As South Africa appears to be leaving the worst of the Covid-19 pandemic behind it, much of the focus this year will be on getting the economic basics right. However, this could prove difficult given the country’s widening energy supply gap, say economists at investment bank BNP Paribas.
2021 saw a record year of electricity supply cuts, as Eskom struggled with unplanned outages and the maintenance of ageing plants that could no longer be delayed.
BNP Paribas expects the supply gap to widen even further in 2022, crimping the country’s short term growth potential which it estimates will remain below 1.0%.
“Eskom’s system adequacy report shows the ‘likely risk’ of load shedding as lying in stages 1-2 every month this year – with risk of higher stages in the event of higher unplanned breakdowns as occurred in 2021. This is likely to dampen GDP growth by at least 1 percentage point, in our view,” the bank said in a research note on Thursday (13 January).
In a December 2021 results presentation, Eskom chief executive Andre de Ruyter warned that South Africa’s power system remained unreliable and unpredictable, despite ongoing maintenance.
“We have to emphasise that the power system is unreliable and unpredictable due to insufficient maintenance of generation plant over many years. Maintenance outages take around 24 months to plan, and take from three to six months to execute.
“The response to the pandemic prevented us from doing as much maintenance as we would have liked while prevailing liquidity challenges continue to constrain funds available for maintenance,” he said.
With Eskom’s legal separation of its transmission business near its conclusion, the focus in 2022 will be on the planned establishment of a National Transmission Company South Africa (NTCSA), BNP Paribas said.
This, it is hoped, will crowd-in investment through a speedier rollout of renewable energy and the NTCSA’s ability to trade between the generation and distribution businesses – to be legally separated by the end of 2022 – pending licence approvals from the regulator.
“We will be keeping a close eye on self-generation investment in 2022 given significant (positive) regulatory changes in 2021. The mining sector has indicated that up to R60 billion or 1% of GDP (3,900MWh) in demand for self-generation investment could be deployed in the next two years.
“Other important policy initiatives include the long-delayed release of 5G spectrum licences in the telecoms sector(expected at the end of Q1) and the evaluation of private investment demand in Transnet’s ‘freight masterplan’ by end Q2.”