Minerals Council Suggests Tariff Methodology, Costs as Next Focus for Eskom

Why It Matters

Eskom’s pricing framework directly affects South Africa’s economic competitiveness and household affordability; misaligned tariffs could deter investment and strain consumers.

Key Takeaways

• Eskom's availability factor hits 68.5%, surpassing target
• Legacy diesel contracts force payments despite low utilization
• Wage offers exceed inflation, adding cost pressure
• Tariff methodology favors suppliers, risking higher consumer rates
• Transmission upgrades needed for renewable integration

Pulse Analysis

Eskom’s recent performance metrics show a modest but notable improvement in supply reliability, with an average availability factor of 68.5 percent through February. While this progress eases short‑term load‑shedding concerns, the Minerals Council warns that the utility’s pricing structure remains a critical bottleneck for South Africa’s broader economic agenda. The council points to a tariff methodology that historically favours suppliers, coupled with a steep increase in fixed‑cost components such as the generation capacity charge, which is set to rise 20 percent in 2025/26 and another 30 percent the following year. These dynamics risk pushing electricity tariffs well above inflation, eroding consumer purchasing power and discouraging industrial investment.

Underlying cost pressures stem from legacy contracts and labour negotiations. Eskom continues to honor take‑or‑pay agreements for diesel‑based capacity secured during past supply crises, obligating the utility to pay for unused generation. Simultaneously, recent wage settlements exceed the 3.2 percent inflation rate, adding to the utility’s operating expenses. Together, these factors inflate the cost base, limiting the ability to align tariffs with macro‑economic inflation trends. The council’s analysis suggests that without reforming the tariff calculation model and addressing these legacy liabilities, Eskom may face escalating price adjustments that outpace consumer income growth.

Looking ahead, the Minerals Council emphasizes the urgency of expanding and modernising South Africa’s transmission network. Robust grid infrastructure is essential to integrate additional renewable projects, emerging nuclear capacity, and embedded generation sources that are reshaping demand patterns. As households and businesses increasingly adopt self‑generation solutions, overall grid consumption declines, further complicating tariff setting. Strategic investment in transmission corridors and grid flexibility will not only support the transition to cleaner energy but also help stabilise electricity pricing, safeguarding the country’s competitiveness in the global market.