Power lines over a crowded informal settlement illustrate the urgency of the issue
New Policy Review to Tackle Affordability Issues
Electricity and Energy Minister Dr. Kgosientsho Ramokgopa has announced a comprehensive review of South Africa’s electricity pricing policy.
This initiative aims to address the escalating affordability crisis that is increasingly restricting access to electricity for many low-income consumers.
Stakeholder Involvement and Implications
The review will involve consultations with the South African Local Government Association, Eskom, the National Energy Regulator of South Africa (Nersa), and other key stakeholders.
This could lead to significant changes in how electricity tariffs are determined and how subsidies for low-income households are structured.
Background of the Review
Minister Ramokgopa’s announcement comes amid protests in Johannesburg. These protests were sparked by the introduction of a R200 monthly surcharge on pre-paid customers to cover City Power’s network costs, and the implementation of load-reduction measures in areas where substations were overburdened due to illegal connections.
Challenges for Poor Communities
During a briefing, Ramokgopa highlighted that poor communities are finding it increasingly difficult to afford the rising electricity tariffs.
The existing support, which includes a monthly 50 kWh free basic electricity (FBE) allowance, is insufficient and fails to reach the majority of households in need.
Out of the ten million households eligible for the subsidy, only two million currently receive it, despite funds being allocated to municipalities to cover the FBE costs.
Components of the Tariff Policy Review
The ‘tariff policy review’ will encompass six main components:
- Transparency of unbundled tariffs for Eskom Distribution and the National Transmission Company South Africa.
- An assessment of how the electricity subsidy framework should evolve in a changing market.
- Establishing a pricing framework for microgrids.
- A review of the FBE policy.
- An assessment of distributed generation within the context of electricity distribution industry reform.
- A review of the tariff-setting methodology.
Nersa’s Role and Challenges
Ramokgopa emphasized the crucial role of Nersa in achieving a solution that balances affordability for low-income households with the transition to cost-reflective tariffs for other users.
Notably, Nersa’s recent attempt to overhaul the existing multiyear price determination (MYPD) methodology was abandoned due to concerns over its implementation.
Current Tariff Application and Future Steps
Recently, the Energy Regulator withdrew its approval of the Electricity Price Determination Methodology Rules after determining that the rules lacked a clear formula for calculating tariffs.
Consequently, Eskom’s next tariff application will use the MYPD methodology, requesting allowable revenue of R446-billion for 2025/26, which could result in a tariff increase exceeding 36% if approved.
The Need for Policy Clarity
Ramokgopa argued that the review of the Energy Pricing Policy is essential for establishing a clear pricing policy for the industry and enabling Nersa to implement it effectively.