Eskom’s failure to generate enough capacity to meet demand has culminated in the worst load shedding crisis in South Africa’s history. It  threatens to paralyse the country’s economy to the detriment of everyone, but particularly the poor. 

In response to this crisis, Finance Minister Enoch Godongwana recently announced, as part of the 2023/24 National Budget, a debt relief package to Eskom and tax breaks for rooftop solar and embedded generation. 

While the debt relief is necessary, the conditions with which it comes will pave the way for private pathways for energy provision that will be insufficient to address the load shedding crisis and will not deliver affordable electricity. 

Further, the subsidies for rooftop solar and embedded generation will not result in increased capacity or ensure affordability. 

Instead, these measures will worsen existing energy inequality and energy poverty, as only a small minority of households and bigger businesses will have the resources to take advantage of these tax breaks. 

The debt relief measures also overlook other drivers of energy costs. These are a significant factor contributing to the crisis and undermine Eskom’s ability to invest in new capacity and deliver affordable electricity. These consequences are unpacked below. 

Strings attached to Eskom’s debt relief

The conditions attached to the R254-billion in debt relief prohibits Eskom from investing directly in new renewable generation capacity, and tacitly assigns this task to the private sector through Independent Power Producers (IPPs) and embedded generation. 

The R168-billion and R86-billion for capital and interest payments, respectively, allocated to Eskom over the next three years are limited to investments in transmission and distribution. There are two negative implications to this approach. 

First, reliance on IPPs will negatively impact the affordability of energy for poor people in South Africa. This is because IPPs, unlike public entities, are mandated to recover production costs, taxes and profit through tariff increases. 

Second, the risk that IPPs will not deliver the needed capacity to address the load shedding crisis and widespread energy poverty, is high. 

A good example is the failure of the Bid Window 5 (BW5) to meet their targeted generation capacity. Halfway through 2022, IPPs from BW5 generated only 8% of installed capacity, or less than 1,000MW of the targeted 2,600MW. (This level of production  accounted for more than 30% of primary energy costs.)

Cut-throat competition in BW5 has meant that the majority of the preferred bids are no longer sufficiently profitable. This is because input costs are not falling in tandem with the bidding prices. Consequently, the bidding round has failed to close, further delaying the installation of necessary capacity. 

Further, the restriction that Eskom should only invest in transmission and distribution infrastructure to facilitate private participation in energy generation undercuts the debt relief provided. 

This will burden Eskom with additional “wheeling” costs – costs associated with the transmission of electricity from the producers to the consumers, including repair and maintenance costs. (Wheeling costs are especially expensive in the case of South Africa amidst widespread sabotage to Eskom’s infrastructure.)

The IPPs who will profit from using the grid are not required to cover these costly upfront investments. Worse, still, if Eskom charges costs for transmission, private investors will still benefit as they will recover these costs by raising tariffs and thus compounding entrenched energy poverty. 

By attaching conditions to its debt relief, National Treasury ensures it has veto power over energy policy and is able to drive a privatisation agenda.

Finally, unconditional debt relief should be only one part of a wider debt restructuring process. The relief should include a reduction in repayments to private debt holders (“haircuts”) and the overcapitalised Government Employees’ Pension Fund writing off its share of Eskom’s debt. 

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Free basic electricity

The Budget makes no effort to expand energy access for poor households. 

The R1.1-billion increase for free basic electricity (FBE) only offsets the recently approved 18.7% electricity tariff increase and does not expand the pool of FBE beneficiaries. 

The Budget also fails to address the question of the amount of electricity provided under FBE – the 50 kWh per household per month, which is far below the estimated 350 kWh per month needed to meet the most basic of needs. 

The Budget further fails to address factors contributing to high tariffs, especially at a municipal level. 

Due to cuts to the equitable share grant, meant for basic services, many municipalities have hiked their electricity tariffs to compensate for the shortfall. Similarly, no measures are put in place to deal with municipalities that, due to a profit motive, find it more attractive to sell electricity than to register indigent households for FBE. 

Municipal debt conditions 

Amidst stagnation in FBE roll-out, measures meant to address the R53-billion that municipalities owe to Eskom – such as the installation of prepaid meters – will deepen existing energy poverty. 

These measures cut off access to basic services to impoverished households and result in a higher tariff rate (prepaid electricity is often more expensive). Consequently, most households connected to the grid will be forced to load shed themselves, as they make tough choices between purchasing food or electricity.  

Given the above, the Treasury should be expanding the FBE quota, and pre-paid electricity should be charged at the same price as normal access, and at a rate that enables consumers to comply and not have to resort to illegal connections. 

Subsidies for rooftop solar 

The much-lauded tax rebates for private solar installation – a rebate of 125% (with no cap) for businesses and 25% for households (capped at R15,000) – are a boon for higher-income households and big businesses that can afford solar installation. 

This will widen energy poverty as the majority will not be able to afford installation in the first place. These funds could have been spent on publicly-owned renewable capacity, or some sort of community-owned solar capacity rather than individualising access. 

Also, encouraging wealthier households to migrate from the grid jeopardises Eskom’s future revenue and could hasten its collapse. This will disadvantage FBE beneficiaries and create further room for privatisation.

Energy costs 

The Budget is also notable for its omissions. Input costs for diesel, coal, and the energy bought from IPPs, for example, were the biggest justification for Eskom’s tariff increases, which entrenches energy poverty. 

Yet, no plans have been announced to reduce Eskom’s energy costs by, for instance, allowing Eskom to purchase diesel from wholesalers instead of retailers, buying coal cheaply at domestic rather than export prices, and renegotiating the expensive, yet underdelivering, IPP contracts. 

Conclusion

Eskom’s debt relief is welcome. However, it imposes conditions that entrench private energy provision pathways that will not sufficiently deal with load shedding and will worsen energy access, affordability and inequality. 

The National Treasury knows this full well, and yet is actively seeking to use its hold on the public purse to reach well beyond its mandate and control the direction of energy policy. DM