Eskom in a death spiral of rising prices and load-shedding – but there is hope

The electricity supply industry in South Africa is in a state of flux, including a significant reduction in the intensity and frequency of load-shedding.

Many South African households and businesses may wonder what is really going on and what is behind the reduced rolling blackouts.

While unplanned breakdowns – unplanned capacity loss factor (UCLF) – are down this year compared to the same period last year, this is offset by increased planned maintenance outages – planned capacity loss factor (PCLF).

What this means is that the availability of the Eskom fleet – its energy availability factor (EAF) – this year is similar to that of the same period last year.

Despite the similar EAF, South Africa is experiencing less load-shedding this year compared to the same period last year.

The reason for the reduced load-shedding is lower demand. Simply put, businesses and households use less Eskom power.

The reduced demand is caused by a few factors, including –

  • The weak South African economy and the resulting generally flat overall demand for electricity
  • The rapidly rising price of Eskom and municipal electricity – two to three times the inflation rate for many years – is dampening demand for Eskom-generated electricity
  • Load-shedding and low reliability of Eskom and municipal grid electricity, particularly for the last four years, have been negatively impacting the electricity supply
  • Electricity customers are responding by moving to self-generation and alternative energy sources, including rooftop solar PV, battery energy storage, gas for cooking, solar hot water geysers, energy efficiency, and a general reduction in demand for grid electricity
  • The pipeline of big renewable energy and battery energy storage plants is now coming to the grid, and this trend is accelerating

These factors relieve Eskom of the electricity generation burden it has struggled to meet over the last few years.

It has significantly reduced the frequency and intensity of load-shedding this year compared to the same period last year.

So, Eskom has been in a death spiral of rising Eskom prices and load-shedding, causing customers to move to alternative energy sources.

It caused declining Eskom sales volumes, resulting in rising prices to recover fixed Eskom costs off declining sales volumes, and so on.

At the same time, Eskom has also been in a debt spiral, which has been temporarily arrested by government bailouts from the National Treasury.

As part of the National Treasury’s bailout, it put a moratorium on significant new debt by Eskom.

The utility death spiral and debt spiral, along with the National Treasury, are forcing Eskom and the whole electricity supply industry in South Africa to change.

The industry is forced to restructure, unbundle, and increase the role of the private sector to solve the problem.

The private sector is getting involved in the financing, construction, operation and maintenance of electricity generation, transmission and distribution infrastructure in South Africa.

This should not be seen as Eskom’s privatisation but rather as increasing public participation in its business.

This is achieved through development finance institutions, commercial banks, pension funds, other financial institutions, businesses, industry, and the public.

In transmission, we are seeing the creation of a nominally independent, state-owned national power transmission operating company (NTCSA), an independent market operator (IMO), and an electricity market in South Africa.

We will also likely see new high-voltage transmission corridors financed, constructed, operated, and maintained via public-private partnership (PPP) concessions.

This is because Eskom does not have the resources, money, or balance sheet to do this on its own.

In generation, we are seeing the emergence of a diversified and competitive power generation sector.

This sector comprises Eskom and former Eskom generators, PPP generators, municipal generators, and hundreds of independent power producers (IPPs).

It further includes thousands of big, medium and small “prosumers” – customers of electricity that are both producers and consumers of electricity.

Instead of Eskom being the single buyer of electricity from its own generators and from IPPs, there is an increasing trend of wheeling and trading of electricity.

The wheeling and trading happens between independent power producers, generators and traders to a multitude of customers across publicly owned electricity grids in Southern Africa.

A fundamental change is taking place in South Africa’s electricity sector as it starts to catch up with those in many other parts of the world.

This change is in progress now but is not a fait accompli yet, and it could be reversed if reactionary, backwards-looking naysayers in the country with vested interests in the failed status quo get their way politically.

But there is reason for optimism. The pace of reform in South Africa’s electricity supply industry is now gathering momentum, driven by the need for decarbonisation and supply security, as well as the reality of the economic imperatives.

There is also a growing multi-party consensus in Parliament on the passage of the long-awaited Electricity Regulation Amendment Bill.

Once promulgated, the new Act will provide the necessary legal, policy, regulatory and planning framework for the envisaged reforms, as well as the future electricity supply industry in South Africa.

However, what remains to be seen are the necessary reforms in the significantly dysfunctional Eskom and municipal and electricity distribution industry. This thorny issue is still unresolved.

Week-on-week Eskom UCLF from Week 1, 2023, to date

Week-on-week Eskom PCLF from Week 1, 2023, to date

Week-on-week EAF from Week 1, 2023, to date

Total electricity (GWh) produced by Eskom per year from 2000 to 2023

Data source: Stats SA; Graph: Stats & Facts @dwain-van on X, 5 April 2024

EE Business Intelligence (Pty) Ltd. Republished with permission.


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