South Africa Electricity Reform: What It Means for Utility Costs

South Africa’s Electricity and Energy Minister recently revealed that in almost two decades, electricity prices in the country have jumped by 907%, compared with inflation in the same period increasing by 150% – meaning prices have grown roughly six times the rate of the general cost of living.

Since the start of the year, the Q1 to Q2 increase in utilities and housing costs rose 13.3%, and the latest data shows a further 3.7% increase from Q2 to Q3, according to WageIndicator's Cost of Living database, which tracks the rising cost of South African utilities and housing as well as other living costs and how much income a household needs.

Inside South Africa's electricity reform

South Africa's electricity grid is undergoing a major transformation. The state-owned provider, Eskom, will be split into separate entities in hopes of improving reliability through greater competition among suppliers and energy sources – and just maybe, the skyrocketing rise in electricity prices could slow down.

The primary goal of the electricity grid transformation is not to reduce costs but rather build a more reliable and sustainable electricity supply. Electricity and Energy Minister Kgosientsho Ramokgopa says that “these measures are intended to increase investment in new generation capacity, improve the efficient use of the national grid, strengthen security of supply, and introduce greater discipline into the electricity supply system.”

But on whether this means South Africans will see lower electricity prices in the future, he’s unsure, and he has cautioned that there's no guarantee the reforms will translate into immediate lower prices for consumers.

“It’s great that we have a new electricity policy – but I’d like to know how it will affect me. We currently pay a lot for electricity and it’s a big part of our monthly spend,” says Jennifer Radloff, who lives in Cape Town. “What we need is a basic pricing model, so I can work out how to budget accordingly, with all the other costs I have.”

Tracking the real cost of living

WageIndicator’s Cost of Living database is able to break down prices into specific categories: food, housing and utilities, drinking water, phone and internet, clothing, transport, education, healthcare, and a provision for unexpected events.

With data backed by real fieldwork, WageIndicator's data collectors permanently and continuously track utility and housing cost data in close to 200 countries – updated every financial quarter. The result is a ground-level picture of what families actually pay, using WageIndicator's own tried and tested Living Wage methodology.

In South Africa, Eskom earns most of its revenue from rates paid by municipalities, businesses and other electricity customers – and it's those municipal rates that most everyday South Africans actually pay, since local municipalities buy power from Eskom and resell it to households.

According to Electricity and Energy Minister Kgosientsho Ramokgopa, electricity prices are affected by a number of factors, including:

• The cost of generation
• The condition of transmission and distribution networks
• Municipal surcharges
• Debt levels
• Maintenance requirements
• Fuel costs
• The need to invest in new capacity after years of under-investment

The hope is that these new reforms will make the factors behind Eskom's rates more transparent. Instead of a single bundled tariff, the generation, transmission and distribution costs would be broken out and regulated separately, with this efficiency – in combination with new renewable energy sources – possibly leading to cheaper prices. Whether that transparency ends up in South Africans' favour is something WageIndicator will keep tracking, each financial quarter.