Load shedding billions – how much South Africa is losing to blackouts

 ·4 Oct 2023

With load shedding reaching record levels over the last year, the public and private sectors have faced incredible financial strain.

Responding in a parliamentary Q&A, the Minister of Cooperative Governance and Traditional Affairs, Thembi Nkadimeng, said that the South African Association of Local Government (SALGA) attempted to quantify the municipal expenditure and revenue losses as a result of load shedding in March this year.

Of the 257 municipalities, only 89 responded – 75 being Water Service Authorities (WSAs) and 79 being licensed municipal distributors. However, the cost of load shedding still went into the billions.

Overall, municipalities recorded 100 incidents of cable theft per day of load shedding per period, with the overall cost to fix municipal infrastructure amounting to R1.6 billion over the 2022/23 financial year for the 89 municipalities.

In addition, the cost to fix damaged Water-Water Treatment Works (WWTW), Water Treatment Works (WTW), and to acquire diesel for generators amounted to R1.4 billion.

The total revenue lost due to load shedding also skyrocketed to R21 billion per annum for all the municipal licensed distributors.

The municipalities also spend R1.1 billion per annum on staff overtime and on contractors due to the need to repair electrical infrastructure on top of the regular cost budgeted for overtime and service providers.

This means that load shedding ultimately cost these municipalities over R25 billion in the last financial year.

However, considering there has been an additional six months of load shedding since this study came out and more than half of municipalities not participating, this figure is likely only the tip of the iceberg.

Nkadimeng noted that municipalities often lack the technical capacity or budget to protect their electrical assets. Vandalism is also worsened as thieves know the exact time and place of power outages due to load shedding schedules.

In addition, middle- and high-income households and commercial and industrial customers are also reducing their reliance on the grid via backup power solutions, which is impacting revenue collection.

Private sector pain

However, these backup power costs are hurting the private sector as well, with major retailers spending billions to keep their operations going.

For instance, Shoprite, South Africa’s largest retailer, spent R1.3 billion on diesel to power generators to lessen the intensity of load shedding over the 52 weeks ended 2 July 2023.

This meant the group spent R3.56 million on diesel per day in 2023 compared to just R620,000 in 2022 – a 470% increase.

Pick n Pay, on the other hand, warned that it expects to make a loss in the first half of the 2024 financial year, which it partially attributed to the R396 million needed for diesel and the net incremental energy costs of R190 million.

There are also concerns over the effects of load shedding on one of South Africa’s only bright spots for economic growth – the manufacturing sector.

Confidence in South Africa’s manufacturing sector has dropped, as shown by the latest Absa Purchasing Managers’ Index (PMI), which declined from 49.8 points in August to 45.4 points in September – below the neutral 50 mark.

The PMI business activity index also dropped by 8.1 points to 41.9, with September seeing an increase in load shedding and poor demand conditions.

From Q2 to Q3, the business activity index dropped from an average of 48.1 to 43.3

“The move lower would be consistent with a quarterly contraction in actual manufacturing output. If this materialises, it will weigh on overall GDP growth momentum in the third quarter,” Absa noted.

Putting a number to it

Putting an exact number to how much load shedding has cost South Africa is a near impossible task, given the direct, indirect and broader impact on the economy – including potential future losses which cannot be tallied.

The South African Reserve Bank has attempted to quantify the economic impact, noting that the country’s economic growth for 2023 would be cut by two percentage points due to load shedding.

The SARB pegs the daily cost of load shedding at stage 6 at R900 million a day. Narrowed down, researchers have put this at R6 per kilowatt hour of load shedding, which can be extrapolated to calculate more specific costs.

Overall, the estimated economic impact of load shedding in 2022 was said to be around R560 billion. With outages in 2023 even worse, the economic impact will undoubtedly be even bigger.

Some hope

However, despite the pain of load shedding, several economists and financial sector experts have noted that the South African economy has proven incredibly resilient to the effects of load shedding, with the country likely to avoid a recession.

In its current target scenarios, Eskom aims to keep unplanned outages below 14,500MW, which could keep South Africa below stage 4 for the summer months – a far more positive outlook than the warnings of stage 8 going into winter.

In addition, according to the latest Utility Power Statistics from independent energy analyst Pieter Jordaan, a decrease in demand in also helping load shedding at lower levels.

Jordaan said that Q3 2023 saw some of the lowest demand in five years, which he said has been due to the growth in alternative energy sources by households and businesses.

Despite the power supply gap still existing and the continued need to shed load off the grid, demand is reducing – helping to keep blackouts at lower levels, even if it hurts municipal collections.

Read: One easy way South Africa could reduce load shedding

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