The South African Reserve Bank (SARB) has acknowledged that energy reforms could bring some relief to the country’s power constraints and ease its economic burden – albeit not until 2024 or later.

2023: A Year of Unprecedented Load Shedding

In an economic analysis titled ‘Reflections on load shedding and potential GDP‘ by economists Theo Janse van Rensburg and Kgotso Morema, the SARB has stated that the relentless rolling blackouts have stunted the potential GDP growth for 2023. The risks linked to these outages are projected to remain substantial till at least 2024.

The frequency and intensity of load shedding reached an all-time high in 2023. By mid-February, the cumulative total of blackouts had already surpassed the combined totals of 2019 and 2020. SARB stated, “In our view, the risk of rolling power outages will remain high in 2023 and into the early part of 2024 as a result of the unreliability of existing power capacity, alleged sabotage, corruption and other factors.”

Load shedding’s severe implications for production and overall confidence in the economy cannot be overstated. The SARB warns that with expected load-shedding worsening in 2023, potential growth is projected to hover close to a dismal 0.0% this year, a stark contrast to the previously steady 2.5%.

Eskom’s Power Generation Dilemma

The significant decline in Eskom’s crucial power generation capacity units has sparked worries about the longevity of load shedding. The SARB further commented, “Furthermore, prolonged load-shedding will likely continue as Eskom embarks on a major repair, new capital investment projects and maintenance projects that are only expected to be completed over the next 12 to 18 months.”

To bring aging coal power stations back online, Eskom must embark on and complete several significant repair and maintenance projects. Eskom has stated that these projects and breakdowns will result in a loss of at least 4,500 MW of generation capacity – equivalent to stage 5 load-shedding. This reinforces the SARB’s opinion that Eskom’s generation capacity will remain constrained for some time while repairs are in progress.

A Positive Note: Eskom’s Green Light on Environmental Regulations

Interestingly, Eskom recently received exemptions from environmental regulations, allowing it to reactivate Kusile units faster. These units are expected to come back online near the end of the year.

Hope on the Horizon: 2024

SARB believes that the execution of key structural reforms offers the best chance to mitigate South Africa’s energy constraints. “President Cyril Ramaphosa announced an ‘energy action plan’ in July 2022 that contains several interventions aimed at tackling the country’s current electricity crisis.”

The action plan aims to:

• Rehabilitate Eskom and enhance the availability of the existing electricity supply
• Facilitate and expedite private investment in generation capacity
• Speed up the procurement of new capacity from renewables, gas, and battery storage
• Encourage businesses and households to invest in rooftop solar
• Revolutionize the electricity sector.

These reform measures are covered by Operation Vulindlela, which shows promising progress in implementing structural reforms.

SARB remarked, “If they are fully and efficiently implemented, these reforms could significantly boost both actual and potential GDP growth, which presents an upside risk to the SARB’s forecast.”

However, the bank warned that it would take some time to reverse the damage caused by the structural and productivity impediments. Therefore, these reforms’ positive impact will likely incrementally boost potential growth.

The Promise of a Brighter Future

Talks of a future South Africa with decreased load shedding align with the minister of electricity, Kgosientsho Ramokgopa’s statement that Eskom is making significant improvements. He optimistically stated, “What is encouraging for me is that we are beginning to maintain that previously the oscillation (between sufficient power and none) was too extreme; now it is steady.”