Lings: Decoded Eskom data, unleashed private sector brings SA hope for loadshedding’s end

Kevin Lings, Chief Economist at Stanlib, has added a lot of Eskom-related data to the weekly pack of graphs he distributes to the company’s clients – and in this interview, unpacks the key information, cutting through the complexity and technical jargon that often makes it inaccessible for many. Lings presents the information digestibly, allowing for a clearer understanding of the energy sector’s overall situation. His conclusions point to there being hope – thanks to the successful renewables programme and the huge and growing role now being played by the private sector, which was only recently allowed to enter the sector. – Alec Hogg

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Relevant timestamps from the interview

  • 00:00 – Introductions
  • 01:10 – Kevin Lings on Eskom and the impact of the electricity crisis on SA’s economy
  • 04:44 – Lings on the recent frequency of load-shedding and the impact of Stage 4 and above on the economy
  • 08:11 – On de Ruyter’s book ‘Truth to Power
  • 10:52 – On the importance of moving towards renewable energy
  • 16:08 – On the role of the private sector in renewable energy generation and distribution
  • 18:38 – Where improvements and advancements are required in renewable energy generation
  • 20:55 – On the Energy Availability index and the possible timeline of Eskom’s power generation
  • 29:27 – Concludes

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Edited transcript of the interview

Alec Hogg: I’m a big fan of the visual content you provide in your weekly updates. The graphs and images really help to convey complex information in a digestible way. In your latest update, I noticed you included a significant number of graphs related to Eskom. Could you share why you decided to focus on Eskom and provide such detailed information this time?

Kevin Lings: Certainly, there’s a tremendous amount of attention on Eskom, and I believe that the more information we have, the better decisions we can make, especially when it comes to investments and business decisions. The data surrounding Eskom is quite extensive, but it often gets complicated and is accompanied by technical jargon. This can make it challenging for people to access and understand what’s really happening at Eskom. My aim is to provide this information in a more accessible way through the graphs and keep updating it on a weekly basis. It allows us to track the trends and hopefully gain a clearer understanding of the overall situation in the energy sector.

Alec Hogg: Absolutely. We’ve come to realise just how crucial electricity is for an economy. It was a significant factor during the second industrial revolution, and now we’re in the midst of the fourth industrial revolution. Losing a reliable electricity supply would certainly set us back significantly.

Kevin Lings: Without a doubt. In a modern society, regular and reliable energy supply is vital for functioning. The Reserve Bank has highlighted that Eskom’s challenges alone are costing us 2% of GDP, but I believe the impact goes beyond that in terms of missed opportunities. Think about the number of decisions that are put on hold or not made at all. Consider the potential foreign investments that are redirected to other countries. The costs incurred by South Africa due to this energy crisis are substantial. When discussing economic updates or meeting with investors and foreign individuals, the topic of electricity dominates the conversation. I recently met with people from Washington, and their initial focus was on understanding the electricity situation. It left little time for other important discussions, and I sensed their uncertainty about the path forward. Even when explaining load shedding to international audiences, it’s a challenging conversation. We cannot move forward effectively without resolving the electricity issue.

Read more: Heystek: What needs to happen for me to change my mind about investing in SA

Alec Hogg: It’s truly unimaginable for many people that we have specific times of the day when there’s no electricity and we have to make our own arrangements. The private sector seems to be stepping up to address this issue, as we’ll discuss shortly. Kevin, I’d like to begin by sharing some of the images you’ve provided. Let’s start with load shedding, the significant story here. You mentioned that stage four or higher load shedding has only been a reality for the past five years. Why did you choose to focus on Stage Four as the cutoff point in your data?

Kevin Lings: The reason we focus on stage four is that it’s at that point where the impact on the economy becomes substantial. At lower stages, such as stage one or stage two, we found that there wasn’t a clear and measurable change in people’s behaviour or business activities. People were able to adjust and accommodate the lower levels of load shedding. While there was some negative impact, it wasn’t easily identifiable in the economic data, and it didn’t affect all sectors equally. It was something that could have been managed for a longer period of time. However, once we reached stage four, the dynamics changed. Alternative plans had to be made, such as closing businesses during load shedding hours or investing in additional power sources like diesel or renewable energy. Businesses had to restructure their operations to accommodate the situation, and customer behaviour also changed as people made decisions to avoid traffic or alter their shopping habits. Stage four load shedding marked a significant shift in how the economy interacted with the power cuts. There’s no doubt that the intensity of stage four load shedding has increased over time, as seen by the abundance of orange dots on the graph from around September. This has had a devastating impact, particularly since October of last year. We can observe the frequency of stage four or higher load shedding, and it’s clear that sustaining this level of power cuts for a prolonged period would have severe consequences for businesses and overall economic activity.

Alec Hogg’s notes from the interview

Alec Hogg: Indeed, according to your data, we’ve had only one day in 2023 without stage four load shedding, and that was in March. Your graph clearly illustrates this trend, and it’s remarkable to see how prevalent stage four load shedding has been since the second week of September. There have been only three days in total without stage four load shedding. The visual representation truly emphasises the severity of the situation. Now, André de Ruyter’s book, “Truth to Power,” has garnered both support and criticism. Have you had the opportunity to read it, and what are your thoughts on it?

Kevin Lings: In my view, “Truth to Power” provided a clearer insight into the dynamics within Eskom and the political management surrounding it. Even if one doesn’t fully trust all the information presented, it shed light on the complexity of the situation, the challenges of managing corruption, and the severity of the corruption itself. It was an eye-opener that made it evident that the belief in Eskom’s improvement over time was misguided. It shattered the notion that someone would come to the rescue. This realisation became a catalyst for the surge in renewable energy investment, as businesses and individuals recognised the need to take control of their own future instead of relying on miraculous fixes.

Alec Hogg: The incidents at Kusile, where four out of the planned six units were offline due to issues like a collapsed chimney, highlight the deeper concerns within Eskom. De Ruyter emphasised the importance of transitioning to renewables in his book. For those who may not understand, why is it crucial for South Africa, particularly Eskom, to address carbon emissions? Specifically, how does it relate to attracting capital to meet the long-term needs of the economy?

Kevin Lings: There are several reasons to consider. First, a significant portion of the international finance we seek comes with regulations and requirements regarding carbon emissions. To secure future finance, we need to meet these targets. Second, South Africa has a responsibility to contribute to environmental protection. Operating very old power stations without a plan to reduce emissions is not sustainable. Besides international financing, there is an inherent obligation to mothball these outdated stations and be more environmentally conscious. Third, diversification of our power sources is crucial in today’s world. Over-reliance on a single power source is not a sound strategy, as we have experienced. Diversifying into various options, including renewables and nuclear, makes sense. While it’s not feasible to completely close down coal at this stage, we aim to mothball older coal-fired power stations, reduce average emissions, and diversify our energy mix. Renewable energy has become more affordable and viable, and we should continue to leverage it. Ultimately, a hybrid of different power sources will be the desirable outcome for South Africa.

Read more: Frans Cronje: Load-shedding fixed in 12 months – even with embedded corruption, incompetence

Alec Hogg: Indeed, the success of renewables cannot be denied. Thankfully, renewable energy has been integrated into the system. As you mentioned, more than four and a half thousand megawatts of new power generation projects have been registered since 2018. It’s interesting to note that the majority of these projects are concentrated in a less affluent province in the north.

Kevin Lings: Yes, solar energy has been the primary focus, surpassing wind energy, which is understandable given South Africa’s climate. The momentum in this space is continuing to grow. I recently updated the data for the end of June, and there has been another significant increase in the number of registered projects and the invested megawatts. The private sector has wholeheartedly embraced this initiative, and this excludes the household sector, for which we lack accurate estimates. Over a period of 24 to 36 months, I believe the impact on South Africa’s energy mix will be substantial, and that’s something we should welcome. The overarching message here is that when you deregulate and allow the private sector to participate, they respond emphatically. This response will continue, and the private sector will seize opportunities in other sectors if given the chance.

Alec Hogg: Allow me to share a personal experience. When my family recently moved and purchased a new home, our first priority was ensuring uninterrupted power supply due to my work. I interviewed the CEO of GoSolr, a private sector company specialising in residential installations. I was highly impressed with their efficiency, and within a few weeks, we had a solar installation with 14 panels on our roof. I asked the CEO about their projections, and he estimated that their company alone would install around 500 megawatts within the next couple of years. That’s equivalent to half the level of load shedding. So your point about the private sector’s involvement is indeed relevant and significant.

Kevin Lings: Absolutely, and there are additional benefits as well. The industry is creating business opportunities and expanding the skills base. Many companies that were previously struggling in different sectors have shifted their focus to solar installations and are now thriving. Small businesses in this field have experienced a revival, with some of them undertaking substantial projects. This industry is not just a passing fad; it has a long-term basis. Technological advancements are inevitable, and as the sector evolves, it will inspire further investment. Overall, this is a positive industry for South Africa. Ideally, we should aim to manufacture more of the equipment ourselves, as currently we import a significant portion. While there are a few operational solar plants in South Africa that manufacture solar panels, there’s a vast opportunity for expansion and potential for an export market. This success story showcases how quickly the industry responded once deregulation occurred. It has been truly phenomenal.

Alec Hogg: It once again highlights the strength of our private sector. Sometimes, government simply needs to step aside and let it flourish. Solar power has been the main focus in South Africa, and there’s certainly potential in wind energy as well, as recent weather experiences have shown. But what about batteries, Kevin? Isn’t that the key solution for when the wind isn’t blowing and the sun isn’t shining?

Kevin Lings: Absolutely, Alec. Initially, batteries were not the primary focus. The emphasis was on generating power and installing these plants to make a difference. Solar and wind investments in the country have been largely successful over the years. However, the issue of intermittency became apparent. We can’t rely solely on sunshine or wind all the time. That’s where battery storage comes into play. Now, the focus has shifted to storage solutions. The good news is that the cost of storage has significantly decreased, and technological advancements have made it a viable option for South Africa. I anticipate more projects in this area, as storage can make a substantial difference by preventing wastage of generated power. Over the next few years, I expect to see increased efforts in implementing storage to have a real impact on the base load.

Alec Hogg: In your recent graphs shared with clients, you mentioned the energy availability factor, which is currently well below the desired level and continues to decline. Is there any hope for improvement on this front? During my interview with Jan Oberholzer, the former Chief Operating Officer, he mentioned some benefits from the maintenance work done over the past three years since Dlodlo and Oberholzer took charge at Eskom.

Kevin Lings: Indeed, assessing Eskom becomes quite simple when you look at the percentage of their installed capacity that is operational. Ideally, we don’t want this to fall below 70%. Most places set their target around 75%, and even the Minister and Eskom’s board set their goals at 75% and 70%, respectively. But in the end, the exact target may not matter as much as the fact that the energy availability factor has significantly declined. Earlier this year, we reached a low of 50%, which is alarming. When you consider that Eskom has a supposed installed capacity of 47,000 megawatts, operating at only 50% is a major setback.

Read more: Ex-Eskom COO Oberholzer’s inside story on loadshedding, transformation, CR’s plan

Alec Hogg: Kevin, could you explain what that means exactly? When we say it’s 50% of the nameplate production, what does that imply? If Eskom has an installed capacity of 47,000 megawatts, they’re only producing half of that.

Kevin Lings: Exactly, Alec. The energy availability factor is a measure of what percentage of the installed capacity Eskom is actually producing. It represents the output that should be achieved under ideal conditions. When this percentage decreases, regardless of the season, load shedding becomes a significant issue. Even during winter or summer, if the energy availability factor drops to 50%, significant load shedding is unavoidable. South Africa experienced a drastic decline in the energy availability factor towards the end of last year and the beginning of this year, where it fell by 10%. Although it may seem like a small percentage, in South African terms, it had a massive impact, causing economic distress. Reaching the 50% level poses significant challenges. Fortunately, there has been some recent improvement, and we’re currently dealing with an energy availability factor of around 58%, which is a slight improvement, though still far from desirable. Once the factor exceeds 60%, preferably 65%, intermittent load shedding becomes a possibility. On many days, load shedding might not occur at all. This serves as a benchmark to measure the progress made by Eskom. The recent improvement can be attributed to a key factor: fewer breakdowns. Maintenance efforts, performed at an elevated level for an extended period, seem to be yielding better outcomes. It’s possible that the reduction in deliberate sabotage has contributed to this improvement, although we lack sufficient insight to confirm this. Over the past six weeks, we’ve observed a positive trend, resulting in fewer load shedding incidents at stage 3 or lower, even some stage 1. It feels sustainable at the moment. However, two potential challenges lie ahead. First, if something breaks, load shedding could quickly increase again. Second, planned maintenance at Eskom is not particularly high at the moment, which is typical during winter. If Eskom increases maintenance levels in the coming months, intentionally taking units offline, the energy availability factor will decline. Therefore, we shouldn’t assume that we’re entirely out of the woods. There are risks associated with this number. However, Alec, let’s remain cautiously optimistic. If we can maintain the energy availability factor at around 58% and avoid significant breakdowns, coupled with the successful restoration of Kusile units by the end of this year and Medupi unit four by the middle of next year, we could surpass the 60% threshold. Although intermittent load shedding would still occur, it would mean that those yellow dots representing load shedding incidents would not appear every day.

Alec Hogg: Mm-hmm.

Kevin Lings: Indeed, intermittent load shedding is a step in the right direction, and even the instances of load shedding would be reduced. That’s the outlook and hope for next year. However, for a load shedding-free environment, we would need to wait until 2025, assuming our economy grows at a modest rate of 1 to 2 percent. But if we aim for higher economic growth, such as 3 percent, 4 percent, or 5 percent, our current electricity capacity falls significantly short. This leads us to the next phase of investment, where we must address how to improve overall capacity. Currently, our focus is on mitigating load shedding through maintenance and renewable energy projects to sustain 1 to 2 percent economic growth. That’s the extent of our current efforts. The next stage involves contemplating how we can achieve the required growth rate of 4 percent and the corresponding electricity demand that accompanies it. This would necessitate substantial investments in transmission capability and power generation. While I’m slightly more optimistic about intermittent load shedding next year, I haven’t seen any concrete plans that instil confidence in completely eliminating power outages to facilitate faster economic growth of 3 to 4 percent. That’s yet to materialise. Without achieving this level of growth, our economy will still feel stagnant. So there’s a long journey ahead. There’s no quick fix to this, but hopefully, we can restore the Kusile and Medupi units and achieve intermittent load shedding.

Alec Hogg: Kevin Lings, Chief Economist at Stanlib. Just to offer a bit of a reality check, Jan Oberholtzer suggests that one significant reason for the improved load shedding situation of late is the utilisation of diesel power. During his tenure as COO, the budget allocated for diesel was around R6bn a year. In the last three months alone Eskom has spent R9bn on diesel. This puts things into perspective.

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