dollar price of electricity, this is no longer the case. It is now mid-range in terms of electricity price for the countries in the comparison.

Most of the African countries with less expensive electricity than South Africa (such as Botswana, Zambia, Zimbabwe and Ethiopia) have substantial government subsidies. Of course these countries typically also have a much less reliable electricity supply than South Africa.

Also to be noted is the high price of electricity in many developed countries.

However, the above is not the full picture. The typical income of a citizen of each of these countries varies tremendously. This impacts directly on the affordability of electricity in each country.

It is thus more appropriate to look at affordability of electricity as a function of the typical or median income of citizens in order to make a comparison. The below graph shows the cost of 400 kWh/month of electricity as a percentage of the median income per capita in each country (at purchasing power parity). This is a much better indication of relative affordability of electricity in each country. (Note: median income = that income where half of the people earn more and half of the people earn less. This is a better representation of the typical income than the “average” income, since averages are distorted more by extreme values or outliers.)

The following interesting observations can be made from the graph:

  • Disparities in electricity affordability are larger than only the dollar tariff would indicate – whereas the ratio of highest to lowest dollar tariff is 15, the ratio of highest to lowest relative cost is 75;
  • Electricity is most affordable in developed countries;
  • Electricity is least affordable in African countries;
  • Electricity in South Africa is still relatively more affordable than many other African countries;
  • Affordability of electricity in South Africa has decreased over the past decade and is continuing to decrease;
  • Following the possible 19.9% increase in 2018, South Africa’s electricity will be the least affordable of the BRICS countries.

 

References

  • Source for exchange rates (as of 27/09/2017): https://www.oanda.com/currency/converter/
  • Source for median income per capita: https://www.givingwhatwecan.org/post/2016/05/giving-and-global-inequality/
  • Featured image source: Photo by Thomas Kelley on Unsplash
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