Big shift for load shedding in South Africa – and who to thank

The South African Reserve Bank (SARB) says improvements in load shedding and energy availability in the country are coming quicker than previously projected – which is good news for South Africa’s growth prospects.

These improvements can be attributed to a better performance by Eskom, but it’s mainly thanks to a flood of private investment into renewable energy by households and businesses – echoed by the latest economic review by Nedbank.

In the SARB’s latest Monetary Policy Review for April 2024, the bank cut the scale of the ‘hit’ South Africa’s economy would take due to load shedding.

While the scheduled outages are still a major drain on the economy, the impact in 2024 won’t be as large as previously forecast, the bank said.

In its April 2023 review, the SARB estimated that load shedding would cut 2.0 percentage points from GDP growth in 2023, 0.8pp in 2024 and 0.6pp in 2025.

In its April 2024 review, the bank has now lowered the impact for 2024 to 0.6 percentage points.

“Our forecasts indicate a modest growth acceleration from this year as these supply-side constraints relax. In particular, we expect that the load-shedding burden will ease somewhat,” it said.

“While we estimate that electricity shortages took 1.5 percentage points off gross domestic product last year, we think this will moderate to 0.6 percentage points this year and 0.2 percentage points in 2025.”

The big win in electricity

The SARB said that the near- and medium-term outlook is for GDP growth in South Africa to increase, albeit slowly, as the electricity supply improves gradually.

This is underpinned by the ongoing private investment in renewable energy generation and increased maintenance by Eskom, it said.

“Overall, we see growth at 1.2% this year, improving to 1.6% by 2026. These projections are better than the 2023 outcome but below longer-run averages, which are around 2%.”

The central bank’s projections are optimistic compared to global financiers like the International Monetary Fund (IMF), which just cut South Africa’s growth prospects to just 0.9% for the year, signalling another contained year.

However, the SARB’s views on the energy situation are shared by the market at large.

In its Guide to the Economy for April, Nedbank also noted a significant turn in the state of power availability in South Africa, where it said “there is evidence of progress”.

“The country moved to significantly lower stages of load-shedding so far this year, averaging around stage 2, after having experienced gradual improvements over the 2nd half of 2023, following crippling power outages in the 1st half of 2023 and the final quarter of 2022,” the bank said.

As noted by the SARB, Nedbank also attributed the shift to a combination of generally subdued electricity demand and increased power generation with more renewables coming online.

Improvements at Eskom were not ignored – but the biggest win for South Africa came from renewables and private generation (ie, lower demand on Eskom).

“Eskom improved its generation capacity, lifting its electricity availability factor (EAF) from a low 51.3% in January to a marginally better 56.7% in the 2nd week of April,” Nedbank said.

“The improvements in Eskom’s operations undoubtedly contributed to reduced load-shedding, but the surge in private renewable electricity generation made the biggest difference.

“Eskom’s electricity supply fell by 7% in 2023, while that of independent power producers grew by 14.3%. As a result, their share of total electricity available for distribution increased to an average of 13.9% in 2023, up from 11.7% in 2022.”

Read: Why load shedding could be ‘the best thing to hit South Africa’