Eskom’s electricity supply has been declining since 2008

Several economists have commented on the continuing inability of Eskom to keep producing power after Statistics SA published its recent report on the amount of electricity generated and available for distribution.

The report includes figures up to the end of February 2023 – and things have become much worse since then.

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Siphamandla Mkhwanazi, senior economist at FNB, says electricity production declined by 9.7% year on year in February, marking the 17th consecutive month of annual decline.

“The persistent weakness in electricity generation mirrors continued generation capacity challenges at Eskom. Unplanned power plant breakdowns continue to pose the most considerable challenge to the electricity grid, while outages linked to Eskom’s planned maintenance continue,” says Mkhwanazi.

“The economy continues to face severe energy shortages,” he says, adding that economic activity is effectively “held hostage” by the serious and disruptive power interruptions.

“Although the Energy Availability Factor (EAF) has recovered somewhat from around 49.4% in the first week of January to just over 51% recently, the electricity grid remains unstable and unpredictable, with ongoing plant breakdowns.”

Mkhwanazi warns that the impact on economic growth will be severe, limiting businesses’ ability to expand and create new job opportunities.

Long term problem

Old Stats SA reports reveals that electricity supply has been a problem since 2008 and that electricity supply from Eskom in particular has been decreasing since 2009.

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The statistics agency publishes comprehensive figures about the generation and distribution of electricity, including production from different sources as well as electricity imports and exports.

The data for electricity available from Eskom for distribution in SA shows that it had been increasing from 1990 (the oldest figures available from Stats SA), reaching 20 796 gigawatt-hours (GWh) in 2007.

Eskom’s production remained stable for a few years but began to wane in 2009, with every subsequent year worse than the previous.

In February, Eskom could supply SA with only 13 152GWh – a decline of nearly 37% since the 2007 peak.

Eskom electricity supply available for distribution in SA (GWh)

Electricity production in February 2023 was barely above the very low figure of 2020 when the economy was shut down for weeks during the Covid-19 pandemic and businesses were not allowed to operate.

Worse

Indications are that things have become even worse since February.

Load shedding became more intense, with Eskom warning on Wednesday that it had more breakdowns at its power stations and that load shedding would increase for at least a few days.

“Due to a shortage of generation capacity, Stage 6 load shedding will be implemented from 16:00 this afternoon [Wednesday] until 05:00 on Thursday. Thereafter, Stage 5 load shedding will be implemented until 16:00 on Thursday,” according to the Eskom announcement.

“This pattern will be repeated daily until further notice.”

The FNB economist makes an astounding prediction: “We expect around 250 days of load shedding this year, predominantly Stage 4,” says Mkhwanazi.

That is equal to three power cuts of two-and-a-half hours each in some areas, for a total of seven-and-a-half hours a day – every day.

“Economic conditions are becoming increasingly unfavourable for the domestic economy. We expect economic growth to moderate further, to 0.4% this year, a decrease of 0.8% from our earlier forecast of 1.2%,” says Mkhwanazi.

“At 0.4%, economic growth in 2023 will be the second weakest since 1993, excluding the contractions in 2009 (global financial crisis) and 2020 (Covid-19 pandemic). Economic growth is expected to be limited and only increase to 1.4% next year and 1.6% in 2025, reflecting continued structural constraints and subdued domestic demand.”

FNB warns that energy shortages will affect all economic sectors, with the primary sector expected to be hit the hardest. Agricultural output is forecast to decline by 4.1% and mining by 1.5%, both starting from a weak base last year.

“Manufacturing output is also expected to drop by just over 1% this year, while a sharp moderation in freight transportation is expected. This broad-based weakness could reverberate through the labour market, further delaying the recovery in employment,” says Mkhwanazi.

Billions lost

South African Reserve Bank (Sarb) Governor Lesetja Kganyago also blames the electricity crisis for the economy’s bad performance and increasing inflation pressures.

When announcing the higher than expected increase in interest rates at the end of March, he noted that the contraction of 1.3% in the fourth quarter of 2022 was considerably worse than had been expected just a few months earlier.

“The contraction was broad-based, consistent with the extensive load shedding experienced in the final three months of the year. For the whole of last year, GDP growth of 2% was achieved, compared to the 2.5% previously expected,” says Kganyago.

“For 2023, the bank’s forecast for GDP growth is lowered slightly to 0.2% from the 0.3% expected in January. As a result of extensive load shedding and logistical constraints, the supply performance of the economy remains severely impaired.”

The Sarb estimates that Stage 6 load shedding reduces production by as much as R899 million for every day of load shedding during the week.

The losses in production – and in wages and salaries paid to workers and profit to business owners – will be massive, based on the Sarb forecast that we will see 250 days with electricity interruptions in 2023, 150 days in 2024 and 100 days in 2025.

While the 100 days in 2025 may sound like Utopia, it still equates to electricity problems nearly every third day and would cost the economy R20 billion if limited to Stage 3.

The 250 days of problems in 2023 could cost the economy between R51 billion and R216 billion, depending on the severity of the power cuts.

“Economic growth has been volatile for some time and prospects for growth appear even more uncertain than normal. An improvement in logistics and a sustained reduction in load-shedding or increased energy supply from alternative sources would significantly raise growth,” says Kganyago.

Electricity supply, logistics and transport, and crime and corruption have been identified as the three big obstacles for businesses in SA and have been pushed to the top of the list of problems to solve.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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