The lights are on, but the prices are up
“Having put load shedding behind us…”
These were the confident words of President Cyril Ramaphosa at this year’s State of the Nation Address, where he not once - but twice - declared load shedding a thing of the past. Not even the official end of the Covid-19 pandemic was announced with as much assurance - another nationwide crisis that nearly left our economy on the brink of collapse.
For a country that has spent more than a decade planning daily life and business as usual around blackout schedules, this was music to the ears of South Africans. And yes, operationally speaking, things have improved. Energy availability has increased. Maintenance is finally being carried out. Diesel usage is better managed than it was at the height of the crisis.
But we must remember that stability is not the finish line. If anything, the conversation has simply shifted from one question - “Will the lights stay on?” - to another: “What will it cost?”
While the national budget showed definite progress on transmission reform, with the necessary funding allocated, it stopped short of outlining clear tariff reform measures or grid expansion timelines. For many commercial and industrial (C&I) users, the question of cost has become a real crisis.
Electricity is no longer cheap
The President made another salient point in his address, noting that for decades our economy grew on the back of cheap electricity, but that power is no longer affordable.
Over the past five years, tariff increases have compounded well above inflation. Adding to the pressure, the National Energy Regulator of South Africa (NERSA) recently confirmed that tariff adjustments would be higher than initially anticipated, with a 5.36% increase effectively rising to 8.76% following calculation corrections.
For C&I users especially, cost certainty is critical. Businesses require predictability if they are to forecast accurately, invest confidently and grow sustainably. Initially, the narrative was that abnormal hikes were driven by diesel expenditure during load shedding, which made sense at the time, given that emergency generation is expensive. However, while load shedding has eased, the trajectory of price increases has not.
For many users, electricity is one of the largest input costs. When that line item becomes unpredictable, it stalls business decisions that could otherwise unlock growth.
As an independent power producer (IPP), we have already seen this trend play out first-hand. Customers who five years ago were comfortable signing 15- or 20-year agreements are now hesitant to commit beyond 10 years. This is not because they lack confidence in renewables. Quite the opposite. It’s because they do not trust the broader pricing environment.
Why tariffs keep rising
It is tempting to treat tariff increases as purely a regulatory issue, but in reality, they are not. Yes, NERSA has confirmed higher-than-anticipated adjustments. Yes, Eskom carries a significant debt burden. But there is more to consider.
Coal plants are rapidly ageing, with a significant portion of the fleet operating at availability levels that would not be acceptable in most developed markets. A large share of the coal fleet will need to be retired by 2030.
When those units are taken offline, gas and diesel generation will inevitably fill the gap. While these sources may offer higher availability factors, they are not inexpensive. These costs do not simply disappear within the system; they are ultimately passed on to paying customers.
The question, then, is whether costs are genuinely falling or merely being redistributed. From where I stand, escalations are unlikely to stop, at least not any time soon.
Fragility disguised as stability
There is another uncomfortable truth.
When we refer to improved energy availability, we often cite a blended system-wide figure that includes renewables, gas and diesel; technologies that naturally perform at higher availability levels than ageing coal plants. However, if one isolates the coal fleet, the picture is less reassuring. Around 30% of units are under maintenance at any given time, and a meaningful portion of capacity will need to be retired within the next five years.
No new coal stations are waiting in the wings, and current stability is heavily supported by expensive back-up generation. While this does not mean load shedding is inevitable, it does mean that maintaining stability will come at a cost.
Creating a competitive electricity market
If the first phase of reform was about ending load shedding, the next phase must focus on creating a competitive electricity market. Independent power producers have spent years developing projects that are ready to be built, many of them located in grid-constrained areas awaiting transmission expansion.
Although the national budget acknowledged the need for transmission investment and allocated funding accordingly, the real question is how quickly that expansion will materialise.
When grid capacity keeps pace with generation appetite, genuine price competition can be introduced. Put simply, when dozens of IPPs are able to compete for the same customers, the market becomes a price maker rather than a price taker.
However, another risk is slowly emerging.
As tariffs continue to escalate aggressively, customers increasingly consider alternatives such as battery storage or self-generation. If even 10% of paying customers significantly reduce their reliance on the grid, the revenue base shrinks, and pressure on the remaining customers intensifies.
This is the beginning of what many describe as grid defection. It does not occur overnight, but the longer prices rise without structural reform, the more businesses will pursue alternatives, and the greater the long-term impact.
The lights are on, now make it affordable
South Africa deserves credit for stabilising the grid. But stability alone will not restore economic competitiveness. If electricity prices continue to rise faster than productivity and growth, businesses will delay investment, relocate operations, or reduce their reliance on the grid.
The next phase of reform must therefore focus on unlocking competition, accelerating transmission expansion, and creating 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.
* David McDonald is the CEO of SolarAfrica.
