Electricity minister Kgosientsho Ramokgopa said a proposed increase in free basic electricity will not come at an extra cost to taxpayers. MyBroadband analysed how much it would cost.
Eskom will need to supply a substantial amount of energy at steep discounts if the government increases its free basic electricity (FBE) allocation for poor households without raising taxes or increasing subsidies.
Electricity and energy minister Kgosientsho Ramokgopa recently said the government plans to increase the monthly FBE amount from 50kWh to between 200kWh and 300kWh.
The proposal forms part of an overhauled electricity pricing policy published for public comment last week.
Ramokgopa has long promised to increase the FBE to help poor households better cope with high electricity tariffs and reduce electricity theft.
The minister said the change would not require further funding from the fiscus, which gets its money from taxpayers.
Instead, it would be funded by eliminating municipal administrative leakages, updating identity registers, and rolling out decentralised microgrids.
To improve FBE registration rates, the plan is to move to a centralised database linked with Home Affairs and the South African Social Security Agency, rather than use municipal registry systems.
The government has estimated that roughly 10 million poor households should qualify for free basic electricity, but only 2 million are receiving the benefit.
The low uptake is due in part to the small allocation of 50kWh, which has been in place since 2003 and will barely last the average household a few days.
If the allocation were increased as planned, it could cause a surge in registrations. However, as a MyBroadband analysis showed, this could create a problem.
If 10 million households registered for the benefit, the government would need to supply 36,000 gigawatt-hours of electricity per year for the FBE.
In the most recent medium-term expenditure framework, National Treasury allocated R57.6 billion to the FBE programme over three years, working out to R19.2 billion per year.
On that budget, Eskom would only get about 53 cents per kWh, substantially less than the going rate for residential electricity.
On Eskom’s cheapest tariff for lower-income residential users — Homelight 20A — customers currently pay R2.71 per kWh.
The table below models how much the government would be able to pay Eskom for FBE allocations of 200kWh or 300kWh with its current budget, across several scenarios for registration levels.
Number of FBE-registered households200kWh allocationMoney available per kWh300kWh allocationMoney available per kWhCurrent (2 million)4.8 billion kWhR4 7.2 billion kWhR2.674 million9.6 billion kWhR2 14.4 billionR1.336 million14.4 billion kWhR0.7521.6 billion kWhR0.898 million19.2 billion kWhR128.8 billion kWhR1.0210 million24 billion kWhR0.8036 billion kWhR0.53
Kgosientsho Ramokgopa, Minister of Electricity and Energy
As shown in the table above, the government would be able to afford the improved scheme at the current budget if FBE registration remained stagnant.
Even if the increase only doubled registrations, the money in the current budget would not be sufficient to compensate Eskom at the current FBE rate of R2.38 per kWh.
If the budget were set based on the current FBE, the cost to the fiscus could increase to as much as R85.86 billion annually for a 300kWh monthly allocation to 10 million households.
There could be several explanations for Ramokgopa’s assertion that the scheme will be funded with the existing FBE budget.
Firstly, given his insider knowledge of Eskom, he may be aware of the power utility’s willingness to accept a much lower per-kWh rate than is currently approved.
Eskom has recently entered into negotiated price agreements (NPAs) with several heavy power users, under which they enjoy 80% tariff reductions.
It could also be that the government does not anticipate that the increase will drive a surge in registrations, which would keep the effective cost per kWh above the approved FBE rate.
Another unknown is how the FBE increase could help in reducing electricity theft. It could be better for Eskom to sell more electricity at a deeper discount than to lose that revenue entirely.
In Eskom’s 2025 financial year, it lost approximately R28 billion in revenue due to around 14,900GWh of electricity theft.
However, not all electricity theft is committed by indigent customers, so it may still lose a substantial amount of revenue to this crime despite a significant increase in the FBE.
