Private sector replacing Eskom

The private sector is slowly replacing Eskom – not because of government policy but due to the power utility’s inability to serve the country’s energy needs.

Eskom’s collapse has seen load-shedding increase from 192 GWh in 2018 to 19,794 GWh in 2023.

The 10,200% rise in load-shedding over five years means South African households and businesses are left without power for hours almost every day.

Apart from the inconvenience, it severely impacts business activity. Allan Gray estimated load-shedding was responsible for a 1.8% loss in GDP in 2023.

Businesses are hit hard and face the additional costs associated with unstable electricity supply. Shoprite, for example, spent R1.3 billion on diesel for its generators during its past financial year.

Eskom’s unreliable energy supply also imposes numerous costs on consumers, from food spoilage to appliance damage.

Without any end in sight for load-shedding, companies and households are investing in solar and battery backups to limit their reliance on Eskom.

The numbers tell the story. In the first quarter of 2023, South Africa imported five times as many batteries as it did in the whole of 2022.

Solar panel imports reached an all-time high of R12 billion last year, showing the demand for self-generation products in the wake of Eskom’s failures.

Eskom’s data showed that the country’s installed solar rooftop PV increased from 983 MW in March 2022 to 4,412 MW in June 2023 – and it is not slowing down.

Standard Bank recently revealed that it has financed 4,000 MW of alternative energy generation projects, with 3,000 MW already under development.

The rapid increase in solar rooftop PV and large solar farms means the private sector is slowly replacing Eskom.

RMB Morgan Stanley predicts that by 2025, South Africa’s private sector will produce more electricity than Eskom.

Although it is not official government policy to privatise electricity generation, the trajectory points in that direction.

The trend accelerated after the government removed limitations on building large-scale electricity generation plants.

President Cyril Ramaphosa said in his 2024 State of the Nation Address that sweeping regulatory reforms enabled private investment in electricity generation.

He added that there are now over 120 new private energy projects in development, which will provide much-needed generation capacity to the grid.

The Electricity Regulation Amendment Bill, which facilitates the unbundling of Eskom, was a further shift away from the current, centralised power of Eskom.

Efficient Group chief economist Dawie Roodt described what is happening to Eskom and electricity as ‘back-door privatisation’.

He highlighted that the Treasury was forcing Eskom to privatise its distribution network and partially privatise its generation fleet.

Roodt referred to Finance Minister Enoch Godongwana’s 2023 Budget Speech, which outlined the conditions for Eskom to receive its debt relief –

• Eskom must prioritise capital expenditure in transmission and distribution.
• Eskom must focus on the maintenance of its existing generation fleet to increase energy availability.
• The relief is only to be used to settle debt and interest payments.
• Eskom must implement the recommendations from an independent assessment of its operations, which the Treasury has commissioned.

“Eskom, National Treasury, and the Department of Public Enterprises have agreed to design a mechanism for building new transmission infrastructure,” the National Treasury said.

The new transmission infrastructure will allow for extensive private sector participation in the development of the transmission network.

It indicates that Eskom’s transmission network will, effectively, be privatised if it wants to receive Treasury’s debt relief.

Roodt explained that this is not “privatisation as policy”. Instead, Eskom is simply collapsing, and the private sector is merely taking over state functions.

In the long term, electricity generation will be private, he said. Eskom will merely distribute electricity. It will be relegated to buying electricity from other entities and selling it on.