Electricity generated from the private sector will exceed the output from Eskom’s generation fleet by 2025, effectively replacing the state-run utility.
This is according to research from RMB Morgan Stanley revealed in a webinar hosted by Anchor Capital.
Anchor Capital CEO Peter Armitage noted that Eskom is the single biggest risk to the South African economy.
The utility’s performance has deteriorated markedly over the last few years, with 2023 seeing record levels of load-shedding.
However, Armitage noted that the narrative around electricity generation and load-shedding is beginning to change, gradually becoming more positive.
The private sector is filling the void left by Eskom in a similar fashion to how private airlines filled the void left by the collapse of South African Airways.
For instance, in the first quarter of 2023, South Africa imported five times as many batteries as it did in the whole of 2022.
Imports of solar panels also reached an all-time high of R3.6 billion in South Africa during the first three months of 2023.
This is estimated to add 667MW to 1,000MW of generation capacity.
Data from RMB Morgan Stanley shows that the private sector, through renewables, will generate more electricity than Eskom by 2025.
This is based on the assumption that Eskom will maintain an Electricity Availability Factor (EAF) of 53%, which is unlikely as the EAF has deteriorated markedly in the last 12 months.
In 2025, RMB estimates that Eskom will generate around 25,200MW of electricity, just over 47% of its nominal capacity.
Alternative energy sources will produce 26,600MW in 2025 – up from 13,300MW at the end of March 2023.
However, this does not mean that load-shedding will come to an end.
RMB estimates that the supply deficit will be significantly reduced but will remain around 400MW in 2025.
By 2030, even with alternative energy sources producing above 36,000MW, a shortfall of over 1,000MW will remain.
This will be predominantly due to the further deterioration of Eskom’s generating fleet.
Privatisation by stealth
The chief economist of the Efficient Group, Dawie Roodt, said that this is a “back-door kind of privatisation” with Eskom privatising its distribution network and partially privatising its generation fleet.
However, this “is not privatisation as policy”. Roodt said the state is simply collapsing, and the private sector is merely taking over state functions.
The privatisation process will continue, but he added that it will take 18 to 24 months before significant changes will be seen.
The data from RMB supports Roodt’s argument as the private sector will effectively replace Eskom’s generation capacity by 2025.
In the long term, electricity generation will be private, with Eskom merely distributing electricity with the utility being relegated to buying electricity from other entities and selling it on, said Roodt.
This is echoed by other commentators such as Kokkie Kooyman, a finance sector expert at Denker Capital, who called the ANC policy “privatisation by stealth”.
However, the government maintains that it will not privatise the utility.
The Ministry of Finance explicitly said, “the government has no intention to privatise Eskom”, and the utility’s strategic assets will not be privatised.
However, deputy finance minister David Masondo said the Treasury does not support a state monopoly in the energy sector, and they will not rely solely on Eskom to generate energy.
Masondo’s comments were echoed by Gwede Mantashe, Minister of Mineral Resources and Energy at Absa’s Post-Budget Analysis.
Mantashe said the government intends to “reform electricity supply from a monopolistic industry to a competitive one” per the 1998 White Paper of Energy Policy.
The government aims to diversify electricity generation sources and “remains resolute in ensuring that such an electricity market structure comes to fruition”.
However, Mantashe added that it would be a mistake to “totally remove the public sector” from electricity generation.