The impact of load-shedding on the South African economy will be negligible from 2025 due to the private sector’s rapid uptake of alternative energy sources, adding 6,000 MW to the grid by the end of 2025.
This is feedback from RMB chief economist Isaah Mhlanga, who discussed the impact of load-shedding on the economy in his Chief Economist Digest.
Mhlanga said it is very difficult to estimate the impact of load-shedding on the economy as one has to consider the country’s energy intensity, the amount of energy lost, and the length of time the energy is shed, among other factors.
Thus, the impact of load-shedding varies across estimates from -0.2% to -4.2%.
These estimates, however, do not consider the rapid growth of private power generation through rooftop solar and commercial projects.
This has increased the economy’s resilience and reduced the impact of load-shedding on economic output.
Therefore, the impact of load-shedding will likely be less than estimated, as shown by the country’s better-than-expected economic growth amidst intense load-shedding.
Mhlanga warned that the impact may still be greater than estimated as it is such a complex problem to model, and its influence extends beyond energy-intensive sectors such as manufacturing and mining.
Despite the difficulty in calculating the impact of load-shedding, Mhlanga is sure that the effect will be reduced over time and be negligible by 2025 as the private sector ramps up energy production.
Following the deregulation of electricity generation, households and private corporations have aggressively embraced rooftop solar.
South Africa is experiencing a boom in solar installations, with over 4,400 MW of rooftop solar installed outside of the government-procured solar. This is expected to increase by 420% by 2030.
This surge in investment is further bolstered by a promising pipeline of corporate solar projects, suggesting enhanced resilience against load-shedding.
From the beginning of 2023 to the end of 2025, RMB estimates that the private sector will add over 6,000 MW to the grid. From 2025 to 2030, it will add a further 19,300 MW.
This will help to offset Eskom’s declining supply of energy and thus will most likely reduce to a maximum of stage 3 by mid-2025.
Mhlanga said that most corporates can already operate at close to full capacity during stage 3 load-shedding, significantly reducing the economic impact.
However, Mhlanga cautioned against thinking that this would suddenly result in South Africa’s economy growing rapidly as there are still other significant structural constraints, and the impact of additional energy generation would lessen over time.
As the economy’s energy intensity declines over time due to the need to reduce costs, reduce the impact of load-shedding, and reduce our carbon footprint, future economic output will require less energy than in the past.
This will be compounded by transitioning from industrial production to a services-based economy.
Thus, if the average estimated impact of load-shedding on GDP of 1.5% is added to the current economic growth of 1%, economic growth could rise to between 2% and 2.5% by 2026.