The Death of the “Blank Check”: Why South Africa’s Electricity Pricing is Broken—and How Science Can Fix It
For decades, electricity regulation in South Africa has followed a simple, albeit dangerous, rule: The utility spends, and the consumer pays. Under the current “Cost-Plus” model, our regulator (NERSA) essentially acts as an auditor of receipts. If the utility spent the money—even if it was spent inefficiently—they are largely entitled to recover those costs through your monthly bill.
The result? A 28% “Methodology Gap” where electricity prices have skyrocketed far beyond the rate of inflation, punishing businesses and households alike.
But there is a better way. It’s time to move from “Checking Receipts” to Economic Engineering.
The “Utility Death Spiral”: A Mathematical Warning
We are currently witnessing a phenomenon known as the Utility Death Spiral. It’s a simple but devastating feedback loop:
- The Price Hike: Tariffs are raised to cover the utility’s massive, fixed costs.
- The Defection: High-value customers (factories, mines, and wealthy homes) realize solar and batteries are now cheaper. They “defect” from the grid.
- The Revenue Gap: The utility sells less power but still has the same debt and salaries to pay.
- The Repeat: To cover the new gap, the utility asks for another increase, driving even more people away.
The Science says: Electricity is no longer “inelastic.” People have choices. If we push prices past the “Revenue Maximizing Point,” the grid doesn’t get richer—it just collapses faster.
From “What Did You Spend?” to “What Should It Cost?”
In the UK, Australia, and Brazil, regulators don’t just ask for receipts. They use a method called Performance-Based Regulation (PBR).
Instead of rewarding the utility for what they spent, we should be benchmarking them against the Efficiency Frontier.
The 3 Pillars of Scientific Regulation:
- Empirical Benchmarking: Using “Data Envelopment Analysis” to compare our utility against global peers. If an efficient utility in Brazil can maintain a plant for X, why are we paying 3X?
- The CPI – X Formula: Prices shouldn’t just go up with inflation (CPI). We must subtract an “Efficiency Factor” (X). This forces the utility to find internal savings rather than passing their waste to you.
- Decoupling: We need to separate utility profits from the amount of electricity sold. This ensures the utility stays viable even as we all become more energy efficient.
A Glimpse at the Data: The Methodology Gap
| Year | Eskom Increase | Inflation (CPI) | The “Gap” |
|---|---|---|---|
| 2010 | 24.8% | 4.3% | +20.5% |
| 2023 | 18.7% | 6.0% | +12.7% |
| 2025 (Req) | 33.0% | ~5.0% | +28.0% |
Data shows a consistent decoupling of electricity costs from national economic reality.
The Roadmap to a Sustainable Grid
We cannot solve 21st-century energy problems with 19th-century monopoly logic. To save the national economy, we propose a three-phase shift:
- Year 1: Amend the Electricity Regulation Act (ERA) to mandate “Efficiency” as a requirement for any tariff hike.
- Years 2-4: Transition to a performance-based framework where the utility is rewarded for outputs (reliability and cost-cutting) rather than inputs (spending).
- Year 5+: Full “Unbundling” where you pay the true, transparent cost of the wires, the transmission, and the electrons.
The Bottom Line
South Africa doesn’t need a more “generous” regulator; it needs a more scientific one. By adopting data-driven benchmarking and respecting the reality of price elasticity, we can transform electricity from an economic burden back into a catalyst for growth.
“The science of regulation is clear. The only remaining variable is the political will to implement it.”
What do you think? Is it time for a performance-based approach to our power?
Download our full 12-page framework [LINK BELOW] to see the data behind the shift.
