Analysis suggests Eskom's regulatory model drives overinvestment despite falling demand
What happened
An analysis applied the Averch-Johnson effect to Eskom, noting that the utility is facing rising tariffs and falling demand even after ending load-shedding. The National Energy Regulator of South Africa allows Eskom a return on its regulated asset base, which determines both the allowed return and depreciation. The regulator's allowed return is set to rise from 4% in 2026 to 6% in 2028, while Eskom's actual cost of capital was calculated at 0.3%-2.1% in 2026.
From businessday.co.za
Why it matters
The analysis suggests that because the allowed return exceeds Eskom's actual cost of capital, the utility is incentivized to expand its asset base rather than controlling costs. This overinvestment occurs as consumption falls—from about 225TWh in 2013 to about 190TWh in 2025—and could threaten South Africa's sovereign credit upgrades.
From businessday.co.za
Who's involved
- EskomElectricity utility whose financial stability is linked to South Africa's national framework.
- South AfricaThe country whose sovereign credit stability is potentially threatened by Eskom's structural economics.
- National TreasuryThe national treasury whose fiscal oversight is structurally dependent on Eskom's operational viability.
Who could feel it
Possible knock-on effectsThese are possibilities Brind reasoned out, not predictions, and not advice. Most are not stated in any report.
- National TreasurySpeculative
Sovereign credit risk could be threatened by Eskom's structural failure, impacting national fiscal stability.
- uMngeni Local MunicipalitySpeculative
The municipality might see increased utility costs due to rising tariffs.
- International Monetary FundSpeculative
The International Monetary Fund might increase monitoring and assessment due to the risk to sovereign credit upgrades.
- South African Reserve BankSpeculative
The South African Reserve Bank might be forced to make monetary policy adjustments due to structural economic weakness and credit risk pressure.
Keep exploring
The entities involved
-
Eskom
electricity utility in South Africa
-
South Africa
country in southern Africa
Related events
- Eskom has increased its tariffs, leading to higher electricity costs across South Africa.
- Eskom is implementing load reduction measures affecting Gauteng and KwaZulu-Natal.
- State enterprises in South Africa (Eskom) and Zimbabwe face systemic collapse, affecting utilities and transport.
- Enoch Godongwana, the finance minister of South Africa, is currently managing the national budget and grants.
- South Africa debates Eskom's unbundling reforms, while Mbeki acknowledges capacity warnings, highlighting the crisis's impact on national growth.