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2022 update: Eskom tariff increases vs inflation since 1988 (with projections to 2024)

01Aug
by Sean Moolman  
1

In 2015, 2017 and 2019 we published infographics showing Eskom annual tariff increases since 1988 compared to inflation.

Following Eskom’s court order success against NERSA in early 2021, it increased electricity prices by an average of 15.63% in April 2021. In April 2022, a further increase of 9.61% was approved. So what do the numbers look like today?

The graph below shows the Eskom tariffs from 1988 to 2022, plotted against CPI (Consumer Price Index) or inflation over the same period. It also shows projections up to 2024, based on expert forecasts and inflation projections.

Note: The graph depicts overall average increases – actual increases will be different for different types of consumers (residential, commercial and industrial) and will vary between municipalities.

Looking at the graph, the following can be noted:

  • In the period from 1988 up to the 2008 electricity crisis, electricity tariff increases did not keep tread with inflation. This was partly due to government policy to keep electricity tariffs as low as possible for poor communities, but also due to Eskom having an oversupply of electricity (in the 1990’s) and not investing in new capacity (in the 2000’s).
  • Between 1988 and 2007, electricity tariffs increased by 223%, whilst inflation over this period was 335%.
  • From the 2008 electricity crisis onwards, there is a clear and sharp inflection point for electricity tariffs in South Africa. From 2007 to 2022, electricity tariffs increased by 653%, whilst inflation over this period was 129%. Thus, electricity tariffs increased four-fold (or quadrupled) in real money terms in 14 years.

Considering the current serious state of Eskom’s debt and the fact that the country probably cannot afford for Eskom to fail, consumers can likely expect a continuance of much higher than inflation electricity price increases over the next several years.

In fact, Eskom has already applied to NERSA for a 32% tariff increase in April 2023. It has also applied to NERSA to restructure residential tariffs to ‘reflect cost drivers more accurately’. The restructured tariffs will see two main options for direct Eskom customers – Homepower and Homeflex. 

For the Homepower tariff, the grid connection fee would increase from R218/month to R938/month – this is the charge before you have used a single kWh of electricity!

The Homeflex tariff will introduce time-of-use charges – in other words, the price of electricity will change depending on the time of day. (Time-of-use charges is widespread internationally, and helps to balance grid load by incentivising electricity use outside of peak hours.)

Eskom is in serious need of restructuring – which the government at last acknowledged and announced in 2019. As of October 2022 this restructuring has not yet been completed, but is in progress.

Sources:

  1. Eskom warned its pricing itself out of the market. Website: https://techcentral.co.za/eskom-warned-its-pricing-itself-out-of-the-market/105167/. Last accessed: 2021/07/30.
  2. Eskom tariffs and charges. Website: https://www.eskom.co.za/CustomerCare/TariffsAndCharges/Pages/Tariffs_And_Charges.aspx. Last accessed: 2022/10/20.
  3. Stats SA. CPI History. Website: http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf?.  Last accessed: 2019/10/01.
  4. Bureau for Economic Research. Inflation Expectations – History (2021). Website: https://www.ber.ac.za/BER%20Documents/Inflation-Expectations/?doctypeid=1065. Last accessed: 2021/07/30.
  5. South Africa Inflation Expectations. Website: https://tradingeconomics.com/south-africa/inflation-expectations. Last accessed: 2022/10/20.

Image of Lethabo power station by Simisa on Wikimedia Commons [CC BY-SA 3.0]

2019 update: Eskom tariff increases vs inflation since 1988 (with projections to 2022)

25Oct
by Sean Moolman  
1

(Click here for a 2022 update to this article)

In 2015 and 2017 we published infographics showing Eskom annual tariff increases since 1988 compared to inflation.

Following NERSA’s approval of a 13.87% average tariff increase in April 2019, what do the numbers look like today?

The graph below shows the Eskom tariffs from 1988 to 2019, plotted against CPI (Consumer Price Index) or inflation over the same period. It also shows projections up to 2022, based on currently projected increases as approved by NERSA (8.1% in 2020 and 5.2% in 2021), as well as Stats SA and the Bureau for Economic Research’s inflation projections.

Note: The graph depicts overall average increases – actual increases will be different for different types of consumers (residential, commercial and industrial) and will vary between municipalities.

Looking at the graph, the following can be noted:

  • In the period from 1988 up to the 2008 electricity crisis, electricity tariff increases did not keep tread with inflation. This was partly due to government policy to keep electricity tariffs as low as possible for poor communities, but also due to Eskom having an oversupply of electricity (in the 1990’s) and not investing in new capacity (in the 2000’s).
  • Between 1988 and 2007, electricity tariffs increased by 223%, whilst inflation over this period was 335%.
  • From the 2008 electricity crisis onwards, there is a clear and sharp inflection point for electricity tariffs in South Africa. From 2007 to 2019, electricity tariffs increased by 446%, whilst inflation over this period was 98%. Thus electricity tariffs increased more than four-fold in 12 years.
  • Based on the currently approved increases for 2020 and 2021, the total increase in electricity tariffs from 2007 to 2021 will be 520%. By then, electricity tariffs would have increased more than 5-fold in 14 years.

Considering the current serious state of Eskom’s debt and the fact that the country probably cannot afford for Eskom to fail, consumers can likely expect a continuance of much higher than inflation electricity price increases over the next several years. Eskom is in serious need of restructuring, but this is likely to face strong resistance from the trade unions.

Sources:

  1. Noble B. Eskom Annual Price Increase 2019/20. Website: https://powertime.co.za/online/eskom-annual-price-increase-201920/. Last accessed: 2019/10/01.
  2. Eskom tariffs and charges. Website: http://www.eskom.co.za/CustomerCare/TariffsAndCharges/Pages/Tariffs_And_Charges.aspx. Last accessed: 2019/10/01.
  3. Stats SA. CPI History. Website: http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf?.  Last accessed: 2019/10/01.
  4. Bureau for Economic Research. Inflation Expectations – History (2019). Website: https://www.ber.ac.za/BER%20Documents/Inflation-Expectations/?doctypeid=1065. Last accessed: 2019/10/01.
  5. Merten M. Electricity price goes up — way beyond inflation — as Ramaphosa answers questions on Eskom in the House. Daily Maverick, 2019/03/08. Website: https://www.dailymaverick.co.za/article/2019-03-08-electricity-price-goes-up-way-beyond-inflation-as-ramaphosa-answers-questions-on-eskom-in-the-house/. Last accessed: 2019/10/01.

Image of Arnot power station by Gerhard Roux on Wikimedia Commons [CC BY-SA 4.0]

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
  • Sources for electricity prices:
    • http://sunmetrix.com/residential-electricity-rates-united-states/
    • http://www.hydroquebec.com/publications/en/corporate-documents/comparaison-electricity-prices.html
    • http://global-climatescope.org/en/country/mexico/#/details
    • http://global-climatescope.org/en/country/chile/#/details and http://www.ees-magazine.com/chile-large-scale-batteries-now-home-storage-later/ and https://www.cne.cl/wp-content/uploads/2016/07/AnuarioCNE2015_vFinal-Ingles.pdf
    • http://www.mme.gov.br/documents/1138787/19852880/04+-+Boletim+Mensal+de+Energia+-+Abril+2017+-+Ingl%C3%AAs+%28PDF%29.pdf/78545671-a8da-4b54-b4c3-c423b12f816f
    • http://www.enre.gov.ar/web/web.nsf/home?openframeset and http://global-climatescope.org/en/country/argentina/#/details
    • http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Disaggregated_electricity_price_data_for_household_consumers,_second_half_2016_YB17.png
    • https://www.solarquotes.com.au/blog/south-australia-is-actually-second-cheapest-state-for-household-electricity/
    • http://www.theinvestor.co.kr/view.php?ud=20160819000624 and http://asian-power.com/ipp/news/why-kepco-will-be-hurt-koreas-reduced-tariffs
    • https://asia.nikkei.com/Business/Trends/Japan-s-gas-electricity-prices-to-rise-again-in-May
    • http://global-climatescope.org/en/country/china/#/details
    • http://www.hindustantimes.com/india-news/55-increase-in-bihar-power-tariff-from-apr-1/story-uZF2x5pX7xauEysMDGN6aL.html and http://www.thehindubusinessline.com/news/8-power-tariff-hike-for-all-categories-of-consumers-in-karnataka/article9629593.ece and https://cp.tatapower.com/irj/go/km/docs/documents/Public%20Documents/CustomerPortal/pdf/Direct.pdf
    • https://www.confusedaboutenergy.co.uk/index.php/household-energy-costs/electricity-cost-calculator
    • https://www.naij.com/1108939-new-electricity-tariff-nigeria-2017.html#1108939
    • https://stima.regulusweb.com/historic#tariffs
    • http://poweroptimal.com/cost-shower-south-africa/
    • https://www.bpc.bw/media-site/news/Pages/2017-Tarrifs.aspx
    • https://www.esi-africa.com/news/different-power-tariffs-in-among-the-sadc-region-members/
    • http://www.monitor.co.ug/News/National/Government-increases-power-tariffs/688334-3502314-69d3fkz/index.html
    • https://www.esi-africa.com/news/different-power-tariffs-in-among-the-sadc-region-members/
    • http://www.reg.rw/index.php/our-business/customer-services/electricity-tariff
    • https://www.esi-africa.com/news/different-power-tariffs-in-among-the-sadc-region-members/
    • http://news.xinhuanet.com/english/2017-04/24/c_136232502.htm
    • http://ceb.intnet.mu/
    • https://www.myjoyonline.com/business/2017/september-27th/reduction-in-electricity-tariff-will-take-effect-in-2018-boakye-agyarko.php
    • http://egyptoil-gas.com/news/electricity-ministry-to-announce-new-tariffs/ and http://www.scedc.com.eg/Customer/BC1.aspx

Energy news: first all-solid state battery developed by 94-yr old; India shuns coal; Eskom proposes 20% tariff hike

01Mar
by Sean Moolman  
0
It has been an interesting year in the energy industry so far. Here are some key recent developments:
(more…)

Germany votes to ban the internal combustion engine by 2030, whilst South Africa looks to coal and nuclear

15Jul
by Sean Moolman  
0

While SA seems stubbornly focused on coal (including new private coal-fired power stations), gas and nuclear, Germany is forging ahead with its bold moves to transform into a country with 100% of its energy provided by sustainable and renewable sources.

 

Already a world leader in incorporating renewables into its national grid through its ‘Energiewende’ programme (with renewables at one point in May 2016 reaching over 90% of the total German power consumption), Germany is not slowing down. In early October, Germany’s Bundesrat adopted a resolution to ban petrol- and diesel-powered vehicles by 2030!

Meanwhile, in South Africa (a country with an embarrassingly rich solar resource compared to Germany), Eskom complains of problems managing and integrating a lowly 2.2% renewables (solar and wind – as of first half 2016) into the SA national grid, and has even signaled an unwillingness to sign further power purchase agreements (PPAs) with independent power producers. (Recently, the SA Wind Energy Association, SAWEA, has lodged an official compaint with NERSA, the National Energy Regulator of SA, over Eskom’s refusal to sign further PPAs.)

Yes, renewables are intermittent and unpredictable (actually predictably unpredictable and eminently manageable over bigger time scales and geographical spreads!), but through good planning, judicial use of energy storage (the cost of which continues to come down at a brisk pace) and distributed generation, these problems can be overcome and renewables can deliver a very high percentage of total energy production. (According to a July 2016 CSIR and Fraunhofer study, up to 65% solar and wind energy generation share can be achieved in South Africa without any additional storage or significant excess energy / curtailment!).

Experiencing pushback from National Treasury about the immense R1 trillion or more bill for the planned nuclear deal, the Department of Energy has now announced that Eskom will finance the whole programme itself, neatly bypassing the need for Treasury approval. The question is: if (when?) Eskom gets into financial trouble later on, who will have to bail them out? Treasury may be forced to do it at that stage to keep the lights on. (And this means WE, the taxpayer, will ultimately pay.)

These troubling developments are happening at the same time as SA is being praised (deservedly) as a world leader in renewable adoption (see e.g. articles here, here and here). As always we seem to manage to be the best and the worst at the same time! What is certain is that interesting times lie ahead in the business of energy in South Africa…

When will solar and storage be cheaper than Eskom?

01Aug
by Sean Moolman  
0

PLEASE NOTE: This article is from 2015. Current status (2021): If financed via a home loan, solar PV plus storage is less expensive than buying electricity from your municipality in South Africa. According to this research by Sustainable Energy Africa, this was already the case in 2019 for middle-income households.

With the price of solar PV (photovoltaic) panels dropping by more than 10% per year, and Eskom seeking double digit increases for the foreseeable future, when can we expect to see the cost of residential solar PV and battery storage systems to drop below the cost of grid power from Eskom?

 

We did a simplified calculation to obtain an estimate of when this might happen… And it seems like it will start making financial sense for South Africans to switch within the next 3 years! Thereafter, the financial case for switching will just get stronger every year…

A major barrier to solar PV and battery storage systems is the upfront capital cost. But this could be financed by your bank, and you would be assured of a fixed electricity price for 20 years, compared to continually rising electricity costs if you are tied to the grid. Also, you would be completely free from loadshedding!

How we calculated:

  • We assumed a typical residential electricity usage of 900 kWh/month, at a current price of R1.40/kWh.
  • We estimated a current cost of a solar PV + battery storage solution to go off-grid at R200 000, plus an additional R30 000 for a solar geyser and gas oven.
  • We assumed a 10% increase in Eskom prices and a 10% decrease in solar PV + storage system prices per year. (This is conservative, as discussed above.)
  • We assumed a 20 year payback period and 10% interest rate on the loan to finance the solar PV + storage system.

Footnote: The graph plots the fixed monthly instalment that you would have to pay if you bought the system in the year as indicated. The instalments over the 20 year period would of course be constant. (So if you bought the system in 2015, fixed monthly instalment would be around R2 200/month over the 20 year period, whilst if you bought it in 2018, fixed monthly instalment would be around R1 600/month over the 20 year period.) Even if you bought the system right now (with the R2 200/month instalment), you will start saving by around 2020, meaning that for at least 15 years subsequently you will be paying less than what you would have if you were still on the grid (and every year the savings would increase due to the increasing price of electricity)…

Infographic: Eskom tariff increases vs inflation since 1988 (with projections to 2017)

25Mar
by Sean Moolman  
0

(Click here for a 2021 update to this article)

Recently we learnt that Eskom has requested another 9.58% tariff increase from NERSA for 2015, on top of the 12.69% already approved for this year. More recently, it has emerged that Eskom is requesting what is called a “selective reopener” for 2016 and 2017 as well. In particular, it seems that Eskom is looking for an additional 9% increase in each of 2016 and 2017 – i.e. 17% increases in tariffs in both these years instead of 8%/year.

 

People know the power of compound interest (exponential growth!), and so it is interesting to have a look at where Eskom’s (effectively South Africa’s) electricity tariffs have come from and where they seem to be going.

The infographic below shows the Eskom tariffs from 1988 to 2015, plotted against CPI (Consumer Price Index) or inflation over the same period. It also shows projections up to 2017, based on the additional increases requested by Eskom, and based on SARB’s inflation projections.

Note: The infographic depicts overall average increases – actual increases will be different for different types of consumers (residential, commercial and industrial) and will vary between municipalities.

Looking at the graph, the following can be noted:

  • In the period from 1988 up to the 2008 electricity crisis, electricity tariff increases did not keep tread with inflation. This was partly due to government policy to keep electricity tariffs as low as possible for poor communities, but also due to Eskom having an oversupply of electricity (in the 1990’s) and not investing in new capacity (in the 2000’s).
  • Between 1988 and 2007, electricity tariffs increased by 223%, whilst inflation over this period was 335%.
  • From the 2008 electricity crisis onwards, there is a clear and sharp inflection point for electricity tariffs in South Africa. From 2007 to 2015, electricity tariffs increased by 300%, whilst inflation over this period was 45%. Thus electricity tariffs tripled in 8 years.
  • If the additional increase for 2015 (another 9.58% on top of the 12.69% already approved by NERSA) is approved, this will mean that the total increase in electricity tariffs from 2007 to 2015 would be 335%.
  • If the additional increases for 2016 & 2017 (another 9%/yr on top of the 8%/yr already approved by NERSA) are approved, this will mean that the total increase in electricity tariffs from 2007 to 2017 would be 495%, compared to 74% for inflation over the same period. Thus electricity tariffs would have increased 5-fold in 10 years.

We need to keep in mind that SA’s electricity is still not very expensive when compared to the rest of the world or even Africa. E.g. in 2014, Uganda, Namibia and Ghana had tariffs more than double that of South Africa. However, the problem is that the South African economy has structured itself around cheap electricity, and it will be costly to change the way things are done (behaviour) and change over to more energy-efficient infrastructure.

The SAIRR recently published a report projecting that Eskom will have another 18 000 MW supply shortfall by 2030, if our GDP grows by 3%/yr. This is in addition to Medupi, Kusile and Ingula. (See this Fin24 summary of the report.) To add insult to injury, Standard & Poor’s has just downgraded Eskom to junk status.

Considering the above, it is safe to say that we can expect to see over the next several years: (a) a continuation of the current electricity supply shortages (read: load shedding); and (b) higher-than-inflation electricity price increases.  We will all need to start thinking about how we can contribute to reducing demand and minimising the impact of the supply constraints.

Sources:

  1. Eskom Tariffs and Charges. Website: http://www.eskom.co.za/CustomerCare/TariffsAndCharges/Pages/Tariffs_And_Charges.aspx. Last accessed: 20/03/2015.
  2. Inflation South Africa 2014. Website: http://www.inflation.eu/inflation-rates/south-africa/historic-inflation/cpi-inflation-south-africa-2014.aspx. Last accessed: 20/03/2015.
  3. Packirisamy S. 2015. SARB lowers inflation and growth outlook. Website: http://www.momentuminv.co.za/AssetManagement_Home/SARBlowersinflationandgrowthoutlook.aspx. Last accessed: 20/03/2015.
  4. Central Bank News. South Africa holds rate, but inflation outlook deteriorates. http://www.centralbanknews.info/2015/03/south-africa-holds-rate-but-inflation.html. Last accessed: 26/03/2015.

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