The line graph above shows the average KWH rates in South Africa and the increases for the past 15 years. In the past 10 years alone, the price of electricity has escalated by 381% which far outstrips inflation. The impact of this is that company’s electricity operating expenses have risen significantly, putting pressure on competitiveness. The assumed escalation rate in the proposal is per annum.
As of 2019 Eskom has debt of R440 billion, which is not sustainable and R35 billion owing to it from delinquent municipalities and arear accounts in Soweto. It made a loss of R20 billion in the 2018/2019 Financial Year.
“Eskom does not generate sufficient revenue to service its debt, which had reached its limits, and its liquidity has deteriorated, Eskom Chairperson Mabuza said. It was in a “death spiral”.
Government has provided guarantees and bailouts to Eskom but the Government itself is facing a credit rating downgrade which constrains its ability to bail out Eskom.
Tariff increases are the main mechanism to create sustainability for Eskom and for Eskom to service its debt and overheads there will have to be significant increase in the next 5 years. Further to this, Eskom won a court case against Nersa to recover another R69 Billion over 3 years from 2021-2023.
Given the upward pressure on electricity costs, companies are focusing on increasing their energy efficiency and reducing consumption to mitigate these increases. Energy LED assists with electricity usage in line with these strategies.