Eskom Warns of Price Hikes Amid Rising Competition from Private Traders

Eskom Generation has raised concerns over private groups applying for trading licenses, warning that such moves could lead to significant price hikes for its remaining customers. The utility’s objections were presented during a public hearing by Nersa’s electricity subcommittee on Thursday, July 18, highlighting the potential impact on the already strained power provider.

Objections and Concerns

Mohlago Masekela, Eskom’s head of legal services, articulated the utility’s stance against granting these licenses. She argued that allowing private traders to operate in the same areas as Eskom would contravene existing rules set by Nersa in 2020. These rules prohibit multiple licensees from supplying electricity to the same area, except in legacy cases. The key points of Nersa’s guidelines include:

• Licensees cannot supply the same area or customers within another licensee’s area of supply.
• A licensee cannot electrify end-users within an eligible area merely to “pre-book” that area.
• Disputes over unlicensed electrified areas post-supply are prohibited.
• Supplying a licensable area without Nersa’s approval is not allowed.
• Electrification of municipal rezoned areas is restricted.
• Exclusive supplier conditions for electricity provision are prohibited.

Masekela emphasized, “Eskom Holdings is objecting because of the Nersa approved and issued rules, which prohibit two or more licensees supplying the same area.”

Potential Consequences

Eskom fears that granting these licenses could lead to “cherry-picking” of customers, where private traders might target large power users and bilateral customers, leaving residential and small commercial customers solely to Eskom. This could disrupt the efficient and sustainable development of electricity infrastructure.

One application explicitly mentioned avoiding residential and small commercial customers, which Eskom argues could undermine the cross-subsidy model currently in place. “If a group of contributing customers are removed from this cross-subsidy base, it will exert further pressure on the remaining customers,” Eskom noted.

Eskom’s Willingness to Collaborate

Despite its objections, Eskom expressed a willingness to work with Nersa to reassess the rules and ensure fair competition without compromising its operations. Masekela reiterated, “Eskom is willing and available to work with Nersa or to take part in a process to reassess the rules.”

The Looming Death Spiral

Energy experts have long warned of Eskom’s potential ‘death spiral’ due to increased competition and internal inefficiencies. The rise of private solar and renewable energy projects poses a significant risk to Eskom’s customer base. Former Eskom CEO Andre de Ruyter previously warned that the utility’s frequent applications for large tariff hikes would drive customers away, leaving only those unable to afford alternatives.

Eskom’s current predicament is exacerbated by a non-payment crisis, with tens of billions of rands owed by customers, particularly municipalities. Recovering this debt remains a significant challenge. Independent energy expert Mohammed Madhi noted that while renewable energy sources are becoming cheaper, Eskom’s rising prices are placing additional burdens on customers.

A Call for Strategic Reform

With private traders entering the market, Eskom faces the challenge of retaining its customer base while addressing inefficiencies. Independent energy analyst Pieter Jordaan highlighted a permanent loss in demand on Eskom’s grid, translating to significant lost sales.

As the energy landscape in South Africa evolves, Eskom’s future hinges on its ability to adapt and reform. The utility’s warnings about price hikes underscore the urgent need for strategic adjustments to remain competitive and sustainable in an increasingly decentralized energy market.