The Presidential Climate Commission (PCC) has called for a reform of South Africa’s electricity prices to support the grid’s transition to more renewable power.

President Cyril Ramaphosa and his cabinet established the PCC in September 2020. It has been tasked with overseeing and facilitating a “just and equitable transition towards a low-emissions and climate-resilient economy”.

Among its latest recommendations, which included South Africa ceasing investments in coal power, the commission argued that there is a need for pricing reform throughout the electricity value chain.

It also recommended that a study be launched on the pricing reform and how it could support a Just Energy Transition.

The PCC explained that Eskom was currently unable to recover its full costs through the existing tariff structure.

It maintained that led to the utility borrowing more money to cover operational expenses, including buying diesel for its emergency power plants.

“This is unsustainable and drives [a] worsening EAF [energy availability factor],” the PCC said.

It also argued that the grid’s transition to more variable renewable energy (VRE), in the form of solar and wind, and the grid becoming more central to planning, necessitated the restructuring of tariffs.

“[It] is critical to ensure that the fixed costs of supply (transmission and distribution) can be fully and transparently recovered through tariffs,” the PCC said.

Solar and wind power will form a much bigger part of Eskom’s electricity mix in the new few years.

The commission also pointed out that pricing impacted the revenue and business models of local governments and municipalities.

“Providing technical and financial support to municipalities to implement electricity reforms is core to successful power reform and local government service delivery and financial sustainability,” the PCC said.

It emphasised that it was important that the reform study consider electricity access and energy poverty.

In this regard, it recommended that the study explore the benefits and practicalities of overhauling and increasing Free Basic Electricity, ensuring that the poor do not get saddled with the price increases.

Indigent households currently get either 50kWh or 60kWh of free electricity per month, depending on the municipality in which they are located.

While the PCC did not state it in plain terms, the language it used strongly suggested it supported increasing electricity prices rather than decreasing them, at least for all customers that don’t qualify as indigent.

Prepaid electricity meter

The National Energy Regulator of South Africa’s (Nersa’s) approved electricity price tariffs for the 2023/2024 financial year largely shielded poorer customers from the worst increases.

However, this was only possible because it drastically increased the affordability subsidy paid by industrial and urban Eskom customers to fund this.

Instead of the 5.96c/kWh they previously paid, these customers must now cough up 7.37c/kWh.

That is on top of the approved 18.65% increase in the average electricity tariff for most customers, which was already much greater than inflation.

While Nersa’s latest decision was met with extreme frustration from the public, business interest groups, and civil organisations, it had little room to manoeuvre.

The state-owned power utility has long complained that it struggled to service its debts with the increases Nersa approved.

Eskom’s revenue has shrunk as more individuals and businesses switch to private generation. At the same time, its sales have declined due to load-shedding.

It has also spent significantly more on diesel to power its open-cycle gas turbine stations to avoid even higher stages of load-shedding.

Furthermore, the utility has struggled with illegal connections and defaulting municipalities, which owe Eskom tens of billions of rand in debt.

On the flip side, Eskom’s prices have increased astronomically since 2007.

It’s also worth noting that Eskom had asked Nersa for a 32% increase, and the regulator ultimately granted much less than that.

PCC recommendations sound supportive of Eskom

Eskom has also submitted its suggested overhaul of Nersa’s electricity price determination methodology.

That document has proved contentious, as it included new fixed charges that would significantly increase the cost of connecting to the Eskom grid for some households.

The issue of fixed charges is one of the pricing elements the PCC has recommended the review look into.

If Eskom’s recommendations were adopted, it would be particularly hard on households that have installed solar and generate most of their own electricity but still rely on the utility’s power to supplement their homes during the night for periods of little sunshine.

For customers on the Homepower 1 tariff, it would mean paying up to R938 in a month when they don’t use a single megawatt of Eskom electricity.

Eskom has defended this approach by explaining that the average electricity user would pay the same or less than they currently do.

Heavier electricity consumers would also benefit from the scrapping of the Incline Block Tariff, which currently sees customers being charged more if they exceed a certain amount of kWh usage.

But the utility’s increased load-shedding already makes it harder for households to consume large amounts of electricity.

Eskom has further argued that on-grid solar users could benefit significantly from new time-of-use tariffs.

In addition, it is seeking the approval of a feed-in tariff that will effectively reduce electricity bills or add electricity credit for later usage.

However, unlike the City of Cape Town, it will pay cash into the pockets of customers who push their excess electricity back into the grid.