Ministry to review power prices over affordability, says Ramokgopa

SA’s electricity pricing policy must be urgently reviewed to address affordability concerns and other tariff-related issues that are becoming increasingly complex as the electricity market is liberalised, says minister of electricity & energy Kgosientsho Ramokgopa.

After enduring years of steep price increases, many South Africans struggle to afford the high cost of electricity, which is eroding disposable income, especially for the poor.

Ramokgopa told journalists on Monday that to address the rising affordability “crisis”, the ministry would undertake a “tariff policy review” that will include a review of tariff structures for Eskom’s distribution business and the newly established national transmission company.

They would also review the electricity subsidy framework, the provision of free basic electricity by municipalities and the annual tariff increase methodology used by Eskom and the National Energy Regulator of SA (Nersa) to set electricity tariffs.

“The review ... is imperative for setting a clear pricing policy for the industry and for Nersa to implement,” Ramokgopa said.

Earlier in July, a study by the Boston Consulting Group (BCG) flagged SA’s high energy costs as having a dampening effect on the mining industry.

“Energy is also becoming expensive: SA’s energy costs are the fourth highest in a comparison of similar mining jurisdictions and are expected to continue increasing as electricity prices become more reflective of their true costs,” the BCG said in its latest mining outlook report.

It also warned: “Mining companies will need to consider whether the existing grid is suitable for their energy needs, especially if they are aiming to utilise multiple sources of power or distribute the power to several mines.”

Ramokgopa said electricity affordability concerns contributed to other problems, such as the need to implement load reduction even when Eskom has sufficient supply to meet the national demand.

Load reduction is implemented when the use and demand of electricity in an area exceeds the capacity of distribution infrastructure. This occurs partly when there are many illegal connections in a distribution area, which increase when users cannot afford to pay for electricity.

“It is the poor, living in informal settlements, that are carrying the brunt of this,” said Ramokgopa.

The ministry would not undermine municipal powers to distribute and sell electricity within their service areas, but it does plan to work with Eskom and municipalities to find solutions to tariff and payment challenges, he said.

The ministry did not want to engage publicly on the merits of a recent decision by the City of Joburg to impose a new R200 fixed service charge on the prepaid high-usage electricity tariff, but it does want to find a “more enduring and robust solution”.

Ramokgopa said the state could not allow “new actors” in the electricity market to “carve out a space for themselves to provide [electricity] for more affluent areas at the expense of poorer areas”.

This posed a serious threat to cost recovery for municipalities and Eskom, which rely on charging different prices to different consumer groups to subsidise costs for the poor.

“When people want to [sell electricity] only to more affluent suburbs and leave the poor to municipalities and Eskom, it is not sustainable. We need a Nersa framework that protects the interests of the poor,” he said.

Free electricity

The review of the electricity subsidy framework would go with a review of the free basic electricity programme. It is supposed to provide 50kWh free electricity per month to about 10-million poor households, but it reaches only about 2-million.

“The money gets transferred to municipalities, but the benefit doesn’t get transferred to beneficiaries,” said Ramokgopa.

The free basic electricity programme is funded through an unconditional grant from the Treasury to local municipalities, which are responsible for determining how the funds are used. The funds are often diverted to other service delivery needs.

Ramokgopa echoed the basic premise of the draft review of the electricity pricing policy published by the department of mineral resources & energy in 2022. Such a review had to strike a balance between ensuring affordable electricity tariffs for low-income consumers and a cost-reflective electricity tariff for all other consumers, he said.

erasmusd@businesslive.co.za