Why Eskom’s Energy Crisis Is South Africa’s Biggest Risk For the Future
Table of Contents
The energy crisis in South Africa is a result of the failure of Eskom to generate enough electricity to meet the country’s demand.
And with Stage 6 load shedding things are only going to get worse with Stage 8 looming and a total collapse of the grid on the horison.
Not only has the energy crisis had a devastating effect on the economy, with businesses closing, jobs being lost and critical services such as healthcare and education being affected, but it’s also discouraged much needed investment in the country.
Andre de Ruyter’s sudden departure from Eskom after his scathing interview with Annika Larsen on 22 February 2023, confirmed what many already knew.
And that was that corruption and sabotage play are huge part in Eskom’s plant failures.
However, the biggest bombshell he dropped was saying that two cabinet ministers are key players in the criminal syndicates entrenched in Eskom.
And, as expected, the politicians are attacking de Ruyter instead of acknowledging and investigating the corruption that was also revealed at the state capture commission.
Watch this space for further developments and the inevitable naming of these ministers. Interesting days ahead…
Furthermore, he previously said that corruption is at the heart of Eskom’s problems, and he was making inroads into rooting out corruption, so for Mantashe to blame De Ruyter for acting like a “policeman” as a reason for load shedding is just ludicrous.
It would seem, to the cynical amoungst us, that the beneficiaries of corruption at Eskom are fed up with being policed and want free reign as they had in the past to plunder and steal.
Furthermore, Ramaphosa’s decision to not support de Ruyter, a key individual responsible for the economy, left him no choice but to render his position untenable and to resign.
Whilst the energy crisis in South Africa was first identified over a decade ago, with load shedding first experienced in 2008, government has yet to resolve it.
Eskom desperately needs between 4 000MW and 6 000MW of supply to be added to the grid by IPPs so it has the breathing space to get its coal fleet back to some semblance of stability.
The load-shedding that we are experiencing is not just a temporary problem, it is a structural issue with no real solution in sight.
Moreover, the load-shedding schedule is often updated multiple times a day to keep up with the never-ending unit failures and is at an all-time high despite a new Eskom board having been appointed.
What’s more worrying is that government’s efforts to tackle South Africa’s energy crisis, as described by the COO, lack urgency and coherence.
Whilst the man at the helm of Eskom, Andre de Ruyter, isn’t measuring up to everyone’s expectations of turning the utility around, it should be remembered that he inherited a very sick SEO.
Eskom had been gutted, plundered and poorly managed by some of his more nefarious predecessors.
Furthermore, he also has to contend with political interference that prevents him from taking the best business decisions, but instead he has to abide by the principles of BEE and being stuck with an overstaffed and overpaid workforce.
Andre de Ruyter (Group Chief Executive of Eskom) – Qualifications
Ref: Eskom
- Master of Business Administration (MBA) – Nyenrode Business University in the Netherlands
- Bachelor of Law (LLB) – University of South Africa
- Bachelor of Civil Law – University of Pretoria
- Bachelor of Arts – University of Pretoria.
Top 5 Causes Of the Energy Crisis In South Africa
- Money
A shortage of money and lack of funding from the government has forced Eskom to cut back on maintenance and repairs.
This has been exacerbated by corruption and theft of equipment and fuel on a grand scale which seems to be an ongoing problem.
Aging power stations have become targets for sophisticated theft operations, involving corrupt officials, trucking companies, and police, stealing fuel to the value of millions of ZAR.Regarding the funding that Eskom desperately needs, it was announced by The World Bank, on 04 November 2022, who approved a $497 million (approximately R9 billion) concessional loan facility to Eskom for the repurposing of Komati Power Station.
In addition to armed gangs stealing fuel from buried pipelines owned by Transnet, Daily Maverick’s investigative journalists received tip-offs that led them to another fuel theft operation, at Kriel Power Station, which has evaded detection for many years. - Lack Of Technical Skills
Eskom lacks key technical skills and the required competencies required to perform maintenance proficiently thanks to cadre deployment which has contributed to the exodus of institutional knowledge.
This leads to further plant breakdowns and reduced electricity generation. - No Replacement Power Stations
Power stations that currently contribute to almost 20% of the current generating capacity are set to be de-commissioned over the next decade without replacement generational capacity planned. - Eskom’s Profitability and Debt
Despite having a monopoly in South Africa, Eskom’s revenue and profitability is declining as it cannot keep up with its clients demand for electricity which it could be charging for.Eskom’s profitability is taking a hammering with the excessive amount spent on diesel fuel to keep the gas turbines running – from January to September 2022, Eskom overspent by a massive R6,7bn according to Andre de Ruyter.
Furthermore, with IPPs (Independent Power Producers) of renewable energy being given the green light to produce up to 100MW, Eskom is facing competition for its client base too. - Environmental Issues
The utility is facing pressure, and further costs, to reduce its emissions as it generates around 40% of South Africa’s greenhouse gases.
Eskom COO Jan Oberholzer says the root cause of the Eskom’s energy crisis in the utility’s generation unit is a shortage of both system capacity and funding.
Therefore, with a skills shortage, lack of funding, theft and corruption, Eskom has massive hurdles to overcome in its attempt to meeting the country’s power demand to avert a critical energy crisis.
Furthermore, it can’t be easy for Eskom’s management with political interference hampering good business practice, not to mention being lumbered with thousands of unionised staff members they cannot retrench.
Added to the above, Eskom’s management will have a hard time solving South Africa’s pressing energy crisis while senior government figures seem to openly disagree on the way forward.
How the Energy Crisis Is Impacting Business and Consumers
With country’s electricity grid struggling to meet the demand for power, with regular blackouts and load-shedding, the imapact on business and the economy as a whole has been severe.
With many businesses having been forced to shut down leading to job losses, others are just struggling to keep operations running and millions of people losing their jobs with cut backs and retrenchments.
The government has been trying to address the problem, but has been met with criticism over its handling of the situation.
Not only is Load Shedding inconvenient, but is the biggest handbrake on the economy
Cape Town Mayor Geordin Hill-Lewis
There are a number of possible solutions, but none of them are without their drawbacks.
The country faces a difficult choice in finding a way to solve its power crisis, especially when government seemingly cannot agree on a way forward.
With Mantashe preferring nuclear over renewables which will create more jobs and meet energy demands without impacting negatively on the environment.
Meanwhile many South Africans are researching and comparing solar panel prices and installing their own off-grid solar systems.
Solutions To the Power Crisis In South Africa
- Stamp Out Graft and Corruption
Andre de Ruyter, Eskom CEO, has made a huge strides in stamping out corruption as well as recouping misappropriated funds.
Several tainted senior executives and staff have left the company. - Restructuring Eskom
Government’s plan is to split the utility into separate generation, distribution and transmission businesses which will enable each unit’s costs and processes to be managed for effectively and make it easier for each one to raise capital. - Debt Restructuring
Whilst De Ruyter has made significant strides in reducing Eskom’s massive debt, incurred by previous management, the re-structuring of the utility’s debt has not been finalised.
Furthermore, De Ruyter is working on securing cheaper financing for renewable energy projects in exchange for accelerating the closure of coal-fired plants. - IPPs and Renewable Energy
By increasing the power generation threshold of IPPs, from 1MW to 100MW without having to have a licence, is a significantly positive move by government.
Not only will encourage entrepreneurship and job creation, but it can add new generational power to the grid in the short term making it a win-win.
On renewable energy, Ziyaad Sarang, head of fund initiatives at Investec, said “The Renewable Energy Independent Power Producer Procurement Programme (REIPPP) is outperforming almost all targets.
It’s the gold standard for public-private partnerships and its success is something that should be celebrated by South Africans. Globally, it’s highly regarded“. - Eliminate Red Tape and Grey Areas
Cape Town’s IPP program has gained massive interest from overseas investors which are being hampered, not by technology, capability or issues of financing, but by the legal framework in South Africa.
Red tape and grey areas leading to lack of clarity create uncertainty and discourages investment.
“We are our own worst enemy in South Africa” says Hill-Lewis.
With governments stagnation and lack of urgency in clearing up these grey areas and reducing the red tape, Hill-Lewis says “We are going to push ahead, and that grey is either going to be sorted out in practice, or in court, but it is going to be sorted out either way.”
In the face of continual power cuts, these Load Shedding Solutions Will Help Keep the Lights On
It was announced on 6 June 2022 on Moneyweb, that Eskom CEO, André de Ruyter, has taken the initiative by inviting energy experts from around the globe to a round table to find solutions to the economically devastating electricity crisis in South Africa.
What Are the Long Term Implications Of the Power Crisis On South Africa?
Will South Africa’s economy be able to withstand load shedding for the foreseeable future and when will SA be able to rely on a reliable power supply to attract new investment?
The answer to this is fairly obvious.
If the government doesn’t act with urgency by reducing red tape and encouraging IPPs to come and board to provide Eskom with some breathing space to effect much needed maintenance, South Africa’s economic future won’t be bright.
5 Negative Effects Of An Unreliable Power Supply
- Lack of investment
- Disinvestment
- Business closures
- Job losses
- Reduced tax base to fund new projects
While South Africa is running out of time and money, it cannot embark on another round of misguided advice, ineffective efforts and politicians’ empty promises to putting an end to the energy crisis.
Understanding Eskom’s Energy Crisis
For a simple analogy to explain the crisis that Eskom finds itself in, this will help explain the situation.
If the car you own starts giving trouble and becoming unreliable you would be advised to buy a new one.
However, you still owe a sizeable amount on it so unless you have savings which you can use to pay it off and buy a new one, this advice is no good to you, which is not unlike to Eskom’s predicament.
So you’re stuck with an unreliable car that you can barely afford to have repaired, let alone the down time required to leave it in the garage for repairs as you need it daily.
Again this is Eskom’s problem, as it can’t expect the country to go without power while it gets it’s power stations repaired, which is why we have load shedding which allows them small time windows to effect repairs and maintenance.
Therefore, saying the solution is simply to bring on new renewable energy and build new power stations are the same as those who advise you to just buy a new car to solve your transport problem.
Furthermore, Eskom is pretty much bankrupt and government’s finances are massively constrained, purchasing new power in the short term is not possible.
Conclusion On South Africa’s Energy Crisis
The South African economy has been in steady decline over recent years, caused in no small part by load shedding and Eskom’s unreliable power supply.
Bringing on IPPs and renewables is seen as a way increase power generation in the near future.
Over 90% of South Africa’s current energy generation capacity is provided by fossil fuels, which is expected to continue in the short term with more renewable energy sources being brought into the mix by 2030.
It’s crazy to think that renewables, in the form of solar energy, haven’t been part of SA’s energy mix for years.
For instance, South Africa is blessed with abundant sunshine throughout the country especially in the Northern Cape and Karoo, as well as reliably strong winds.
There’s therefore no doubt that South Africa is rich in renewable energy resources which need to be exploited with urgency.
Renewables could open up the market to new power purchase agreements (PPAs) whilst clean energy generation will allow South Africa reduce its energy insecurities and boost the economy.
The government cannot achieve an effective solution on its own, which means a combination of private and public sector involvement is what is required to rid SA of its energy crisis.
Lastly if government opened up the renewable energy market to private and community-based energy procurers to participate, without government discrimination, this would not only help alleviate the power crisis, but would also be a boon to job creation.