Business News 26.4.2016 01:29 pm

Why the lights are staying on

Picture: Thinkstock

Picture: Thinkstock

Electricity demand is back below levels last seen in 2008.

Eskom is making “steady progress” in its turnaround strategy, staving off load shedding for the past nine months while undertaking planned maintenance to improve the reliability of its power plants, the state-owned company said in a recent statement. But has the commodities rout and its impact on the mining and metals and engineering sectors helped the power utility keep the lights on?

At a December briefing on the state of its system, Eskom CEO Brian Molefe admitted reports that poor economic conditions had lessened the need to implement load shedding were “somewhat true.”

“Eskom’s prime energy availability factor hasn’t significantly improved, demand has decreased,” said Shaun Nel, spokesperson for the Energy Intensive User Group. A 2016 World Bank report shows little improvement in Eskom’s installed generation capacity, but the available generation capacity of Eskom’s power plants has steadily decreased (see charts below).

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According to data from Statistics South Africa, annual electricity production has been in a state of consistent decline since peaking at 262 538 gigawatt-hours (GWh) in 2011. Total electricity generation fell for the third consecutive year in 2015, coming in 2% lower compared to 2014.

But the story of avoiding load shedding is really one about falling demand. Annual electricity consumption declined by 1.5% in 2015, after a marginal increase of 0.2% in 2014 and 0.4% decrease the prior year. According to information provided by IndexMundi and the CIA World Factbook, South Africa’s energy consumption has fallen below  levels last seen in 2008 (see chart below).

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Deloitte research into the impact of electricity price increases on various sectors of the South African economy, shows that non-ferrous metals and gold mining are the single largest consumers of electricity, accounting for 25% of total consumption.

Both sectors were negatively impacted by the commodities rout but the recent rally in gold prices has given miners some impetus to boost production.

Demand for non-ferrous metals, largely dependent on international markets and China’s economic prospects, hasn’t fared well. “We are producing at 30% below our 2007 levels, when volumes peaked,” said Henk Langehoven, chief economist at the Steel and Engineering Industries Federation of Southern Africa (Seifsa).

In the past year alone, South32 suspended three of its four high-carbon ferromanganese furnaces at Metalloys and it also suspended production in 22 pots at its local aluminium operations. The energy intensive Bayside Aluminium Smelter was also closed. However, its casthouse is being operated by empowerment group Isizinda Aluminium. International Ferro Metals South Africa, the domestic unit of the London-listed company, and Evraz Highveld Steel & Vanadium entered into business rescue.

ArcelorMittal South Africa, battling weak steel prices and competition from cheap Chinese imports, mothballed operations at its Vaal Meltshop and Forge plants in Vereeniging. It has also placed its Saldanha Works under review.  And despite increasing production, Merafe Resources said investments in energy efficiency at its Lion II ferrochrome plant led to a decrease in total energy consumption from 16.48 gigajoules per tonne (Gj/t) to 13.18Gj.

With international markets expected to recover in 2018, Langhoven said this year is likely to be worse for the local industry. He said lower production is one of the factors likely to have resulted in less energy consumption.

According to Nel, on-going work into energy efficiency, particularly in the mining sector where electricity costs are the second biggest input cost after labour, would also have reduced demand.

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