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November 10, 2017

The price of electricity

The price of electricity in South Africa is regulated by the National Energy Regulator of South Africa (NERSA). The electricity price is made up of the cost of production, the delivery to the customer and everything required to support that. Eskom prepares a price increase application which is submitted to NERSA every 3 – 5 years.

This application includes what they project all their costs to be and how much electricity they will produce and sell. The lion’s share of the costs about 75 – 80% – are made up of the cost of producing electricity in power stations. It is then fed in to large power lines or transmission lines. These highways of the power industry make up about 5 – 6% of the cost. The balance of 15 – 20% is taken up in getting the electricity from the main lines to the meter of the consumer.

As things stand these costs are increasing, and as such, the projections are for electricity prices to continue increasing beyond inflation for the foreseeable future. Once NERSA has interrogated and benchmarked these costs they grant a revenue for Eskom which is then translated into the electricity tariff. Electricity tariffs are complicated – there are different tariffs for poor households, big businesses, municipalities and major industries. These are published annually in the Eskom Tariff Booklet which can be downloaded from their website (but be warned – it is complicated!)

Every year Eskom has to go back to the regulator and explain if they over recovered or under-recovered the costs the NERSA approved. This is then adjusted in the next years’ tariff. Every year the tariffs increase on 1 April for Eskom customers and 1 July for Municipality customers.