Why companies keep dumping Eskom

South African companies continue to reduce their reliance on Eskom despite the utility going over 130 days without implementing load-shedding. 

The main reason for this has been the unstable electricity supply in South Africa. However, with this problem seemingly solved, companies are searching for alternatives to Eskom to avoid skyrocketing electricity prices. 

Electricity prices in South Africa have experienced repeated above-inflation increases, with tariffs rising four times the inflation rate since 2008. 

In other words, South Africans are paying nearly 500% more for electricity now than in 2008. 

To avoid the effects of these increases, many businesses are trying to mitigate tariff hikes by using alternative energy options, particularly when it comes to rooftop solar, the head of commercial at SolarAfrica, Brandon Horn, said.

While solar does provide a cheaper power alternative, buying a full system in cash comes at a hefty cost and requires long-term maintenance and insurance that falls on the business owner’s shoulders. 

Renewable energy companies have tackled this problem and made solar more accessible by offering financed solutions. 

However, for businesses, on-site solar is not enough, meaning they are unable to be completely shielded from Eskom and the associated price increases. 

This results in wheeling being the only long-term solution for businesses trying to go completely off-grid and avoid above-inflation electricity price hikes. 

Wheeling allows businesses to buy electricity directly from Independent Power Producers (IPPs). 

The IPPs generate this power through utility-scale solar, wind, or hydro projects, making it available through the national grid. A business that generates wheeled energy has this amount credited against its utility bill – essentially lowering the owed amount.

A major benefit of using wheeled energy for businesses is substantial cost savings, with wheeling tariffs being up to 50% cheaper than utility power. 

According to SolarAfrica’s calculations, a day-time business that operates over an 8-hour period can replace 70% to 90% of its utility power consumption with wheeled electricity. 

A 24-hour electricity user with a bill of roughly R190 million a year could typically see savings between R40 million and R55 million in the first year, depending on their contract length.

South African companies reducing their usage of electricity from Eskom will place immense financial pressure on the utility, which is sitting with over R400 billion in debt. 

Partner and renewable energy expert at BDO, Nato Oosthuizen, said this may result in Eskom entering a death spiral with declining revenue and increased operational costs from an ageing fleet. 

Oosthuizen said businesses and households are pumping billions of rands into alternative energy sources. 

While this has historically been driven by the need to mitigate the effects of load-shedding, it is now more a case of cost-cutting. 

Businesses have been slowly increasing their investments in utility-scale renewable energy projects, particularly solar and wind, which are starting to pay dividends in terms of savings and stable supply. 

As the private sector continues to cut its reliance on Eskom, the utility’s revenue will take a hit from reduced sales. 

In particular, as some of Eskom’s biggest clients in the form of mines and large industrial users bring large renewable projects online, the utility’s revenue will decline. 

Oosthuizen explained that as the country starts to feel the impact of this progression, a decline in Eskom’s revenue will become increasingly evident, and the trend may accelerate. 

This could spell even tougher financial times ahead for the utility, and some difficult decisions may need to be considered, such as business restructuring and perhaps even retrenchments, he said. 

This has led some, including former Eskom CEO Matshela Koko, to say that the utility is in a death spiral as many of its best-paying customers turn to alternative energy solutions.

The move to small-scale renewable energy leaves Eskom with a higher percentage of non-paying customers.

To make up for the lost revenue, Eskom is implementing very high electricity price increases. This, in turn, drives more paying customers to install solar PV to save costs.

This downward spiral is accelerating, especially with South African businesses and households looking to mitigate load-shedding.

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