Why South Africa is dismantling Eskom’s 103-year electricity monopoly

Johannesburg – South Africa is moving to dismantle Eskom’s century-old dominance of the electricity market and overhaul the way power prices are set, with government promising greater competition, more transparent tariffs and increased certainty for businesses and households.

The reforms are contained in the government’s Electricity Market Transformation Position Paper and the Revised Electricity Pricing Policy, which seek to open electricity generation to private producers while introducing a more predictable pricing framework.

According to BusinessTech, the government has gazetted the Electricity Market Transformation Position Paper for public comment as part of its plan to establish a competitive electricity market and end Eskom’s 103-year-old monopoly.

The paper proposes a wholesale electricity market that will allow private power producers to compete with Eskom in electricity generation.

The government says the new market will “enable ongoing competition amongst generators within the market”.

Electricity transmission

“This will lead to more accurate and transparent price signals and better incentives that will encourage improved short-term performance,” the paper said, according to BusinessTech.

The reforms also involve separating electricity transmission and market operations from Eskom, with the transmission network to be managed independently.

The report said that the proposed restructuring has created tension between Eskom and government, with the power utility raising concerns that separating its transmission assets could weaken its finances.

The National Union of Mineworkers has also opposed the move, arguing that it could increase private-sector control of the electricity sector.

The changes come as electricity prices have risen sharply, putting pressure on households and energy-intensive industries.

Business Day reported that electricity tariffs have increased by about 907% since 2007, compared with inflation of roughly 150% over the same period.

Electricity and Energy Minister Kgosientsho Ramokgopa said the rising cost of electricity was threatening South Africa’s economic competitiveness.

Competitiveness

“Over a period stretching back to 2007, electricity tariffs have increased by about 907%, and in the corresponding period, inflation has increased by about 150%. The price of electricity is undermining the competitiveness of our industries and is eroding the disposable income of households,” Ramokgopa said, according to Business Day.

“If we don’t address the cost of electricity, we are unlikely to grow this economy because our industries will be uncompetitive,” he added.

The revised pricing policy, which replaces the framework introduced in 2008, will require the National Energy Regulator of South Africa (Nersa) to publish a 10-year electricity price forecast.

Ramokgopa said the longer-term outlook was intended to give businesses greater certainty when making investment decisions.

“We want everyone to have some degree of certainty on what will be the cost of electricity, not just today or tomorrow, not only in three years’ time or five years’ time. We want to create a 10-year horizon,” he said.

Voice of Nigeria also reported that the new policy would introduce a 10-year tariff forecast, strengthen cost-reflective pricing and improve protection for vulnerable households.

Detailed electricity bills

The publication said the government wants to prevent hidden costs, including municipal debt recovery, from being passed on to electricity consumers.

The policy will also require Eskom and municipalities to provide more detailed electricity bills showing the various costs that make up the final price.

Ramokgopa said consumers should be able to see exactly how their electricity bills are calculated.

“The bill that you are receiving must be able to itemise how the municipality or Eskom has arrived at that which they say you owe,” he said, according to Business Day.

The reforms are also expected to benefit poor households. Business Day reported that government plans to increase free basic electricity for qualifying households from the current 50 kilowatt-hours a month to between 200kWh and 300kWh.

Ramokgopa said the expanded support could be funded within the existing R21 billion annual allocation for free basic electricity by improving efficiency and addressing leakages.

The reforms form part of South Africa’s broader plan to establish the South African Wholesale Electricity Market, allowing electricity generators and buyers to trade in a more competitive environment.

The transition 

The move would effectively allow private electricity producers to compete against Eskom, while transmission and market operations would be regulated separately.

The government argues that greater competition could attract investment into new generation capacity, improve efficiency and ultimately place downward pressure on electricity costs.

However, the transition is likely to remain contentious as Eskom faces the challenge of losing control over parts of the electricity value chain while trying to remain financially sustainable.

The reforms are now subject to public input before the revised pricing framework is finalised.

For South Africa, the changes mark one of the biggest shifts in the electricity sector since Eskom was established more than a century ago, potentially replacing a centrally controlled electricity system with a more competitive market involving multiple generators and suppliers.