As South Africans grapple with a week full of stage 6 and stage 5 load shedding, Eskom and the Department of Public Enterprises are urgently procuring capacity from independent sources – however, don’t bank on this making much of a difference, says Intellidex analyst Peter Attard Montalto.
Speaking to Business Day TV, Attard Montalto said that Eskom has effectively run out of options, and the short-term bump of 1,000MW being procured to address this week’s load shedding is simply not enough.
Procuring 1,000MW of energy is only enough to mitigate one stage of load shedding, he said, noting that this power won’t come online all at once. He added that the ‘legals’ around the procurement are also complicated, and a lot of admin is involved.
“This doesn’t really help, structurally, to shift the dial on load shedding,” he said.
The analyst said that the real meat of the solution to load shedding in South Africa is contained within president Cyril Ramaphosa’s crisis energy plan, announced when stage 6 load shedding last reared its ugly head.
“There’s nothing that can really be added to the crisis energy plan. It was an excellent plan, to begin with. The real problem here is that we have to wait,” Attard Montalto said.
“Things are going to get worse – a lot worse – before they start getting better. The real challenge is to manage expectations. We’re going to see very prolonged periods of likely stage 6 to 8 load shedding – particularly between October and November and around February (2023) before we can see the new generation really coming on stream.”
He said things like the 1,000MW being procured right now are important, but the real meat of the crisis energy plan will take time to implement.
“There’s a lot going on to help in the long term, but in the short term, we need to manage expectations really carefully. Things are going to get a lot, lot worse.”
Price hikes
Adding to consumer woes is Eskom’s wish to hike tariffs in 2023. The group has applied to energy regulator Nersa to hike fees by 32%, which, when added to court-ordered backlogs, could see prices climb by over 38%.
This proposed tariff hike has been rejected by major metropolitan municipalities, civil action groups and even Nersa insiders, who say that consumers cannot afford the hike and should not be the ones to suffer for Eskom’s inefficiencies.
The problem, Attard Montalto said, is that the country has simply run out of options regarding electricity pricing.
He said that cost-reflective tariffs for Eskom are 40% to 45% above current levels, and the power utility is trying to get there as quickly as possible to address its revenue shortfalls, growing debt and operation needs.
Eskom’s original plan was to smooth this out over several years, but he said this has been stymied by Nersa, which has prevented more significant increases in the past.
However, court cases over the years have shown that Nersa has acted illegally in blocking Eskom from recovering funds, so now this substantial historic ‘backlog’ of increases is coming out in one go.
“For Eskom, there really is no choice – either it recoups the costs through tariffs, or it recoups through bailouts,” the analyst said. “You can have a zero percent increase, but then Eskom needs a bailout of R80 billion. Clearly, that is not viable.”
“We’re running out of options here, and unfortunately, despite it being very challenging, we’re going to need a very large tariff increase.”
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