Eskom’s proposals for radical electricity pricing changes would result in many households with lower consumption — including those with solar power — paying substantially more for electricity than they do now.
MyBroadband’s calculations show the latest proposed changes would have seen the bills of households consuming anything less than 700kWh increasing substantially with Eskom’s latest price hikes.
Eskom first submitted the proposed controversial changes in its retail tariff plan to the National Energy Regulator of South Africa (Nersa) in early 2021.
The utility argued for higher fixed capacity charges to make its tariffs more cost-reflective, given its three main operating divisions — generation, transmission, and distribution — will be unbundled.
The changes included introducing an ancillary service and network demand charge in the variable energy charges.
However, the bigger adjustment was in the fixed component — with a much-increased network capacity charge and the addition of a generation capacity and daily service and administration charge regardless of usage.
Eskom also wants to remove the Incline Block Tariff (IBT) structure, which penalises higher usage with higher energy charges, and instead use a flat charge for all consumption.
In addition, the variable charge sees a “commensurate” reduction. While this seeks to encourage use of Eskom’s electricity — a sound business principle — it will only be to the benefit of larger power users.
In its most recent published revision of the plan, based on 2023/2024 tariffs, Eskom acknowledged that the changes in fixed charges would significantly increase low-consumption users’ bills.
Eskom’s previous analysis of its proposed tariff changes showed that many households using less than 900kWh per month would end up paying more.
“If the network costs were used as is, this would have resulted in significant increases to low consumption users, so some scaling was done to limit this impact,” Eskom explained.
To reduce the impact, Eskom said the generation capacity charge would initially be at a 50/50 fixed-to-variable split in a phased approach.
The power utility will gradually adjust this until it collects 100% of the generation capacity charge through fixed fees instead of variable costs.
However, MyBroadband found this would have little of a cushioning impact.
The table below compares the old and new tariffs under Eskom’s retail tariff plan for 2023/2024, which was not implemented as proposed.
Although it has yet to publish its revised version for 2024/25, the principles with regard to fixed and variable costs are expected to remain the same based on Eskom leadership’s recent comments.
Homepower 4 — Most common Eskom Direct user (16A single-phase connection)
Homepower 4 | Old tariff | New tariff |
Network capacity charge per day | R5.04 | R5.72 |
Generation capacity charge | R0.00 | R2.16 |
Service and admin charge per day | R0.00 | R6.58 |
Total cost before consumption in a month | R151.11 | R637.22 |
Energy charge per kWh (includes ancillary service and network demand demand charge) | First 600kWh in month: R1.93 Over 600kWh in month: R3.04 | R1.59 |
Monthly bills higher for usage under 700kWh
MyBroadband calculated the impact these adjustments would have on the bulk of Eskom’s residential users, who are on the Homepower 4 tariff, if implemented in the current financial year.
Without consuming a single kWh of electricity, households on this plan would have been paying R486.11 more in fixed charges, a 321% increase over their current bill.
At 100kWh of monthly consumption, the bill will be R793.10, compared with R343.70, an increase of roughly 131%.
As consumption increases, the percentage shrinks due to the lower energy charges.
However, even at 500kWh consumption the bill would be about 47% higher than in the past.
Somewhere between 700kWh and 800kWh consumption, the drop in energy charges results in a bill break-even.
After that, households start saving compared to their current monthly bill, despite the higher fixed charges.
Users who consume this amount of electricity are far more likely to be larger households with bigger monthly budgets.
Many smaller households with fit-for-purpose solar systems can meet most of their demand and consume just a small amount of electricity from Eskom.
While the energy charges are significantly lower than in the past, the increase in fixed costs makes them negligible for users with lower consumption.
Although indigent households with low usage will be shielded from the adjustments, those who don’t qualify as indigent but don’t use lots of electricity — the “missing middle” — will be left unprotected.
The good news is that Nersa has thus far ignored Eskom’s proposals for several years.
However, it remains to be seen how long this will be the case, as the regulator is reforming electricity price determinations.
The changes are necessary due to increased private participation in the electricity market.
The graph below shows how Eskom’s proposed pricing changes will impact the monthly bills of Homepower 4 users.