Eskom has a problem

Eskom’s electricity production has fallen to levels last seen in the early 2000s despite a dramatic turnaround in operational performance so far in 2024.

This translates into Eskom making up a smaller share of the total power supply in South Africa, with alternative sources of electricity eating into its once-dominant position.

Despite the utility’s improved performance, its total sales declined by 1 TWh year-on-year in the first quarter of the 2025 financial year.

Nedbank economist Isaac Matshego explained that Eskom’s share is expected to decline further as more private electricity production comes online.

This will benefit South Africa’s economy by making the electricity supply more resilient and less reliant on the operations of a single entity.

Matshego also said that alternative sources of electricity have proven to be far cheaper than Eskom’s in most cases.

This helps bring down overall inflation and eases the cost of doing business in South Africa, having a knock-on effect on economic growth.

It is also vital for companies to produce cleaner energy to supply their operations, as some of the country’s largest trading partners are considering imposing carbon taxes on imports.

Over 85% of Eskom’s electricity comes from coal, which means that many South African companies must reduce their reliance on fossil fuels to ensure their products remain globally competitive.

As such, a declining reliance on the utility’s electricity will ultimately be beneficial for South African businesses.

However, it has pushed Eskom into a difficult position, with it needing to make up for declining sales by hiking its tariffs.

While its revenue for the first quarter rose by 15% compared to the same period last year, its sales volumes were 1 TWh lower.

This means its increased revenue came largely from higher electricity tariffs charged on consumers.

South Africa’s declining reliance on Eskom is shown in the graph below.

Some, including energy analysts and former Eskom CEOs, have warned that the utility’s declining sales trend may indicate a financial death spiral.

The move to small-scale renewable energy leaves Eskom with a higher percentage of non-paying customers.

To make up for the lost revenue, Eskom is implementing very high electricity price increases. This, in turn, drives more paying customers to install solar PV to save costs.

This downward spiral is accelerating, especially with South African businesses and households looking to mitigate load-shedding.

Of particular concern for Eskom is the shift of some of its largest customers, such as mining companies, turning away from its product.

Harmony Gold, for example, estimates its solar installations will save R425 million a year in electricity costs.

South African companies reducing their electricity usage from Eskom will place immense financial pressure on the utility, which is R445 billion in debt.

Former Eskom CEO André de Ruyter said Eskom’s current financial model is unsustainable.

“If you extrapolate from current trends, Eskom will eventually be left with a customer base of people who cannot afford electricity and therefore don’t pay for it,” he warned.

If this trend continues, Eskom will be left with only non-paying customers, who can either not afford electricity or refuse to pay. This can include private citizens and municipalities.

Eskom already faces severe challenges with non-payment from municipalities, with debt owed to it rising to R80 billion. 

In 2018, debt owed to Eskom stood at a mere R13.6 billion. In the first five months of its financial year, R11 billion has been added to the bill, taking it to R85 billion, CFO Calib Cassim said. 

He said the debt burden is growing by an average of nearly R2 billion a month and is expected to grow by R20 billion each financial year. 

If this continues, it will result in debt owed to Eskom reaching R100 billion by March 2025 and R130 billion by March 2026. By the 2028 financial year, Eskom will be owed R200 billion by municipalities. 

“If the growth of municipal debt is not addressed, the R254 billion debt relief from the government will effectively be null and void,” Cassim said. 

“This does not help Eskom’s financial sustainability going forward. After this debt relief plan, we do not want to rely on the fiscus anymore.”