JOHANNESBURG, Gauteng — As the latest South Africa electricity tariff increase takes effect this month, households are bracing for higher utility bills right in the middle of winter. Approved by the National Energy Regulator of South Africa (NERSA) for the 2026/27 municipal financial year, the steep municipal electricity tariffs have sparked widespread concern. Energy expert Professor Vally Padayachee notes that while the City Power increase is lower than Eskom’s, overall electricity prices remain “unacceptable” and represent a critical financial roadblock for consumers and the broader economy.
The Excess Capacity Paradox
One of the most glaring contradictions highlighted by Padayachee is that these price hikes are occurring despite the country now having excess electricity capacity from Eskom and municipalities. According to basic economic principles, an excess supply should drive prices down. However, Padayachee explains that the licensing and distribution framework only allows for an annual tariff application, preventing the dynamic, competitive pricing seen in the private sector.
The Root of the Hikes: Historical Under-pricing
The root of the current steep increases lies in historical pricing methodologies. For the past 10 to 20 years, the regulator consistently approved a lower “affordability tariff” rather than a “cost-reflective tariff.” Now, Eskom and municipalities are playing catch-up to recover their actual costs of supply. Because they must rely on an annual application to make up for decades of under-pricing, the resulting cost-plus margins are being passed directly onto consumers.
Where the Money Goes and Infrastructure Deficits
Addressing where the additional money is going, Padayachee clarified the financial impact on a typical household. A family consuming 450 kilowatt-hours (kWh) will see an extra R21 added to their monthly bill. Furthermore, a basic charge of R120 is applied to cover grid maintenance, network upkeep, and service delivery.
These funds are critical for a highly capital-intensive sector. Padayachee noted that City Power alone requires approximately R80 billion to correct its infrastructure, while the national grid requires an estimated R160 billion to R200 billion for comprehensive revamps. This money can only be sourced through tariffs and equitable state grants, neither of which is currently sufficient.
Irregular Expenditure and Inefficiencies
The burden on the consumer is heavily compounded by systemic inefficiencies. Padayachee agreed with recent findings from the Auditor-General, which identified R11.8 billion in irregular expenditure since the 2021/2022 financial year. He acknowledged that years of inefficiencies, corruption, and state capture mean there is “no free lunch,” and consumers are ultimately forced to pay for these mismanaged funds through higher tariffs. He stressed that the procurement costs and maintenance expenses within the sector have also skyrocketed over the last two decades.
Future Outlook and Policy Changes
Looking ahead, the outlook for consumers remains grim. Padayachee warned that unless the underlying cost drivers and inefficiencies are urgently addressed, electricity prices are likely to continue increasing over the next year or two.
A potential glimmer of hope lies in the amended Electricity Pricing Policy, which is currently being finalized and expected to head to Cabinet. If approved, this new methodology could help harmonize affordability with cost-reflective tariffs. However, Padayachee cautioned that significant price drops are not expected in the immediate future.
Impact on Indigent Households
The hikes also raise questions about the efficacy of social safety nets. Currently, the Free Basic Electricity (FBE) policy provides 50 kWh of free power to indigent households, benefiting approximately 1.6 million homes. While this allocation is set to increase, Padayachee argues that the provision is not highly beneficial to qualifying residents as long as the overall cost of electricity remains prohibitively high. Ultimately, he stresses that the baseline price of electricity must come down to provide any real, meaningful relief to the country’s most vulnerable populations.
