Going into June after eight months of intensive loadshedding, South Africans were bracing for a difficult winter, with expectations of Stage 8 or, even worse, a complete blackout. Eskom was even at pains to spell out how dire the situation was: in its winter plan outlook released on 18 May, Eskom expected a shortfall of about six gigawatts (GW), leaving us consistently in Stage 6 or worse. Instead, we’ve experienced a far better outcome – why?
What happened?
On the supply side, we have seen a slight improvement in how much energy Eskom has been generating. This is measured by the Energy Availability Factor (EAF), a ratio of Eskom’s available capacity against its installed capacity. The EAF in June was 58.5%, which exceeded Eskom’s assumptions of 55.7%. This was partly due to lower levels of planned maintenance and the plants performing better than expected in the winter months.
We also saw a notable increase in wind generation. South Africa now has 3.4 GW of installed wind capacity, which generated 1.7 GW, on average, in June – about 0.6 GW more than June last year.
Looking at electricity demand, over June peak demand was around 32.6 GW compared with expectations of 34 GW and average demand over 2021/2022 of 34.5 GW. An interesting observation made by Investec in a recent report was that this divergence occurred predominantly during the day, which could be explained by a structural reduction in private-sector demand through commercial and residential solar installations.
Collectively, this led to a 4 GW improvement in the supply-demand imbalance, reducing the shortfall from 6.5 GW to 2.5 GW, which, as shown in the table above, slots us into the Stage 2-3 bracket, not the anticipated Stages 6 to 8.
Will the improved energy situation last?
To understand where we are going from here regarding electricity in South Africa, it's important to examine the main drivers of supply and demand.
The first consideration is the amount of energy generated by Eskom’s ageing fleet of coal plants. Unfortunately, it's difficult to make any positive assumptions about the EAF, which has been steadily declining for a number of years.
Over the last 12 months Eskom generation has been about 57% of total installed capacity, reaching an all-time low of approximately 50% in December 2022. Despite assurances from Eskom that a number of the Kusile units will come online by the end of the year and Medupi’s unit 4 will be operational by July 2024, it’s difficult to assume an EAF much above the 57% of the last 12 months. Conservatively let’s assume an EAF of 55%, which results in an energy shortfall of 5-6 GW depending on demand assumptions. This would translate into loadshedding Stages 5 or 6.
Keep that number in mind. Each gigawatt we bring online reduces loadshedding by one stage.
Renewable energy plans
Eskom recently conducted a comprehensive survey of renewable energy (RE) projects, which provided them with critical input for their transmission development plans. The survey was conducted across 209 developers, and responses broken into three categories:
Type A: RE projects that are ready to go with an EIA approval and a power purchase agreement signed.
Type B: projects where most of the work has been completed and are awaiting certain outcomes, such as the approval of an environmental impact assessment.
Type C: projects earmarked for development and at the early stage.
The 209 developers indicated a total planned capacity build of 66 GW between now and 2028. Importantly, 27GW of the 66GW involve the development of battery storage and the Type A projects totalled 18 GW of that capacity, with 12 GW coming online by the end of 2025.
Remember the magic 6 GW number?
Even after factoring a lower utilisation rate for RE and assuming some projects will fail, there is enough slack in these estimations to conclude that private renewable energy generation will reach critical scale in 2025 and loadshedding will be a thing of the past.
What are the critical dependencies?
Ridding ourselves of loadshedding once and for all hinges on a number of critical factors:
Grid
A critical dependency for Eskom is the development of the transmission infrastructure to enable all of the planned RE to come online over the indicated period. Not all RE installations will need to be connected to the grid, but to fully enable the new capacity requires grid investment of up to R130 billion over the next five years.
Politics
The encouraging thing, and this is where President Ramaphosa should be given more credit, is that the solutions to South Africa’s energy supply challenges are now being driven jointly by the private and public sectors. There are three clear signs:
- The lifting of the embedded generation cap from 10 MW to 100 MW in 2021 and then completely scrapping it the following year, was a catalyst to the massive growth in RE projects we’re now seeing in the Eskom survey.
- The developments around the unbundling of Eskom and the clear focus on transmission and distribution to allow the private sector to fill the gap in generation.
- The National Treasury’s bailout of Eskom and the strict rules around the decommissioning of its coal fleet and gradual reduction in its role in generation.
Money
The government produced a comprehensive overview of the energy plan earlier this year titled “The Just Energy Transition”. In the report it estimated the funding requirements to transform the electricity sector at about R1 trillion. Over half of that will be in the build-out of renewable energy generation and comfortably funded by the private sector – particularly institutional investors – given the high demand for asset-backed clean energy investments. The remaining portion will require a collaboration of foreign development institutions and the government. The number is large but not insurmountable given the global imperative to decarbonise.
But what can we expect between now and the end of 2024?
The reality is that we are largely at the mercy of the performance of the existing coal plants, and that means continued bouts of mild to severe loadshedding over the next 12 to 18 months. We should expect a continued buffer from residential solar builds of around 1GW per annum which should help reduce Eskom demand.
While there are many reasons to believe we may be through the worst of the loadshedding, we should expect a bumpy ride over the next two years. However, 2025 marks the tipping point for renewable energy in South Africa, and the implications are enormous.
The SA Reserve Bank reduced 2023 GDP assumptions by 2% because of loadshedding. Numerous research articles have indicated that we have lost well over 10% in economic output over the past three years. It’s hard to estimate, but we know as South Africans how devastating loadshedding has been for everyday living and managing businesses. It’s impossible to invest when you have no confidence around energy supply. We’ve seen this in the recent consumer statistics, which show that consumer confidence is at its lowest level since the mid-1990s. That’s below the levels during the Covid-19 pandemic and the 2008 global financial crisis.
Confidence is spiralling in South Africa. It’s feeding on itself, leading to less investment, fewer jobs and less output. Energy supply is most certainly not our only challenge but it's by far the most critical.
Now, imagine a scenario in 2025 when this process begins to reverse. How much pent-up demand could be unleashed? How much of the foreign investment that’s been sitting on the sidelines will start to flow? How many global institutions could look at South Africa as an example of how to manage the energy transition from a highly inefficient fossil-fuel-dependent economy to a leading green economy?
By the end of this decade we should have over 60% of our energy supply coming from renewable sources, which will have many positive implications for our economy.
With all the doom and gloom it's important to know that there is a solution, and it’s not in the hands of the government, but largely being driven by the private sector. It gives us real hope that we can move forward.
