- Energy experts project that South Africa requires injection of no less than 6,000MW to keep industry lights on.
- The country’s severe power crisis is expected to persist until 2025. Experts say a five-year timeline is needed to overcome power outages.
- This year’s GDP will further decline to 1.2% from 2.3% in 2022, and there is a 45% chance of recession largely due to electricity crisis.
An ominous cloud hangs over South Africa economy, which dodged recession in the three months to March, as experts say the roiling electricity crisis will persist until 2025. As if that is not enough bad news to the industry, it will take about five years to eliminate power outages in the country.
Currently, South Africa is paying a huge price following utility, Eskom’s overreliance on ailing coal power plants to supply electricity. These coal power plants account for over three quarters of South Africa’s electricity generation capacity.
At current searing energy crisis level, energy experts are estimating that the country requires injection of no less than 6,000MW to plug the deficit. From giant manufacturers to residential homes, South Africans have grappling with worsening power cuts. In some areas, outages are running for up to 10 hours a day.
While improving the performance and reliability of the existing coal plants may seem like a viable solution, it is a complex and expensive undertaking. Nearly all these plants would require extensive overhauls. These works are not only time-consuming, but also very costly for a country stretched thin by inflationary pressures.
South Africa’s 6,000MW electricity shortfall
It is predicted that it will take up to five years to generate the current shortfall, 6000MW, but the industry can expect mild relief by the end of next year.
Authorities are considering the set up of new coal, nuclear, or gas plants to significantly increase power supply. However, the typical construction time for these plants is around 10 years. This implies that plants will not plug the short- to medium-term power deficit dealing a gut punch to thousands of businesses.
As new plants are set up, South Africa is also fixing the existing power stations. And this will take time. Take the Kusile and Medupi power stations for instance. With a combined capacity of 4,800MW, these are the largest coal plants in South Africa and among the biggest globally.
The construction of Kusile and Medupi plants began in 2007. Back then, the expectation was they will be providing ample electricity supply and help in retiring older plants.
However, their construction hit a brick wall. Costs escalated significantly, and the progress assumed a snail speed. At the monet, one of Kusile’s six units remains unfinished.
Explosion at Medupi, Kusile power plants
What’s more, calamities struck during the early years of their operation. In 2021, an explosion at Medupi’s Unit 4 caused extensive damage, leaving engineers unable to bring it back online. In addition, Kusile’s three units were closed following the collapse of its a chimney. These incidents have been holding South Africa’s firmly in a protracted power crisis.
The Koeberg nuclear power plant, which has contributed about 5 per cent of South Africa’s electricity, is approaching the end of its projected 40-year lifespan in 2024. To extend its operating license for another 20 years, specific part replacements and upgrades, including new steam generators, are critical.
However, these operations plunged into delays and complications. The upgrade of the first unit was abandoned due to incomplete project preparations. The second attempt was stuck in inordinate delays. This situation has resulted in Koeberg effectively running at half-power, and it is projected to run like that unto 2025.
Read also: South Africa dives back to economy draining power-cuts
In an effort to address the deepening power crisis, the minister of mineral resources and energy announced bids to supply 2,000MW of emergency power in 2021. The bulk of the job went to Turkey’s Karpowership, a firm that operates floating gas plants.
Emergency power plan a year behind schedule
These plants would be shipped in and moored at three ports in South Africa. However, the deal faced controversy and legal challenges. It was seen as a long-term arrangement for what was an otherwise temporary emergency power need. Due to opposition and delays in other projects, the emergency program is at least a year behind schedule. If it were in place, the additional capacity would only moderately alleviate the electricity shortfall.
Investments to tap into solar and wind power are being pursued under Renewable Energy Independent Power Producer Procurement Programme. Private developers produce solar and wind energy, which is then sold to Eskom.
But, due to the intermittent nature of sunshine and wind, these technologies can only generate a fraction of their capacity.
Economic sectors affected by load shedding
The economic impact of load shedding
Electricity crisis in South Africa has left the economy limping. In the three months to June 2022, South Africa’s GDP decreased by 0.7 per cent, indicating a slowing economy. In the first quarter this year, the country escaped recession by a whisker. And economists predict that 2023 GDP will drop further to 1.2 per cent from 2.3 per cent last year. What’s more, policymakers are staring at a 45 percent likelihood of recession.
Load shedding, in particular, has been detrimental to smallscale traders. The investors have had to adjust their operating hours to align with the load-shedding schedule. The strategy is not only disrupting planning, but also causing low staff morale. Further, without lighting, increased theft, internet outages, payment processing disruptions, and damaged equipment are order of the day.
Companies forced to lay off staff
The increased cost of doing business has forced some companies to lay off staff. A survey by the Small Enterprise Finance Agency (Sefa) and the Ministry of Small Business Development revealed that 71 percent of businesses have been negatively affected by load shedding.
Read also: Power outages, commodity prices erode South Africa’s Q1 growth
The mining sector has also been one of the worst hit. Statistics show mining production fell by 3.7 per cent in the fourth quarter of 2022. Already, representatives from the platinum sector are expressing concerns about potential shaft closures and job losses if load shedding continues.
Heavy rains have compounded the challenges faced by mining firms. Although the sector managed the current load-shedding crisis relatively well by curtailing electricity demand by 15 percent, further escalation could pose serious problems.
Agriculture
Load shedding poses risks to South Africa’s agriculture sector, affecting food production, transportation, and storage. Irrigation-dependent crops such as maize, soybean, sugarcane, and wheat are at risk.
Livestock production, including red meat, poultry, piggery, wool, and dairy, requires continuous power for their usual activities. Downstream activities such as milling, bakeries, abattoirs, wine processing, packaging, and animal vaccine production face similar challenges.
Exporting agribusinesses are concerned about potential delays in port activities and the subsequent impact on sensitive products like fruits, red meat, and wine. Food security concerns arise as the effects of load shedding may lead to reduced volumes of harvested/produced products in the coming months.
The retail sector is significantly impacted by load shedding, with companies such as Shoprite spending large sums on diesel to sustain operations. Retail profits could decline by approximately 10 per cent if the current load-shedding patterns persist.
Real Estate
Likewise, property companies, particularly those heavily reliant on the retail sector, encounter similar challenges during load shedding. These companies often face increased costs, just like retailers. For instance, Attacq, the owner of the Waterfall precinct, reports that its average daily diesel cost surges to R511,500 during Stage 6 load shedding, compared to R170,526 during Stage 2 load shedding.
Healthcare facilities
Hospital groups, in the midst of load shedding, also experience escalating costs. According to Life Healthcare’s latest trading update, their diesel expenses during the four-month period ending in January surged to R25 million, compared to R5 million in the previous comparable period. However, Life Healthcare clarifies that these increased costs do not have a significant impact on their overall cost structure.
