Eskom load-shedding miracle

South Africa has not experienced load-shedding since the end of March 2024, the longest period without any power cuts in five years. 

This has provided significant relief to businesses and households but is not expected to be enough to lift the South African economy out of its slumber. 

The Reserve Bank explained in its most recent Financial Stability Review that the deterioration in critical infrastructure such as roads, railways, and water offsets the improvement seen in the electricity sector. 

South Africa experienced record levels of load-shedding in 2023, with almost 25,000 gigawatt hours (GWh) shed over a total of 287 days. 

This has improved significantly in 2024. At the start of the year, South Africa experienced 69 days of load-shedding, with just over 4,100 GWh shed. However, the rest of the year has been load-shedding-free.

One of the main reasons for the improvement is the higher electricity availability factor (EAF), which rose from just over 51% in January 2024 to over 63.6% in November 2024. 

A key contributing factor to the increase in the EAF is a reduction in the demand for Eskom-supplied electricity as alternative energy sources increase, the Reserve Bank said. 

However, the performance of Eskom’s own coal-fired power plants has also greatly improved in 2024 as the utility’s Generation Recovery Plan bears fruit. 

Eskom has completely turned its performance around, with the utility even producing too much power at some stages throughout the year. 

This is a stark difference from the same time last year when South Africa was subjected to daily power cuts and extensive periods of stage 6 load-shedding. 

Energy analyst Chris Yelland, managing director of EE Business Intelligence, said this sustained improvement is nothing short of exceptional. 

He said the utility had improved markedly across all metrics, with its EAF improving while its unplanned breakdowns declined and planned maintenance levels were maintained. 

Many South Africans were sceptical about Eskom’s improved performance in the buildup to the country’s national elections, fearing the utility was staving off load-shedding to bolster the ANC’s declining support. 

This data, however, shows that Eskom’s improvements are not an election ploy, Yelland said. 

The improvement can be seen in the graph below, with the days of load-shedding in 2024 remaining flat since the end of March.

Eskom’s miracle has been so profound that rating agencies have noticed it, with investors becoming increasingly confident that the utility is on the right track. 

The premium on Eskom’s dollar bonds with government guarantees compared with those without has narrowed to its lowest level since the securities began trading in 2018, Bloomberg reported. 

The narrowing of the premium reflects optimism that South Africa’s improved fiscal trajectory will support Eskom’s ability to meet its obligations even on bonds lacking government guarantees. 

S&P Global raised the sovereign’s outlook to positive earlier this month, a move that also lifted Eskom’s government-related entity assessment.

The agency upgraded Eskom’s long-term global scale foreign and local currency ratings to positive from stable, affirming the utility’s ‘B’ issue rating on senior unsecured debt and the ‘BB-’ foreign currency issue rating on government-guaranteed debt. 

S&P listed South Africa’s debt relief package — announced in July last year —  as a critical factor supporting Eskom’s improved outlook. 

However, this improved performance has been accompanied by skyrocketing municipal debt owed to Eskom, which is standing at over R90 billion. 

In 2018, debt owed to Eskom stood at a mere R13.6 billion. In the first five months of its financial year alone, R11 billion has been added to the bill, CFO Calib Cassim said recently. 

He said the debt burden is growing by an average of nearly R2 billion a month and is expected to grow by R20 billion each financial year. 

If this continues, it will result in debt owed to Eskom reaching R100 billion by March 2025 and R130 billion by March 2026. By the 2028 financial year, Eskom will be owed R200 billion by municipalities. 

“If the growth of municipal debt is not addressed, the R254 billion debt relief from the government will effectively be null and void,” Cassim said. 

“This does not help Eskom’s financial sustainability going forward. After this debt relief plan, we do not want to rely on the fiscus anymore.” 

This article was first published by Daily Investor and is reproduced with permission.