South Africa

Power Trip (Part Three)

Rocketing: Electricity prices up 177% in a decade – water costs up 213%

Water photo by mrjn Photography on Unsplash. Electric Bulb photo by Unsplash/Alessandro Bianchi)

The sky-high cost of electricity, water, rates and taxes drives inflation and can stamp out green shoots of economic recovery, suggests research by the SA Reserve Bank.

In the past decade, electricity and water costs in South Africa have shot up so high that they are now the biggest inflation drivers, according to the SA Reserve Bank. 

South Africa’s interest rates are at an all-time low and the stimulus this provides can boost demand. There is space to bring rates even further down to lower the costs of borrowing, but as this chart shows, administered prices (the term used to describe utility and other tariffs) are now so high that they can cause inflation.  

What the SARB research reveals is that these prices have escalated significantly beyond their costs over the decade. At Eskom, this is the price of State Capture (although the utility company says its prices are still low and that municipalities are to blame). 

At local government level, these costs reveal the likely underfunding (and overstaffing) of the third tier of government. Councils are loading paying consumers with extremely high costs.  

This chart should offer some relief to both the economy and the reader. It shows that some parts of retail are up beyond the 2019 baseline. Food, drink and hospitality has benefitted from pent-up demand and grew significantly by September 2020, while retail also bounced back. 

The healthcare, beauty and fitness sectors lagged slightly behind because gyms, beauty and hair salons were still subject to tight Covid-19 regulations at the time of measurement.  

This chart from the SARB reveals that even as electricity prices shot up to their highest ever, stability of supply was its worst in 2020. The economy has been weak and demand low, which translates into lower demand for electricity from businesses. 

What do the numbers mean for you?  

The galloping costs of electricity and water (and the charges added to the wholesale costs), suggest that you will be paying more for utilities.  Own generation of electricity at municipal level is likely to be used as additional revenue generation, with municipalities unlikely to pass on savings to consumers, although that is the stated purpose of the integrated resource plan passed by Cabinet in 2019. 

This is because local government is allocated too little in the system of inter-government finances, with provinces getting the lion’s share of spending.  

Most readers who contacted Daily Maverick are using less electricity (by using gas or turning off geysers and other systems that use a lot of power) but few are able to install solar as it is still prohibitively expensive for most South Africans. Also, Eskom has ended a subsidy for consumers who install solar. DM

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  • In 2001 Eskom received the international award for best energy utility in New York. Little did we know it would be the last part of a great legacy of leaders.
    This skyrocketing of cost is by far the best example of mismanagement, corruption and political infringements. Keep exposing!

  • The water utilities such as Rand Water has escaped scrutiny for the longest of time. The asset replacement programme, operating cost and profits deserve a review by DM. Combine this with the ageing infrastructure and water loss at municipal level, and it explains why we moved from paying R14 to R45 per kiloliter in Ekurhuleni. It is insane. The whole value chain deserves a decent review and exposé. The water losses at munic level alone is criminal. It is a scarce resource, so what are munics doing to preserve it through containing massive loss %? Expose it and lets get action.

  • This what happens when only a small portion of the “consumers” are paying. The thieves and crooks get their water for free, actually not, it’s paid by the few payers. The water losses due to bad infrastructure in eThekwini are estimated at about 40% to add to this woeful situation. Then the cherry on top is the incompetent and corrupt municipal officials. Hoo boy !

  • Something that needs attention with Eskom unbundling is that its Distribution business is patently unfair. Areas that are entirely within the urban edge of metros are direct Eskom Distribution clients. take Montagu Gardens in Cape Town as example. So those businesses pay MUCH less than other businesses a mile away that are on council supply. Why? Because councils make roughly 60% margin on their wholesale Megaflex electricity in order to cover a host of other non-revenue services as well as indigent services. Eskom and its direct clients benefit from all the services that the councils have to cover…. when Eskom is broken up it needs to transfer the urban edge network to councils!!! There are probably numerous other network benefits to be gained if some of the High Voltage and Medium Voltage grids are integrated with councils in any event.

  • The cost increase is nothing more than the penance due from the public for the apathetic, myopic behavior exhibited by the majority at the polling booth