Eskom in a death spiral

Eskom is in a death spiral as many of its best-paying customers turn to alternative energy solutions, including solar PV with battery backup.

The move to small-scale renewable energy leaves Eskom with a higher percentage of non-paying customers.

To make up for the lost revenue, Eskom is implementing very high electricity price increases. This, in turn, drives more paying customers to install solar PV to save costs.

This downward spiral is accelerating, especially with South African businesses and households looking to mitigate load-shedding.

The trend of large, paying customers reducing their reliance on Eskom is clearly seen in the power utility’s latest Weekly System Report.

The report showed that demand for electricity from Eskom is declining at an increasing rate while rooftop solar installations continue to grow rapidly. 

Total contracted demand in South Africa for the first three weeks of 2024 has declined by 7% compared to the same period last year. 

Excluding power from renewables contracted through the Independent Power Producers Programme, demand has declined over 9% year-on-year. 

Eskom further estimated that rooftop solar increased from 2,586 MW at the end of 2022 to 5,203 MW at the end of December 2023.

Eskom estimates the amount of rooftop solar installed in the country by measuring the decrease in electricity demand on optimal solar generation days compared to sub-optimal days.

It previously said that behind-the-meter solar installations have helped stave off higher stages of load shedding on sunny days.

Solar PV is, therefore, helping the country to avoid higher stages of load-shedding. However, it comes at a revenue cost to Eskom.

Eskom’s latest financial results showed that the reduction in demand caused by solar installations resulted in its sales declining by over 2%.

The chart below shows the significant reduction in the contracted demand between 2023 (blue) and 2024 (red).

The decline in households and businesses using Eskom aligns with what many experts predicted – private electricity generation taking over from the state-owned utility.

Award-winning economist Dawie Roodt said Eskom’s generation division is slowly dying, similar to South African Airways (SAA) and the South African Post Office (SAPO).

Research from RMB Morgan Stanley also showed that the private sector will effectively replace Eskom’s generation fleet in the next few years.

They argue that in the long term, electricity generation will be private, with Eskom merely distributing electricity.

Two former Eskom CEOs, Matshela Koko and Andre de Ruyter, have also sounded the alarm regarding the current trend.

In an interview with Sizwe Mpofu-Walsh on his YouTube channel SMWX, Koko said that Eskom risks becoming irrelevant.

“Eskom’s sales volumes are declining by an average 2.5% year-on-year,” Koko said. “If it continues to decline, there will be no Eskom in 10 years.”

He said the question is not whether Eskom will be privatised or not in future. It is whether it will exist or not.

During Koko’s tenure at Eskom, the company generated roughly R1 billion in revenue from electricity sales in a week. It has declined to R800 million today.

“The writing is on the wall. This is what is called a death spiral. This Eskom is dying,” Koko said.

He slammed the ANC government as incompetent regarding the energy sector. “Here is a utility that’s got 52,000MW of nominal capacity, and its sales volumes are declining.”

Andre de Ruyter, on the other hand, told Business Day Spotlight that Eskom’s current path is unsustainable.

“If you extrapolate from current trends, Eskom will eventually be left with a customer base of people who cannot afford electricity and therefore don’t pay for it,” he warned.

This comes as more South Africans have turned to energy sources like solar panels as a more reliable alternative to the state-owned power utility.

However, only wealthier South Africans can afford these alternative options, while poorer citizens are still reliant on Eskom.

De Ruyter explained that if this trend continues, Eskom will be left with only non-paying customers, who can either not afford electricity or refuse to pay. This can include private citizens and municipalities.

Eskom already faces severe challenges with non-payment from citizens and municipalities. 

In 2018, invoiced municipal debt totalled a mere R13.6 billion. This has grown to R70 billion at the end of September 2023, a 32% increase from the year before. 

The payment levels of municipalities continued to deteriorate, declining by 2% in the 2023 financial year to 76%.