Eskom is dying

Experts warn that Eskom is dying as it is losing its paying customers, forcing it to increase its prices and drive even more paying customers away.

Eskom recently revealed that installed solar rooftop PV in South Africa increased from 983 MW in March 2023 to 4,412 MW in June 2023.

The 349% increase in solar rooftop PV reduced the residual load Eskom needs to meet during the day, making it possible to reduce load-shedding.

However, the lower demand has dire consequences for Eskom, which is already in serious financial problems.

National Treasury took over R254 billion of Eskom’s R423 billion debt to help the power utility become financially sustainable.

The debt relief is good news Eskom, but it still has to generate enough revenue to cover its exceedingly high costs.

Eskom’s biggest challenge is selling less electricity due to load-shedding and South African households and businesses moving to more reliable and affordable alternatives.

In the 2016 financial year, Eskom sold 214 TWh of electricity. It declined to 198 TWh last year and is expected to be even lower in 2023.

To make up for the decline in electricity sales, Eskom is increasing its prices far faster than South Africa’s inflation rate.

The large 18.65% tariff increase helped Eskom to increase its quarterly revenue to R70.9 billion, up from R66.3 billion over the same quarter the year before.

However, this large revenue increase was not enough to generate a profit. Eskom suffered a R5 billion loss before tax in the first quarter of the financial year.

Eskom is now in a downward spiral where it needs to increase prices because of lower electricity demand, which, in turn, drives more paying customers away.

The chart below shows the decline in Eskom’s total electricity sales, in gigawatt hours, over the last decade.

Energy analyst Tshepo Kgadima said it has become necessary for households and businesses to produce their own energy because of load-shedding and high prices.

He added that the migration away from Eskom will accelerate as the cost of producing solar power is lower than what Eskom charges.

Kgadima said the decline in Eskom’s generation capacity and lower demand means its cost base is far too high.

“Eskom is overstaffed. It has 43,000 employees, but the amount of electricity it generates only requires half of these employees,” he said.

He added that Eskom’s declining energy sales spell serious trouble for the power utility as it continues to lose its biggest paying customers.

Kgadima said the migration away from Eskom will accelerate as the cost of producing solar power is lower than what Eskom charges.

“The price per kilowatt hour of a solar installation, financed by a bank, is much lower than what you need to pay Eskom or your municipality,” he said.

He predicts that solar installations will balloon to around 12,000 MW by the end of the next financial year.

“You sit with a power utility which is no longer financially viable, and the government cannot continue to bail Eskom out,” he said.

He added that many energy-intensive users are also scaling back their operations because of increased prices.

It is a vicious cycle where Eskom is losing paying customers, which forces them to increase prices, leading to even lower demand.

Kgadima’s comments echo those of renowned economist Dawie Roodt, who said Eskom’s generation and distribution divisions are slowly dying.

“Only the transmission part will remain, and the rest of Eskom will just slowly die and come to an end,” he said.

Roodt explained that Eskom is completely bankrupt. “It has been operationally and financially run into the ground. It does not work anymore,” he said.

He explained that Eskom’s debt is unsustainable, which is why the Finance Minister announced that the state would take over a large chunk of this debt.

One of the problems is that Eskom has around 40,000 employees who earn very high salaries compared to the private sector.

“Last year, Eskom employees received a 7% increase. It is irresponsible. These workers are already overpaid,” he said.

The power utility is in a downward spiral. It does not have enough money or generation reserves to do proper maintenance, which, in turn, causes performance declines.

The performance declines cause load-shedding, which forces its paying customers to find alternative power sources – typically solar PV and battery backup.

Roodt said the result is that Eskom is slowly dying, with the private sector taking over power generation.

His views are substantiated by data from RMB Morgan Stanley, which shows that the private sector, through renewables, will generate more electricity than Eskom by 2025.

RMB estimates that Eskom will generate around 25,200MW of electricity in 2025, just over 47% of its nominal capacity.

Alternative energy sources will produce 26,600MW in 2025 – up from 13,300MW at the end of March 2023.