It’s too late for 2023 – Reserve Bank shifts load shedding hopes to next year
The South African Reserve Bank (SARB) says that energy reforms may bring some reprieve to the country’s energy constraints and lift its burden on the economy – but only in 2024 and beyond.
In an economic note titled ‘Reflections on load shedding and potential GDP‘ by economists Theo Janse van Rensburg and Kgotso Morema, the SARB said that rolling blackouts have crushed potential GDP growth for 2023, and risks associated with the outages are expected to remain high until at least 2024.
Load shedding in 2023 hit record highs in terms of severity and frequency. By mid-February, rolling blackouts had already exceeded the cumulative totals of 2019 and 2020.
The SARB said load shedding has severe negative implications for production and overall confidence in the economy. Given that load-shedding is expected to worsen in 2023, the central bank said that potential growth is forecast close to 0.0% this year – well below the steady state of 2.5% seen previously.
The graph below shows the steady decline in potential GDP growth in South Africa:
The significant deterioration of key power generation capacity units at Eskom has also raised concerns over how long load shedding will persist.
“In our view, the risk of rolling power outages will remain high in 2023 and into the early part of 2024 as a result of the unreliability of existing power capacity, alleged sabotage, corruption and other factors,” SARB said.
“Furthermore, prolonged load-shedding will likely continue as Eskom embarks on a major repair, new capital investment projects and maintenance projects that are only expected to be completed over the next 12 to 18 months.”
There are a handful of major repair jobs and maintenance projects Eskom needs to embark on and finish to bring ageing coal power stations back online.
The table provided below from the SARB illustrates the units that need to be addressed as well as the generating capacity fixing such could bring online:
According to Eskom, these projects and breakdowns will remove at least 4,500 MW of generation capacity – equivalent to stage 5 load-shedding. This supports the SARB’s view that Eskom’s generation capacity will remain constrained for some time while repairs are in progress.
Notably, Koeberg Unit 1 remains offline and has missed its return date (June 2023), now only expected to be back by the end of August/September. Koeberg Unit 2 is expected to go offline soon after – expected back in early 2024 (assuming there are no delays).
On a more positive spin, Eskom was recently granted exemptions to environmental regulations, which it said will allow it to bring back Kusile units faster. These units are expected to come back online near the end of the year.
2024
The implementation of key structural reforms provides the best opportunity to ease South Africa’s energy constraints, said SARB.
“President Cyril Ramaphosa announced an ‘energy action plan’ in July 2022 that contains several interventions aimed at tackling the country’s current electricity crisis.”
“While these energy reforms are encouraging, the SARB assumes that they will only begin to have a meaningful impact on energy constraint towards the second half of 2024.”
In broad terms, the action plan seeks to:
- Fix Eskom and improve the availability of the existing electricity supply
- Enable and accelerate private investment in generation capacity
- Accelerate procurement of new capacity from renewables, gas and battery storage
- Unleash businesses and households to invest in rooftop solar
- Fundamentally transform the electricity sector.
Details of these reforms are covered by Operation Vulindlela and show some progress being made in implementing structural reforms.
“If they are fully and efficiently implemented, these reforms could significantly boost both actual and potential GDP growth, which presents an upside risk to the SARB’s forecast.”
“However, it will take some time to undo the damage caused by the structural and productivity impediments described earlier, so the positive impact of these reforms will likely raise (potential) growth slowly,” said SARB.
Talk of a future South Africa with decreased load shedding follows the minister of electricity Kgosientsho Ramokgopa, stating that Eskom is making significant improvements.
“What is encouraging for me is that we are beginning to maintain that previously the oscillation (between sufficient power and none) was too extreme; now it is steady,” the minister said.
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