The rand takes massive load shedding hit

South Africa’s rand has endured a tumultuous two years, with load-shedding emerging as a critical factor behind its staggering underperformance.

According to insights from investment manager Ninety One, a significant 75% of the currency’s struggles during this period can be attributed to the nation’s relentless power outages.

This underperformance was most evident in May 2023, coinciding with the peak of South Africa’s electricity crisis.

However, recent improvements in energy availability have enabled the rand to claw back some losses, with the currency appearing more stable as reforms take effect.

The dramatic depreciation of the rand was fueled by unprecedented levels of load-shedding, which widened the gap between the currency’s expected return and its actual performance.

The situation escalated as the country recorded its worst-ever load-shedding levels last year.

This electricity crisis had wide-ranging implications for investor confidence and economic stability.

Nonetheless, a series of decisive actions, including the establishment of the National Energy Crisis Committee (NECOM), laid the groundwork for a gradual recovery.

At the height of the crisis, NECOM served as a “war room,” enabling collaboration between the government, businesses, and consumers to address the power shortages.

Significant progress has since been made, with the energy availability factor surpassing 70% and a cessation of load-shedding since late March 2024.

This improvement reflects substantial investments by businesses and households in renewable energy solutions, which have alleviated pressure on Eskom’s ageing fleet while enabling essential maintenance at its power plants.

The acceleration of renewable energy adoption has been a game-changer for South Africa’s energy landscape.

According to Ninety One, over the past two years, the share of renewable energy in the country’s installed capacity has doubled, rising from 10% to 20%.

This shift has been bolstered by an increase in private-public partnerships, with NERSA-registered projects nearing a combined capacity comparable to Eskom’s Medupi and Kusile power stations.

Rooftop solar installations have also surged, tripling to a total capacity of 6 GW.

These developments mark a significant step toward diversifying South Africa’s energy mix and reducing reliance on Eskom’s coal-dependent infrastructure.

Despite these advancements, experts, including energy analyst Chris Yelland, urge caution.

Eskom continues to grapple with longstanding challenges, such as an ageing coal-fired fleet, vulnerabilities in transmission infrastructure, and systemic issues like vandalism, theft, and illegal connections.

While reliance on Open-Cycle Gas Turbines (OCGTs) has helped bridge power deficits during peak demand periods, this approach is both costly and unsustainable.

Between April and November 2024, Eskom spent R6.61 billion on OCGTs—a marked reduction from the R22.94 billion spent in the previous year, yet still a concern given their limited contribution to the overall grid.

Eskom’s recent operational improvements align with its Summer Outlook, which predicts a load-shedding-free period from September 2024 to March 2025.

This optimism stems from a reduction in unplanned capacity loss factors, which have dropped from 33.6% in 2023 to 25% year-to-date.

Additionally, planned maintenance activities have ramped up, with over 8,400 MW currently undergoing repairs as part of the utility’s summer strategy.

These structural changes, coupled with a stable electricity supply, have bolstered investor sentiment and provided a lifeline to the struggling rand.

However, localised issues such as illegal connections, vandalism, and meter tampering continue to strain Eskom’s network, often necessitating load reduction measures to protect infrastructure.

These persistent challenges underscore the arduous journey ahead for South Africa’s power utility.

With the national election now behind and load-shedding absent since March, Ninety One asserts that the rand appears fairly valued.

The firm points to improving terms of trade, softer oil prices, and stronger commodity markets as factors supporting a more stable currency outlook.

While the road to sustained energy stability is fraught with obstacles, South Africa’s recent progress offers hope for a brighter economic future, with the rand poised to regain its footing as reforms take root.

Read: The good and the bad for South Africa heading into 2025