<\/p>\n
Load shedding may be a distant memory, and Eskom now reports a surplus of available power amid falling industrial demand, but the cost of electricity continues to drag South Africa\u2019s competitiveness down \u2013 and with it the manufacturing production that creates jobs.<\/p>\n
High electricity costs have become the leading expense line for many manufacturers, exceeding logistics and wages, and escalating the risk of further industrial downscaling and factory closures driving high unemployment.<\/p>\n
Read:
Prepaid power: Are you paying 25% more than you should?
Eskom 2.0 must prepare for a competitive electricity market \u2013 Mavuso<\/p>\n
This is particularly critical in Nelson Mandela Bay, the hub of South Africa\u2019s automotive sector \u2013 where the threat of deindustrialisation risks eroding a sector that accounts for 22% of the local economy.<\/p>\n
While moves such as the reduced tariffs offered to protect smelters from shutdown are welcome, the long lead times for manufacturing investment decisions require that decisions on supporting industry are made much earlier, long before a plant or sector is on the brink of collapse.<\/p>\n
Where relatively cheap electricity was once one of South Africa\u2019s greatest competitive advantages in attracting investment and in the trading of minerals and manufactured goods, it is now expensive relative to the countries we compete against for manufacturing investment.<\/p>\n
Analysis by the Nelson Mandela Bay Business Chamber\u2019s Local Economy Reinvention Think Tank (Lertt) found that South Africa\u2019s electricity is the second-most expensive of nine emerging countries on a like-for-like comparison of business electricity tariffs.<\/p>\n
SA\u2019s tariffs are higher than all other Brics countries, and only Kenya ranks higher in comparison to key African and Asian competitors.<\/p>\n
Eskom\u2019s average tariff rose from about 14c\/kWh in 2000 to roughly 226c\/kWh from April 2026.<\/p>\n
That is a more than 1 500% increase in nominal terms, outpacing\u00a0headline inflation between four- and sixfold, the Lertt study found.<\/p>\n
The steepest increases came in the wake of the 2008 electricity supply crisis, as energy regulator Nersa granted average increases above 20% a year for several years, and again from 2021 as debt, coal costs and diesel-fired peaking generation pushed costs higher.<\/p>\n
Listen\/read: Eskom\u2019s R30.3bn profit rebound faces its next test<\/p>\n
At household level, electricity tariffs consistently outpace consumer inflation, with the Competition Commission\u2019s\u00a02026 Cost of Living report\u00a0finding cumulative electricity inflation ran to 100.5% between 2020 and 2026, far exceeding\u00a0the 36% increase in headline inflation over the same period.<\/p>\n
Coupled with load shedding and declining reliability of electricity infrastructure and supply, these above-inflation tariff increases have been a key contributor to the declining contribution of manufacturing to GDP, reflected in the decrease\u00a0from 15.6% in 2006 to 12.25% last year, while local manufacturing capacity remains underutilised.<\/p>\n
In more advanced economies, a shift from primary and secondary sectors such as mining, agriculture and manufacturing to services and knowledge-based sectors has been a natural progression.<\/p>\n
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But in South Africa we have not replaced this natural decline in mining and manufacturing with a rise up the ladder to higher-level, technology-driven economic activities.<\/p>\n
There is still a gap in which we remain reliant on mining, farming and manufacturing for job creation at scale, which in turn supports other downstream levels of the economy, but the costs of electricity are limiting growth at all levels.<\/p>\n
We should be consuming more power<\/p>\n
A further conundrum lies in Eskom\u2019s current surplus capacity versus declining demand, while revenues grow.<\/p>\n
Electricity sales volumes have\u00a0declined approximately 40% since\u00a02004\/05, with a further 22% year-on-year decline reported most recently, while receipts from mining and industrial customers grew by 77% in the last five years, from R65 billion in 2021 to R115 billion in FY2025\/26.<\/p>\n
This indicates that the revenue increase reflects higher prices per unit consumed, rather than increased demand.<\/p>\n
Declining electricity demand can be attributed to a combination of reduced industrial production volumes along with closures of some high-energy users such as furnaces and major manufacturing plants, the Lertt analysis found.<\/p>\n
Read:
Nelson Mandela Bay a new growth centre for BPO sector
The auto sector, the economy and you \u2026<\/p>\n
In addition, at the height of load shedding, industry heeded Eskom\u2019s calls to reduce electricity demand by improving energy efficiencies and supplementing with renewable energy, while some less energy-intensive businesses were able to move almost or entirely off-grid.<\/p>\n
Businesses and households that went this route have not turned back, and the trend has accelerated with greater attention on green energy and low-carbon manufacturing, impacting on Eskom and municipal revenue streams.<\/p>\n
Today customers face the double burden of unreliable local distribution networks, coupled with steep price increases.<\/p>\n
At the same time, Eskom\u2019s own input costs, which are passed on to consumers through tariffs, have been driven up \u2013 and not only through coal price inflation.<\/p>\n
Coal remains Eskom\u2019s primary energy input cost and single largest expense line item, at\u00a0R150.2 billion in 2025, and the utility faces increasing competition on pricing due to strong, growing international demand for Eskom-grade coal.<\/p>\n
When seaborne export prices spike, junior mining suppliers face a straightforward choice between a lower-margin Eskom contract and a much more lucrative export cargo, and Eskom has had to raise what it offers just to keep coal flowing at all.<\/p>\n
The widening gap between what exporters can earn and what Eskom is able to offer has eroded its ability to secure reliable, good-quality domestic supply, especially once its own long-term supply contracts were allowed to lapse in favour of costlier short-term and spot purchases from a fragmented base of miners.<\/p>\n
Industry figures have repeatedly called for Eskom to return to fixed-price, volume-guaranteed long-term contracts as the fix.<\/p>\n
Forced by the inefficiencies of the rail network, the growing share of coal now transported by road is another major cost driver, with road haulage approximately three times the cost of rail.<\/p>\n
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The impact on the delivered cost of coal impacts Eskom as much as it does exporters.<\/p>\n
There are some positive signals \u2026<\/p>\n
In contrast to the dark years of load shedding, Eskom now states that it has three to five gigawatts of excess generating capacity.<\/p>\n
The utility\u2019s state of financial health has slightly improved, and it has exceeded the Year 1 target in a five-year R112-billion operating cost reduction programme.<\/p>\n
There has also been some progress in cutting municipal debt.<\/p>\n
Eskom has committed to single-digit tariff increases going forward, and has stated that future increases should be aligned to CPI.<\/p>\n
Some progress, albeit stop-start-delay, is being made on unbundling, and bringing market competition into electricity generation, transmission and distribution, including of renewable energy. Eskom Green is seeking partners on utility-scale renewable projects.<\/p>\n
Minister of Electricity and Energy Kgosientsho Ramokgopa recently announced government\u2019s plans for procurement of battery energy storage systems and gas-to-power capacity in order to stabilise the grid.<\/p>\n
There is\u00a0some optimism\u00a0that the more than 50% tariff reduction for ferrochrome smelters, approved by Nersa in May this year, will contribute to reversing the severe decline in this sector, which has come to be a symbol of SA\u2019s overall deindustrialisation.<\/p>\n
However, this relief applies to only a handful of the smelters, and also raises further questions.<\/p>\n
Why did it take a situation of near-shutdown, with massive job losses, for action to be taken?<\/p>\n
Why do high electricity costs continue to be the major barrier to government\u2019s own stated intention of supporting industrialisation and increasing local minerals beneficiation?<\/p>\n
Most critically, if this can be done for smelters \u2013 with Eskom stating that revenue shortfalls from the discounted tariffs will not be passed on to other consumers, and need no government assistance \u2013 why cannot it be done for other energy-intensive sectors, such as mining and manufacturing, that anchor economic activity and generate massive ripple effects in job creation across all levels of the economy?<\/p>\n
On the other hand \u2026<\/p>\n
Clearly, electricity costs are not the only stumbling block to reversing South Africa\u2019s industrial decline and high unemployment.<\/p>\n
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The inadequate state of municipal service delivery, logistics inefficiencies and crumbling infrastructure \u2013 along with the influx of cheap imports undercutting local manufacturers \u2013 must be addressed simultaneously.<\/p>\n
Read:\u00a0SA automakers put more pressure on government to address imports<\/p>\n
However, electricity as a basic input and cost driver with knock-on effects on pricing throughout the economy must remain top of the agenda to offer manufacturers relief from ongoing spiralling electricity costs and support sustainability.<\/p>\n
Greater urgency and more innovative solutions are needed to deliver energy at more competitive costs and more reliably, within a more competitive and diversified energy market landscape.<\/p>\n
This needs to take place through the entire electricity value chain, from Eskom\u2019s input and logistics costs, its cost structures, and addressing ballooning municipal debt, through to the structuring of tariffs.<\/p>\n
Draft policy<\/p>\n
Government\u2019s draft Revised Electricity Pricing Policy, which will replace the 2008 framework, is open for public comment until 28 October. Its move towards cost-reflective, transparent tariffs is welcome, as is the intention to standardise municipal charges.<\/p>\n
Cost-reflectivity must however not become a vehicle for shifting more fixed and network costs, or social cross-subsidies, onto productive users.<\/p>\n
Nor should higher fixed charges penalise businesses that invested in efficiency and self-generation at government\u2019s urging.<\/p>\n
The final policy should provide explicitly for transparent, rules-based pricing for energy-intensive, trade-exposed industry, and ensure that relief reaches municipally supplied manufacturers, not only Eskom\u2019s direct customers.<\/p>\n
Retaining existing manufacturing investments and operations must be seen by government as just as critical as attracting new investment.<\/p>\n
And it must be understood that providing support such as negotiated pricing agreements on electricity is too late when a business is already facing closure.<\/p>\n
Single-digit increases alone are not enough \u2013 the base cost of electricity must support competitiveness, and ultimately the retention and attraction of investment and jobs.<\/p>\n
Listen\/read: Local bus manufacturing could add billions to SA\u2019s economy<\/p>\n
Denise van Huyssteen is CEO of the Nelson Mandela Bay Business Chamber.<\/p>\n
#Cost #electricity #making #manufacturing #unsustainable<\/p>\n","protected":false},"excerpt":{"rendered":"
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