Eskom is in a death spiral – IRR  

1 February 2021

"Eskom wants South Africans with solar panels to pay more for electricity" – this is a cry for help from a power monopolist in a utility death spiral.

A utility such as Eskom enters into a death spiral when customers use less of its product. The utility then raises prices to recoup the revenue lost through lower sales volumes. The higher prices incentivise more customers to use less of the utility's product. This self-reinforcing cycle continues indefinitely, with state bailouts keeping the utility afloat, until it changes tack.

South Africans will readily recognise this description of the situation. When load-shedding started in 2007/2008, Eskom exhorted customers to use less of its product – to save electricity. South Africans heeded the call. They installed geyser-control devices, solar geysers and gas cookers, switched to energy-efficient light bulbs and boiled only the amount of water they needed.

Despite South Africans' willing and innovative cooperation, Eskom increased its tariffs. And it kept increasing them, year by year, at steep rates, causing South Africans to use less and less electricity. Remarkably, Eskom produces less electricity today than it did 14 years ago – a very unusual situation for a monopolist in an emerging economy.

So what is the solution? Eskom has to change tack. It has to start by recognising that prices cannot be raised indefinitely, because doing so only makes things worse. It has to stop increasing tariffs and start stemming the financial losses by cutting costs and increasing its woeful operating efficiency.

Second, it has to stop punishing its customers for complying with its pleas to use less electricity. Customers who save electricity and instal solar panels are paying for this out of their own pockets. They are making a personal sacrifice to help the power monopolist keep the lights on. It is unfair in the extreme to punish them for this.

Said John Endres, IRR Chief of Staff: "It is time to stop the Eskom death spiral. Give #PowerToThePeople by implementing drastic reform policies such as the IRR’s Eskom Recovery Plan. Reward customers for using less electricity and generating their own supply instead of punishing them. Open the electricity generating market to competitors and let Eskom prove its competitiveness on a level playing field."

The IRR’s petition to give #PowerToThePeople can be accessed here.

Issued by John Endres, IRR Chief of Staff, 1 February 2021