The second path is to add new generation capacity to the grid. In terms of the latter, experts however note that additional capacity generated through the combination of coal and renewables (where coal provides a base load) has a 10-year construction and deployment timeline. If renewables are combined with batteries (where batteries would provide a base load), cost considerations are the limiting factor. Electricity generation through gas is a more feasible option in terms of timelines and costs but remains contentious. Given the explanation above, sufficient and timely additional utility-scale generation seems unlikely. Our view is therefore that utility-scale supply will remain constrained over the next 5-10 years and that businesses and households will have to rely on their own generation to mitigate the effects of continued load-shedding and increasing electricity costs.
At the start of 2023, the National Electricty Regulator of South Africa (NERSA), announced their decision regarding Eskom’s tariff increases for the next two financial years. In this announcement, they noted that they had attempted to strike a balance between Eskom’s financial sustainability issues and the impact on the SA economy and affordability. Effective from 1 April 2023 (July for municipal clients), Eskom clients can expect to pay 18.65% more for their electricity, increasing average tariffs from approximately R1.46 per kilowatt hour (kWh) to R1.74/kWh. This is the highest approved tariff increase in 11 years. From 1 April 2024, tariffs are then expected to increase by an additional 12.74% to R1.96/ kWh, although this may be revised based on the performance in the current year. Over the past 15 years, Eskom tariffs have increased by an average of 12.72% each year, resulting in a total increase of 685% over that period. The latest approval by NERSA will see a compounded tariff increase of 33.77% over the next two years. Beyond that, different electricity price paths, are explored in more detail below.
Eskom’s 2023/24 approved tariff increase is the highest we’ve seen in 11 years
20.00%
18.00%
16.00%
Average Eskom tariff increase, 12.72%
14.00%
12.00%
10.00%
18.65%
16.00%
8.00%
15.06%
13.87%
12.74%
12.00%
6.00%
9.61%
9.40%
8.76%
4.00%
8.00% 8.00%
2.20%
5.23%
2.00%
0.00%
20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 20/12/13 Average Eskom tariff increase Eskom approved tarif increase
*Source: Eskom, Absa Sectors
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