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South Africa is one of Africa’s top three economies. But beyond the economic dominance in Africa, the country has been dealing with a looming electricity crisis that goes as far back as the mid-to-late ‘90s. The future does not look bright either. Eskom, the state-owned power utility company, estimates that the electricity supply will have a shortfall between 4,000 and 6,000 megawatts over the next five years. As of September 2022, South Africa recorded more load shedding than the whole of 2020.
But what led to the situation in the first place?
By 1994, the power grid could meet the power supply demands in South Africa. After 1994, there was a rapid economic growth and extension of power to black townships. Unfortunately, this rapid increase of millions of consumers was not met with equal infrastructure changes to increase the power supply. When the crisis found its way to the surface in the mid-2000s, the government decided to take action by announcing a costly overhaul with two new power plants, Kusile and Medupi.
Despite the plans to complete the projects by 2015, they were plagued with spiraling costs, delays, and corruption scandals. The plants are still incomplete to date with increasing challenges. The projected costs have doubled. More so, the cost of coal has increased along with the cost of the workforce. The workforce cost has increased by 50% between 2009 and 2019. The increasing costs have forced Eskom to raise tariffs. This has made electricity less affordable, leading to fewer sales.
Due to the overloaded electricity grid and inability to create alternatives fast, Eskom has been forced to implement load shedding categorized in stages one to eight. The load shedding has negative consequences on economic activity. The mining sector is one of the sectors that has been hit hard by the load shedding. Companies including Impala Platinum, Harmony Gold, and Sibanye Stillwater have all had to reduce production due to power shortages. As of September 2022, the mining sector has seen its eighth consecutive month of falling mining activity with production reducing by 4.5% year on year.
Another sector affected by the load shedding is the small and medium businesses’ sector. They account for 98% of the businesses in South Africa and employ 50-60% of the South African workforce. Already struggling to navigate post-covid, the worsening power crisis is making it more difficult for these businesses to survive. Besides their impact on economic productivity, the closure of these businesses will have a significant effect on the high unemployment rate of 34.5%.
The load shedding loss per day to the economy is $15.3 million. More so, Eskom has a large debt to finance worth $26 billion with the government guaranteeing more than half of the debt. That accounts for 15% of all national debt. In the case of bankruptcy, this puts Eskom in a unique position, as the single biggest threat to South Africa’s economy. This means any potential solutions have to be approached rationally. This is because Eskom is almost bankrupt and government finance is already under immense pressure. So, what are the suggested ways forward?
Eskom has already implemented gas turbines to supplement the electricity. Additionally, earlier this year, the Minister of Mineral Resources and Energy, Gwede Mantashe, signed three new deals. The deals will enable the country to buy power from independent producers and create alternative power sources through wind, solar, CSP, and PV. This will also help curb the monopoly of Eskom over power supply which may help it become more competitive in service provision.
Other suggestions to alleviate the power shortage include dividing up Eskom into three. The three companies would be for generation, transmission, and distribution. This idea has been struck down by the labour unions for fear of privatisation and job losses as a result of the division. Another suggestion is for individuals to generate their own power. As good as this sounds, this would add to the woes of Eskom. If more people get off the Eskom grid, their sales will drop, digging them further into financial turmoil, thus, creating a bigger challenge for the economy. Additionally, this may only be an option to individuals and companies with massive financial power, excluding the poor who cannot afford to buy and maintain the infrastructure for private power.
While alternative power sources may sound like a great idea, they come with great consideration and cost. Alternative power solutions have not been thoroughly scrutinized for their cost and reliability. More so, swiftly changing things will impact the Eskom debt financing by the government because people will no longer be paying for Eskom power.
Unfortunately, the power crisis is a difficult one to solve given how far it has gone. It will take unimaginable effort for the government to curb corruption within the system, and implement load shedding as a temporary solution while adding alternatives to the grid. The country is already on its way on some of these solutions.
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