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The problems at Eskom and the effect of unreliable electricity supply on the economy are undisputed.
Business leaders, economists and government are all well aware that continuous load shedding is hampering economic growth and making it impossible to reduce record high unemployment, poverty and inequality.
Eskom is not the solution to these problems. Anyone who might have thought there was even a remote possibility of fixing decades’ worth of mismanagement in a few years only needs to look at the worsening load shedding schedules and the massive challenges the utility’s managers face when tasked with fixing the ailing entity.
However, all is not lost. Peter Armitage, founder and chief investment officer of fund manager Anchor Capital, says there “is light at the end of the tunnel”.
Eskom was an important point of discussion during Anchor’s recent online presentation on where to invest.
Armitage says load shedding has a huge impact on companies and investors.
“Take a company like Pick n Pay who generates R2 billion to R3 billion in operating profit.
“They recently said that diesel to run generators cost them R600 million to R700 million. It is reducing their profits by 30 percent to 40 percent,” he says.
Nolan Wapenaar, Anchor’s co-chief investment officer, says Eskom is the single biggest risk factor to the SA economy.
However, he has noticed an interesting phenomenon when business leaders talk about the electricity crisis – the narrative is changing.
“The chatter when I speak to people outside the company is becoming incrementally more positive.” says Wapenaar.
“That is actually something I needed a bit of time to digest, because you wouldn’t think so.
“What is actually happening is that the perspective is that things will improve, not that I am saying for a second that Eskom will be turned around and rise to its former glory.
“What analysts are saying now is that, looking at what is happening in the country, you are seeing the private sector fill the void that is being created by Eskom.
“It is very much like private airlines filling the void for air transport with SAA largely dropping out of the picture.”
Wapenaar predicts that Eskom will travel the same road as SAA, once a proud national airline, now surviving on government handouts and operating only seven aeroplanes.
“There are several indicators that the private sector is stepping in,” he says, adding that imports of lithium batteries to store electricity have shot through the roof in terms of volume and value.
“In the first quarter of 2023, five times as many batteries were imported as in the whole of 2022, and 10 times as [many] as in 2021,” says Wapenaar.
“Similar trends are seen in sales of solar panels. Also, look at the number of projects announced or approved in terms of renewable energy,” he adds.
This proves, once again, that entrepreneurs will see opportunities where others see problems and challenges – so much so this time that it threatens Eskom.
Armitage says private sector investment in new generation capacity will see electricity from private renewable sources outstripping Eskom supply much “sooner than we think”.
Drawing on estimates and research by RMB Morgan Stanley Research, he predicts that new green producers will generate more electricity than Eskom by 2025.
“Effectively, Eskom supply about 25 gigawatt [GW] of electricity. Other producers are estimated to supply more than Eskom within two years,” he says.
Estimates show that analysts aren’t expecting much recovery from Eskom anytime soon.
Based on a continuation of its current performance of producing only 53 percent of its installed capacity (energy availability factor), it is estimated that Eskom’s production will recover slightly to 25.2GW by 2025, but by then production from other sources will reach 26.6GW.
Production by other sources includes electricity produced by big solar and wind farms, as well as small scale rooftop installations and 1.1GW imported from the Cahora Bassa hydroelectric scheme in Mozambique.- Moneyweb
Production from renewable sources is expected to increase steadily, to nearly 37GW by 2030. Renewable energy is forecast to produce 62% of all electricity in SA by 2030.
Renewables produced less than 5 percent of all electricity in SA only a few years ago.
“It is obvious that the private sector can solve the problem – if the government allows them to contribute, as it has indicated,” says Armitage.
“Massive spending on renewable projects is coming through. We consistently hear about it from the mining companies … Anglo American will be producing 5 gigawatts of power within the course of five years in SA.
“The impact on banks is huge, the financing opportunities are about R1 trillion, or $50 billion. To put that into context, the GDP is about US$350 billion.”
Armitage says the government has to allow the private sector to play a role.
“If that is unleashed, we will see a dramatically better situation within 18 to 24 months,” he says.
Unfortunately, government seems to be a stumbling block rather than an enabler – despite all the talk about the importance of reliable power, its commitment to reducing air pollution, and its continuous calls on the private sector to play a role.
Just a few months ago, in December 2022, the Department of Mineral Resources and Energy did not accept a single bid from companies lining up to develop new wind farms, without giving any reason for the decision.
A few weeks ago, Eskom went to court to force the Mafube municipality in the Free State to stop buying electricity from private solar farms that reduced load shedding in the towns of Frankfort, Villiers, Tweeling and Cornelia. – Moneyweb
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