Eskom Proposes Five Year Tariff Increase Plan: How Will This Affect Households?

eskomEskom has initiated the application for the third multi-year price determination (MYPD 3) with the National Energy Regulator of South Africa (Nersa), which will determine nationwide electricity prices for the period starting 1st April 2013. The current MYDP 2 for the period April 2011 end March 2013 denotes a massive increase of 25% per annum; fortunately the electricity increase was reduced by 25% to 16% in 2012, approved by Nersa. The proposed MYPD 3, which will span a period of five years as opposed to three, has put forward an electricity tariff increase of 16% per annum. This rate is far above inflation and will continue to make electricity an unaffordable necessity for many South Africans. With all these figures in the pipeline, how will these electricity hikes affect our household energy bills?

Past, Present and Future Tariff Hikes

In short, the price of electricity in 2008 before any tariff increases were imposed was around R0.5/kWh, including tax and rates. Today the rate is closer to R1.25/kWh, which equates to a massive 125% increase over a period of just four years. Thus a household electricity bill of R500 in 2008 costs R1125 today, which for many South Africans is unaffordable.

As Eskom ‘Catches Up’, We Pay

MYPD 3 will effectively trap citizens into paying even more for their electricity from the 1st April 2013 in a five year strategy that Eskom describes as necessary for ensuring a predictable, long-term pricing plan for both customers and investors in the country. However, in essence the price hikes are needed by Eskom to finance its ‘catch-up’ efforts. The State-owned supplier of 95% of South Africa’s electricity failed to device an effective growth plan for increasing output over the past decade and today, South African’s are paying the price as Eskom scrambles to develop new and costly infrastructure.

Reduce Eskom Dependency

From an economical and environmental perspective and in light of the proposed five year tariff increases, residential renewable energy systems are becoming a more viable option. In the past, solar PV systems were highly expensive to install and maintain and return on investment would only be achieved after a period of twelve to fifteen years. However, the cost of PV technology has become more accessible and the South African renewable energy industry more competitive, meaning that return on investment can be reached in as little as four to six years. Furthermore, Eskom has recently launched a pilot project where energy savings from 10kWp plus solar power are compensated at R1.22/kWh. It’s likely that government incentives will be implemented in the future, making solar PV an attractive alternative to being dependent on Eskom.