Eskom’s key tool to stop stage 8 load shedding comes at a great cost to South Africa
Eskom’s strategy to lower the intensity of load shedding with load curtailment is having a disastrous impact on the economy.
Before Winter, South Africa had often “technically” hit stages 7 and 8, but Eskom would implement load curtailment on South Africa’s major power consumers to prevent this.
This meant that the public was, at most, subjected to stage 6 load shedding.
Load curtailment sees Eskom directly ask large power users to reduce their power consumption, and, like load shedding, it is done in stages:
- Stage 1 and stage 2: companies are required to reduce 10% of their power consumption
- Stage 3: companies are required to reduce 15% of their power consumption
- Stage 4: companies are required to reduce 20% of their power consumption
The members of the Energy Intensive Users Group (EIUG), including Anglo American, Sibanye Stillwater, Thungela and over 20 other corporations, use more than 40% of the nation’s power and are subject to load shedding.
Despite load curtailment benefitting the public in the short term, it can have disastrous effects on the economy.
Members of the EIUG account for approximately 22% of South Africa’s GDP, and any alterations to their operations can seriously impact productivity.
Anglo troubles
In its interim results for the six months ended 30 June 2023, Anglo American Platinum saw a 71% drop in its headline earnings, cutting its dividend by 85% to 1,200 cents (H1 2022: 8,100 cents.)
Amplats said that it experienced a difficult operating environment defined by growing global macroeconomic apprehension, significantly lower dollar metal basket prices, and intensified load curtailment.
The group said that its refined production decreased by 13% due to a ramp-up of its Polokwane smelter in January following its rebuild, maintenance, asset integrity work at the company’s processing operations, and load curtailment.
The world’s largest primary producer of platinum added that load curtailment resulted in the deferred production of over 65,000 Platinum Group Metals (PGMs) ounces.
“Most mining and processing companies, as large end-users, face ‘load curtailment’, and while this does require them to reduce power consumption, the impact of this can be reduced through careful planning, such as scheduling maintenance periods,” it said.
“Furthermore, where shutdowns are unavoidable, they tend to reduce power at the processing stage of the supply chain, not at the mining operations. As such, ore or concentrate is stockpiled for future processing.”
The group also saw refined platinum and refined palladium production fall by 19% and 3%, respectively.
| Refined Production from Operations | H1 2022 (ounces) | H1 2023 (ounces) | Change |
| PGMs | 1,959,100 | 1,699,800 | -13% |
| Platinum | 934,500 | 755,400 | -19% |
| Palladium | 602,900 | 583,100 | -3% |
The Bureau for Economic Research (BER) said that weaker mining sector profits, such as Amplats, are a serious area of concern for South Africa’s economy.
“Surging mining profits were the mainstay of a corporate income tax bonanza in 2021 and to a lesser degree also in 2022,” the BER said.
“The abrupt change in fortunes places major downside risk on corporate, and overall, tax revenue in the current (2023/24) fiscal year. This is an important reason why, for some time, we have cautioned that Treasury was set to vastly undershoot its February 2023 main budget deficit expectation (3.9% of GDP) for 2023/24.”
Not out of the woods
South Africa has seen a recent reduction in the intensity of load shedding in winter.
This was mainly due to a decrease in demand, Eskom cutting maintenance, and slightly improved performance from the utility’s coal fleet.
However, two cold fronts earlier this month forced the utility to implement stage 6 and stage 5, respectively, as the country’s demand returned to normal winter levels.
This highlights how unstable Eskom’s grid is and how unlikely it will be for the embattled power utility to keep load shedding at lower stages as it starts amping up maintenance during spring and summer.
With Eskom seemingly steadfast in never going above the stage 6 mark, the EIUG members may be subjected to further load curtailment in the future. Load curtailment is one of the aspects of the revisions to load shedding stages that may be altered.
Although the BER previously said it remains constructive on Q2 2023 real GDP dynamics – with manufacturing and mining production growing from Q1 to Q2 – heightened load shedding could pause Q3 growth momentum.
“Therefore, the weakness we initially expected for Q2 may simply be postponed to the third quarter,” the BER said.
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