How The 2025 Eskom Tariff Hike Could Reshape South African Economies

South Africans are now waiting with bated breath to discover the extent to which their electricity tariffs will increase. This anticipation stems from the National Energy Regulator of South Africa’s (Nersa) impending final decision on the tariff hike and structure, set for 30 January 2025.

This decision will take into account not only Eskom’s application but also public feedback, economic conditions, and policy objectives like energy efficiency and security.

As Newcastillians will recall, Eskom applied for total revenues of R446 billion for the financial year 2026, R495 billion for 2027, and a staggering R537 billion for 2028. This translates to a proposed average price increase for direct customers of 36.15% from 1 April 2025 to 31 March 2026, 11.81% for the period from 1 April 2026 to 31 March 2027, and a further 9.10% increase from 1 April 2027 to 31 March 2028. These figures represent a significant escalation in costs, poised to directly affect the financial well-being of every citizen and business entity.

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As the nation awaits the final verdict on what to expect from their electricity bills, Eskom presented its plan to streamline its billing structure before Nersa on Friday, 23 January 2025. In line with Eskom’s phased unbundling, the entity insists that tariff restructuring is essential, based on the principle that customers should pay uniformly for average consumption.

During a public hearing on 24 January 2025, Onicah Rantwane, Eskom’s Chief Advisor for Electricity Tariffs and Policy Development, outlined several key aspects of Eskom’s plans:

Tariff Restructuring:

• Inclining Block Tariff (IBT): The current system increases the price per unit as consumption rises, intended to promote conservation but often resulting in higher costs for larger families or those with higher energy needs.
• Flat Rate for Home Light Customers: Transitioning to a flat rate aims to simplify billing and enhance equity, ensuring each kilowatt-hour costs the same. This is particularly targeted at ‘Home Light’ residential users, potentially offering cost savings for those previously burdened by high rates, though it might be less advantageous for minimal users.

Service Charges:

• Current Practice: Fixed charges are applied at the account level, meaning a single fee for all meters associated with one account.
• Proposed Change: Charging per point of supply would mean each meter incurs a service fee, leading to a more equitable distribution of costs but potentially raising expenses for properties with multiple meters.

Time-of-Use (TOU) Tariffs:

• Peak and Off-Peak Pricing: This introduces variable rates throughout the day, with higher costs during peak demand and lower during off-peak times.
• Encouraging Behavioural Change: The aim is to shift consumer usage to off-peak periods, reducing peak load and aiding in load shedding management.
• Implementation Challenges: Requires lifestyle adjustments or investment in technology like smart meters, alongside a robust educational campaign.

Cost Reflectivity:

• Current Discrepancies: Rantwane pointed out that existing tariffs do not accurately reflect the costs of electricity provision, leading to cross-subsidies.
• New Approach: Aims for tariffs to closely match the actual cost of service, promoting both fairness and efficiency.

Impact on Municipalities:

• Unbundling of Costs: Offers transparency on costs for different service aspects, potentially aiding better municipal financial planning.
• Benefits and Challenges: While it promotes fairness, it might necessitate system overhauls or face public backlash if costs are passed onto consumers without clear justification.

Moreover, the entity stated that these points signify a pivotal shift towards a more sustainable, equitable, and efficient energy pricing model in South Africa, though the transition involves complexities in public acceptance, infrastructure, and regulatory oversight.

Reflecting on Nersa, OUTA (Organisation Undoing Tax Abuse) has submitted detailed comments on Eskom’s Retail Tariff Plan (RTP) for 2025/26 following Nersa’s public consultation:

“OUTA explained, “The RTP is Eskom’s tariff application, a follow-up to the entity’s sixth multi-year price determination (MYPD6) which will set the overall revenue and price increase for Eskom for April 2025 to March 2028. Eskom has asked for increases of 36.15%, 11.81% and 9.1% for the three years. This follows the 12.74% increase for 2024/24. Nersa is expected to announce its decision on MYPD6 before the end of this month. The RTP is designed to recover only the Nersa-approved MYPD6 revenue, and Nersa’s RTP consultation paper says the proposed tariffs may be adjusted, depending on the MYPD6 decision.”

OUTA acknowledged the need for Eskom to recover costs sustainably but emphasised the necessity for a balance between cost recovery, consumer affordability, and economic sustainability:

“However, we believe that Eskom’s tariff proposals must strike a fair balance between cost recovery, affordability for consumers, and economic sustainability. We oppose any changes that place an unfair burden on consumers or discourage energy efficiency and small-scale embedded generation (like rooftop solar),” OUTA further emphasised.

OUTA’s key recommendations include:

• Simplifying residential tariffs: Proposing flat-rate tariffs for prepaid and flexible tariffs for postpaid customers.
• Opposing mandatory time-of-use tariffs: Criticizing mandatory TOU tariffs for solar users, advocating for voluntary options with clear economic benefits.
• Protecting affordability: Rejecting significant increases in fixed charges which could burden vulnerable groups.
• Promoting equity in municipal tariffs: Suggesting a comprehensive review to ensure fairness across suppliers.

As per the organisation, Eskom’s tariffs should align with practical, equitable policy objectives, including support for clean energy and efficient use. OUTA also urgds Nersa to review global best practices before approving changes.

In November 2024, Dennis Ryder, House Chairperson of committees in the NCOP, provided background on Eskom’s energy and liquidity challenges, which led to the proposed 36.1% tariff increase in 2025:

In Ryder’s view, loadshedding became a daily reality in South Africa in 2008 due to decisions by the Mbeki Cabinet to halt investment in power plants and maintenance. He criticised the workforce expansion and salary increases without corresponding energy additions, and accused Eskom of mismanagement and corruption:

“Eskom makes itself out to be the victim in this story and they are not. Eskom squandered the prime position it once held. As recent as 2001, Eskom was internationally recognised as the top power company of the year… Eskom has been deemed as a site of state capture. It has been strangled by years of bad decisions, failed ideology, unfettered self-enrichment and blatant theft.” The suggested increases are unaffordable for many South Africans. 

Furthermore, as South Africans await the final decision on these price hikes, concerns mount regarding the impact on households and the economy. According to Kevin Mileham, DA’s spokesperson on Electricity and Energy, these increases threaten:

• Deepening energy poverty for millions.
• Forcing families to choose between essential expenses.
• Increasing operational costs for businesses, potentially leading to job losses in an economy with 32.9% unemployment.
• Pushing more citizens into financial distress.

In conclusion, the proposed electricity tariff increases by Eskom pose a complex challenge for South Africa, balancing the imperatives of financial sustainability for the utility against the affordability and well-being of its citizens. The outcome of Nersa’s decision will be a litmus test for how well South Africa can navigate this tension, potentially shaping the country’s economic and social landscape for years to come.

As we stand on the brink of this pivotal moment what are your thoughts on these impending changes? Share your views in the comment section below.