Private power generation is expected to explode in South Africa over the next seven years, which should bring much-needed stability and recovery to the country’s economy.
Following the government finally getting out of its own way and allowing private businesses to compete in the energy market, South Africa has seen a surge in private investments in the sector as companies desperately look for ways out of the government’s failure to meet demand.
Last week, the North Gauteng High Court ruled that load shedding violates human rights and is unconstitutional, and laid the blame for the country’s critical power failures at the feet of the ANC government for many reasons – including its blocking of private sector participation.
According to RMB chief economist Isaah Mhlanga, since the relaxation of regulation that removed the limit in the threshold for embedded generation above which licensing will be required, households and private corporates responded aggressively by investing in rooftop solar panels.
“The pipeline from the corporate sector also shows significant investments in the future, which should increase the resilience of the economy to load-shedding,” he said.
This means that South Africa’s energy future has shown a massive shift, with an estimated 6,000MW from the private sector now anticipated to be online by the end of 2025.
“From 2025 to 2030, a further 19.3GW of energy will be added, taking the cumulative energy addition to 25.5GW from this year to 2030,” Mhlanga said.
This will deliver an arguably undeserved boon to the government, as load shedding is now expected to decline in the lead-up to the 2024 elections thanks to private sector investment – with further private generation anticipated to offset Eskom’s declining supply from 2026.
Put into a different perspective, RMB expects that in 2026, the power supply will finally be back at the peak seen back in 2007 before load shedding reared its ugly head – largely owing to the private sector.
Because of all the private sector investment, load-shedding is likely to reduce to a maximum of stage 3 by mid-2025 on average, Mhlanga said.
“Most corporates can operate at close to full capacity at stage 3, which implies that the negative impact on the economy will reduce significantly going forward,” he said.
The impact of load shedding on the wider South African economy has been difficult to pin down, Mhlanaga said, with various estimations ranging from a 0.2 percentage point to a 4.5 percentage point knock to GDP.
The Reserve Bank’s estimations are that load shedding wiped two whole percentage points from the country’s 2023 GDP output alone.
“These estimates relate to the impact of reduced supply of electricity from Eskom and do not consider the additional private sector renewable energy that has increased the resilience of the economy,” the economist said.
“It therefore suggests that the impact could be less than estimated as this year’s better-than-expected economic growth outcomes amid the most intense load-shedding in history shows.”
On the other hand, the impact of load-shedding is non-linear and complex to model, extending beyond the sectors that are direct heavy users of electricity, he noted.
“This would suggest a bigger hit to GDP than estimates show. Ultimately, the impact is somewhere between those two extremes and the figures presented are best estimates given what we know and what we can explicitly account for.”
Thanks to the surge in private sector investment and generation, though, Mhlanga said that a reasonable assumption is that South Africa could lift its GDP growth significantly in the coming years – provided this investment is met with further plant improvement by Eskom.
“If one takes the 1.5 percentage points average knock to GDP across the various estimates and adds it back to this year’s nearly 1% consensus growth expectation, economic growth could lift to between 2.0% and 2.5% by 2026,” he said.