Eskom is being replaced – leading to potential death spiral

Eskom will continue to face financial pressure as alternative energy sources are entrenched in households and businesses, reducing electricity demand and negatively impacting its revenue. 

This is feedback from partner and renewable energy expert at BDO, Nato Oosthuizen, who said that Eskom’s performance had improved greatly, but its financial situation is still dire. 

The beginning of May marks the longest period the country has had uninterrupted power since 2022, with South Africans experiencing over 60 days without load-shedding. 

Many have remained sceptical about the recovery’s timing, just as political parties are ramping up campaigns before the country goes to the polls on 29 May. 

Oosthuizen said that while it is hard not to be sceptical, concrete steps have been taken to improve the utility’s performance. 

Eskom’s performance has improved greatly in 2024 as its maintenance plan begins to bear fruit, with its units becoming more reliable and the electricity supply more stable. 

While this is significant, reduced demand from businesses and households is the main reason why the country is not experiencing load-shedding at the moment. 

This is partly due to South Africa experiencing a warmer winter than usual. However, the main reason is the rapid increase in rooftop solar and energy-saving techniques adopted by South Africans. 

Oosthuizen explained that Eskom has finally agreed to move away from monopolistic control and invited the private sector and international funders to participate in the recovery process. 

As part of this, the state incentivised households and businesses to install rooftop solar, which will reach an installed capacity of 6,000MW by year-end. 

Oosthuizen explained that this has contributed significantly to national energy needs by giving Eskom the space to conduct improved maintenance and build up reserves to manage peak demand in the evenings. 

Businesses have been slowly increasing their investments in utility-scale renewable energy projects, particularly solar and wind, which are starting to pay dividends in terms of power supply stability. 

However, as the private sector starts to entrench its alternative energy footprint with the increase and expansion of solar rooftop solutions, Eskom’s revenue will take a hit. 

The impact is compounded by private Independent Power Producers (IPPs) servicing the mining, industrial, corporate and private markets, some of Eskom’s biggest customers. 

Oosthuizen explained that as the country starts to feel the impact of this progression, a decline in Eskom’s revenue will become increasingly evident, and the trend may accelerate. 

This could spell even tougher financial times ahead for the utility, and some difficult decisions may need to be considered, such as business restructuring and perhaps even retrenchments, he said. 

Partner and renewable energy expert at BDO Nato Oosthuizen

This has led some, including former Eskom CEO Matshela Koko, to say that the utility is in a death spiral as many of its best-paying customers turn to alternative energy solutions.

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 decline in demand for electricity from Eskom can be seen in the utility’s data, which shows that demand for its product has declined by over 9% in 2024 compared to last year.

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

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.

Former Eskom CEO Matshela Koko sounded the alarm regarding the current trend in an interview with Sizwe Mpofu-Walsh on his YouTube channel SMWX, saying 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.”


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