Load-shedding relief to boost South African economy – and investor returns

Load-shedding has caused South African businesses severe financial hardships over the last few years but decreases in Eskom’s demand and electricity disruptions mean good news for the economy.

The South African Reserve Bank’s (SARB) first Financial Stability Review of the year said that after experiencing record levels of load-shedding in 2023, the scale and intensity of load-shedding have been considerably milder since April 2024.

The Bank’s report said Eskom’s energy availability factor (EAF) averaged approximately 52% in the first quarter of 2024 before improving notably to 58.2% at the end of April.

“Over time, such improvement should reduce the drag of load-shedding on economic activity,” the Reserve Bank said.

Portfolio manager of Ninety One’s Value Fund, John Biccard, agrees with the SARB’s assessment, having told Business Day TV earlier this year that reduced load-shedding is precisely the sort of event that could spark a period of outperformance for local equities, which have been heavily undervalued.

He explained that the key is to look for the catalyst to unlock this value, and a large upside is possible once such a catalyst occurs.

Load-shedding relief is an example of a catalyst that boosts market returns and results in money flooding into local equities.

“You have got very low valuations in part due to load-shedding. The South African economy has been murdered for two years because of load-shedding,” Biccard said.

Ninety One estimated that load-shedding alone has taken off around 4% of South Africa’s annual GDP.

Biccard said that if load-shedding could be significantly reduced for an extended period, the local economy could grow by as much as 3% per annum.

This would boost the earnings of companies with local operations and sharply reduce the amount of money they have to spend to limit the impact of load-shedding.

Hope for an improved economy is further helped by projections that Eskom’s improved performance will likely continue, and efforts from the private sector to boost private generation.

The Reserve Bank explained that, aside from higher output, Eskom’s residual electricity demand is also noticeably lower than in previous years.

Previously, it averaged about 23 to 25 GW between January and May in 2021 and 2023, peaking at almost 26 GW in June 2021. However, in 2024, demand has not been over 23 GW for the same period.

The Reserve Bank said the increase in alternative energy sources is likely a large part of the reason for Eskom’s decreased demand.

Over the last few years, South Africa has experienced a boom in renewable generation as the severity of load-shedding has increased.

According to Eskom’s latest Weekly System Status Report, South African households have installed over 5,500 MW of rooftop solar capacity compared to just over 3,000 MW a year ago.

This has been coupled with significant investments from private companies to reduce their reliance on Eskom’s electricity, cut their carbon emissions, and save money on electricity tariffs.

Private companies have registered over 7,000 MW of renewable energy generation with Nersa. RMB estimates that companies will add over 6,000 MW to the grid by the end of next year and contribute nearly 20,000 MW by 2030.

In addition, new electricity generation projects, primarily from the private sector, registered with Nersa totalled 4.49 GW in 2023, compared to 1.66 GW in 2022.

This brings the cumulative generation capacity of registered projects to 7.2 GW as of 30 April 2024.

Professor Sampson Mamphweli, the head of energy at the South African National Energy Development Institute, has also explained how essential decreased demand has been for the decrease in load-shedding.

Broader energy sector reforms and Eskom’s ongoing efforts to stabilise its electricity output suggest that electricity supply and grid stability will gradually improve.

Cautious optimism

While load-shedding and Eskom’s performance have improved immensely, the Reserve Bank warned that the risk of complete grid collapse cannot be completely ruled out yet despite the possibility of a collapse having declined.

“The SARB continues, through the Financial Sector Contingency Forum (FSCF), to plan and prepare for a situation, such as a grid failure, that could require the sudden closure of financial markets,” it said.

“Current efforts are centred on developing, coordinating and testing contingency plans to mitigate, to the extent possible, the impact on the financial system and the economy.”

Despite Eskom’s improved performance and stability, many businesses and households across South Africa continue to suffer power cuts because of distribution problems.

This is because the municipal distribution networks have not been maintained and upgraded to cope with increased demand.

As cold weather sets in, electricity demand also increases. City Power recently said it had seen a 65% increase in the average evening peak load in some areas.

“Our network is now at critical levels due to continuous demand, which is higher than the electricity equipment can withstand,” City Power said.

Mamphweli said that as the country enters winter, the utility will struggle to meet demand during the evening peak, forcing it to tap its reserves more frequently to stave off load-shedding.

He also warned that load-shedding is expected to return in June and July, potentially reaching stage five.


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