David McDonald | CEO | SolarAfrica | mail me |
“Having put load shedding behind us…”
These were the confident words of President Cyril Ramaphosa at this year’s State of the Nation Address. He declared load shedding a thing of the past. He repeated this claim twice. Not even the official end of the COVID-19 pandemic carried the same level of certainty. That crisis almost pushed our economy to the brink of collapse.
For more than a decade, South Africans planned daily life and business around blackout schedules. Therefore, many welcomed this announcement. Operationally, conditions have improved. Energy availability has increased. Teams now complete overdue maintenance.
Operators manage diesel usage more effectively than during the height of the crisis. However, we must recognise a deeper risk. Stability does not mark the finish line. Instead, the debate has shifted. We no longer ask, “Will the lights stay on?” We now ask, “What will it cost?” In many respects, this signals fragility disguised as stability.
Electricity is no longer cheap
The National Budget showed progress on transmission reform and allocated the necessary funding. However, it did not outline clear tariff reform measures or grid expansion timelines. Consequently, many commercial and industrial (C&I) users now view cost as the real crisis. What appears to be progress may, in fact, reflect fragility disguised as stability.
The president also acknowledged that our economy grew for decades on cheap electricity. He stated clearly that power is no longer affordable.
Over the past five years, tariff increases have compounded well above inflation. Recently, the National Energy Regulator of South Africa (NERSA) confirmed higher-than-anticipated adjustments. A 5.36% increase effectively rose to 8.76% after calculation corrections.
For C&I users, cost certainty remains critical. Businesses require predictability to forecast accurately, invest confidently and grow sustainably. Initially, many attributed abnormal hikes to diesel spending during load shedding. At the time, this explanation made sense because emergency generation carries high costs. However, although load shedding has eased, price increases have continued. For many businesses, electricity ranks among the largest input costs. When that cost becomes unpredictable, it delays investment decisions that could unlock growth.
As an independent power producer (IPP), we have seen this trend directly. Five years ago, customers signed 15- or 20-year agreements without hesitation. Today, many hesitate to commit beyond 10 years. They still believe in renewables. In fact, confidence in renewables has grown. However, they do not trust the broader pricing environment.
Why electricity tariffs keep rising
Many observers treat tariff increases as a regulatory issue. In reality, the drivers extend further. Yes, NERSA approved higher-than-anticipated adjustments. Yes, Eskom carries a significant debt burden. However, structural factors also drive escalation.
Coal plants continue to age rapidly. A significant portion of the fleet operates at availability levels that most developed markets would reject. By 2030, operators must retire a large percentage of these coal units. When those units go offline, gas and diesel generation step in.
These technologies offer higher availability factors. However, they come at a higher cost, and those costs do not disappear. Utilities ultimately pass them on to paying customers. Therefore, we must ask a critical question. Are costs genuinely declining, or are authorities simply redistributing them? From my perspective, escalations will not stop soon.
Fragility disguised as stability
When analysts discuss improved energy availability, they often cite a blended system-wide figure. That number includes renewables, gas and diesel, which typically perform at higher availability levels than ageing coal plants. However, if we isolate the coal fleet, the outlook becomes less reassuring.
At any given time, around 30% of coal units remain under maintenance. In addition, authorities must retire a meaningful portion of capacity within the next five years.
No new coal stations wait in reserve. Expensive backup generation currently underpins stability. Therefore, the system may be more precarious than many assume. This does not mean load shedding will return immediately. However, it does mean we will pay to maintain current stability. In short, the system reflects fragility disguised as stability rather than durable reform.
The next phase – a competitive electricity market
If the first phase of reform focused on stopping load shedding, the next phase must focus on building a competitive electricity market. Independent power producers have spent years developing shovel-ready projects. Many of these projects sit in grid-constrained areas and await transmission expansion.
In the National Budget, the treasury acknowledged the need for transmission investment and allocated funding. However, speed now matters most.
When grid capacity matches generation appetite, genuine price tension can emerge. Dozens of IPPs can then compete for the same customers. Under those conditions, the market becomes a price maker rather than a price taker. However, another risk continues to build.
As tariffs escalate, customers evaluate alternatives such as battery storage or self-generation. If even 10% of paying customers reduce grid reliance significantly, the revenue base narrows. Pressure on remaining customers then intensifies. Analysts refer to this pattern as grid defection. It unfolds gradually. Yet, if prices rise without structural reform, more businesses will pursue alternatives. The cumulative impact could become substantial.
The lights are on – now make them affordable
South Africa deserves recognition for stabilising the grid. However, stability alone will not restore economic competitiveness. If electricity prices continue to outpace productivity and growth, businesses will delay investment, relocate or reduce grid reliance.
Therefore, the next reform phase must unlock competition. Policymakers must accelerate transmission expansion. They must also establish a transparent, functional market that allows private capital to flow freely.
We have moved from crisis management to stability. Now we must move from stability to competitiveness. Otherwise, we risk entrenching fragility disguised as stability as the defining feature of our electricity landscape.
