The Hidden Cost of Electricity Price Increase: Jobs, Investment, and a R54bn Miscalculation
Last week’s good news went largely unnoticed: 100 consecutive days without Eskom load shedding
It went unnoticed because we were digesting the bad news: electricity prices are set to skyrocket due to a R54 billion tariff miscalculation by the National Energy Regulator of South Africa (Nersa)
A R54 billion blunder is not what one expects from the organisation specifically mandated to count the kilowatts – and the rands needed to keep them coming.
The arithmetic fail has implications beyond household and company budgets.
The more significant cost is the loss of jobs and investment it implies. Our power used to be among the cheapest in the world; at $0.19 it is now the most expensive within Brics – more than double the cost in China and India, according to the latest World Population Review.
The upcoming price increase – 8,8% for the next two years – to plug the R54 billion accounting hole, is considerably higher than the agreed 5,4% and 6,2% increases that involved public consultation. If implemented, our new electricity price would leapfrog into even higher cost echelons, equivalent to the price in some developed countries like Japan and New Zealand.
While the impact on struggling South African households is obvious, less apparent but no less serious is the overall impact on the economy. The electricity price is undermining manufacturing and job creation. It has increased by around 300% over the past decade.
The escalation is damaging to the entire economy, and particularly galling for business owners who have weathered years of state blunder – and state capture.
A December 2024 collaborative study by local and international stakeholders, among them the United Nations and the National Treasury, found that the ongoing electricity crisis “has led to significant job losses, reduced capital investments, and disrupted export activities across manufacturing firms in the country, with the adverse effect being particularly severe for manufacturing firms with higher energy vulnerability intensity.”
One might expect such damning findings to elicit a broad suit of measures to cushion the blow. Instead, last week we got the opposite – news that Nersa and Eskom quietly negotiated a hugely above-inflation electricity tariff increase behind closed doors.
In our view this new development highlights the urgent need not only for accelerated private sector involvement in the energy market -- to drive down the price – but also for a management overhaul of state organisations fundamental to economic growth.
Manufacturers urgently need more support, such as new industrial parks with independent power supply.
It’s not all bad news from Nersa, however: a total 111 new power generation facilities were registered in the first quarter of the current financial year, with a total estimated investment value of R51,91 billion, according to multiple media reports. Almost half of this investment – R21,41 billion—is in the Western Cape, making the province the clear leader in installed capacity.
Therein, perhaps, lies a clue to future success. Less bureaucracy means less blunders. If government can simply create an enabling business environment, private companies will do the rest.
Allow businesses to do what businesses do best: create jobs and economic opportunity.
John Lawson
CEO of the Cape Chamber of Commerce and Industry