SA’s electricity dilemma: matching output to growth

SOUTH Africa’s electricity sector has been under pressure for nearly a decade and although Eskom has made strides in building new power stations and fixing existing ones, what good is surplus electricity when the economy is expected to remain weak?

Stats SA on Thursday released electricity production figures for November that show production increased 2.1% year on year compared with October 2016.

The figures also show that seasonally adjusted electricity production increased by 0.2% in the three months ended November 2016 compared with the previous three months. Overall, 2016 electricity production increased slightly compared to 2015, when the country was hit with load-shedding.

Econometrix chief economist Azar Jammine said that available capacity would not necessarily push up economic growth dramatically — inadequate supply would simply cease being a negative factor.

Chris Yelland, an energy analyst at EE Publishers, said: “In the absence of load-shedding, when there is no restriction of supply, which is the case right now, then electricity consumption is all about demand and not generation. It’s all about how much electricity is wanted by customers.”

Electricity consumption in November rose 0.3% year on year, according to Stats SA. However, overall electricity consumption in the first 11 months of 2016 was flat, said Yelland.

He said several factors contributed to flat demand, such as the increase in price, or using electricity more efficiently, and therefore using less.

He said the global market for commodities also had an impact because smelting used a lot of electricity, and with steel being dumped, businesses such as ArcelorMittal South Africa had cut production, curbing electricity demand. Manufacturing and mining production, the biggest electricity users, had also contracted last year.

Yelland said demand in 2017 would remain flat because of high electricity prices.

Eskom increased its exports to neighbouring countries by 31.6% in the six months to September 30 2016, according to a statement it released in late December.

Yelland said Eskom would maximise doing business in Southern Africa, but supplying power internationally was not going to change electricity availability dramatically because South Africa was no longer a cheap producer.

There are new power stations — Kusile, Ingula and Medupi — but demand is determined by the pace of economic growth.

Eskom said the first unit of Kusile was connected to the national grid in late December, adding 800MW to the system. Medupi’s Unit 6 has been operating for more than a year. The new build programme had added 1 332MW from all four units of the Ingula Pumped Storage Scheme, as well as the synchronisation of Medupi Unit 5, Eskom said.

Excess capacity has enabled Eskom to increase its electrification target to more than 200 000 households by the end of March this year, against the target of 169 722 set for it by the Department of Energy.

Eskom interim group CEO Matshela Koko said: “Our build programme is now delivering ahead of our re-baseline schedule, our operations have stabilised and, as a result, we are in a position of surplus capacity. I therefore invite business to invest in the economy because the availability of electricity is no longer a constraint to the growth of the economy.”

Jammine said he was not confident that South Africa had solved its energy problems in the long term.

He said if electricity production levels grew at 1% or 2%, Eskom could generate enough to support demand without blackouts across the country. But if economic growth increased by 3% or 4%, which was unlikely, Eskom could struggle to meet demand. The IMF has projected that South Africa’s economy will grow only 1.1% this year.

Jammine said there was no doubt that the limit on electricity production was a barrier to higher economic growth. But addressing that was a doubleedged sword because if the country embarked on expansion programmes, it would result in excess capacity, as was experienced in the early 1990s.

The country ran the risk of rushing to ensure energy security and being left with a heavy debt burden and oversupply, but, if the economy did start growing at 3% to 5% a year, South Africa would not have capacity to support the growth.

Capacity would not necessarily push up economic growth