South Africa’s electricity tariffs have increased by about 977% since 2007, prompting government to propose a comprehensive set of measures to address the high cost of electricity while ensuring vulnerable households and strategic economic sectors remain protected.

The measures are outlined in the country’s Revised Electricity Pricing Policy, which Cabinet approved for public comment last month. The policy updates the 2008 Electricity Pricing Policy to reflect developments in the electricity supply industry, including ongoing market reforms linked to the unbundling of Eskom and the implementation of the Electricity Regulation Amendment Act, 2024.

Electricity and Energy Minister Dr Kgosientsho Ramokgopa unveiled the policy at a media briefing in Pretoria on Tuesday, stating that the massive tariff increases over nearly two decades necessitated a new approach.

The policy establishes national principles and tariff-path certainty, provides a framework for transparent, efficient and cost-reflective tariffs, guides the National Energy Regulator of South Africa (Nersa), Eskom and municipalities, aligns prices with a competitive market, and strengthens social protection and accountability.

Ten-year price forecast for investment certainty

A key feature of the policy is the requirement for Nersa to publish a 10-year price forecast, providing investors with clarity on future electricity costs.

“This is important because, for heavy industries, when people want to make significant investments in the South African economy, and they’re investing in a sector that relies on electricity, they want to compute their return on investment. If electricity is a big part of the input cost, you need to have an appreciation of what the price path looks like,” Ramokgopa said.

The pricing policy will provide a framework for transparent and efficient cost-reflective tariffs to avoid hidden costs being included in electricity tariffs. Once adopted, the policy will guide the work of Nersa, Eskom, municipalities and other actors across the electricity ecosystem.

Opening market to competition

Government is liberalising the electricity market to end Eskom’s monopoly and introduce greater competition. The reforms will allow new generators to enter into bilateral arrangements with off-takers outside the realm of Eskom for the supply of electricity.

“That means that there’s a set of rules that must govern this new dispensation,” the minister said, adding that South Africa is moving towards a wholesale electricity market.

Protecting vulnerable households

The policy will strengthen social protections for the poor, indigent and vulnerable communities. Ramokgopa explained that the current tariff structure enables Eskom to recover municipal debt through tariffs, meaning diligent consumers pay for those who default.

“If you look at the current tariff, anything between 1% to 2,5% of the tariff that you are paying is on the basis that Eskom is unable to recover what the people are owing, and municipalities, they put in the cost of supply studies the fact that they are being owed a lot of money,” he said.

Under the new policy, this practice will not be allowed. The policy will enable action against those who do not pay for electricity and those who are illegally connected to the grid.

Government will also modernise free basic electricity administration by establishing a central and nationally accessible free basic electricity database. The database will be integrated with existing databases from Home Affairs and social grant systems, ensuring that those who qualify for social grants will also qualify for free basic electricity.

Support for energy-intensive industries

The policy introduces a Negotiated Pricing Agreement instrument to support industries that rely heavily on electricity. Previously, this mechanism only applied to industries in distress.

“We’re also introducing another criterion. This could be industries that are not in distress, but if they were to get concessional funding, they’re able to support the national interest in that they’ll be able to accelerate the growth in the priority sectors of the economy; they’ll be able to create employment. We’re using it as a pre-emptive strike to rejuvenate the South African economy,” Ramokgopa said.

The minister added that requiring electricity providers to operate efficiently would result in lower electricity prices for consumers.

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