Analysis | Why Blackouts Are Still Crippling South Africa



Comment

South Africa has been crippled by rolling blackouts since 2008 because its state-run, dilapidated power plants couldn’t keep pace with demand. Eskom Holdings SOC Ltd., the country’s near-monopoly electricity supplier, has been central to the meltdown, with a legacy of poor management and financial losses leading to a series of bailouts. Outages have hit record levels in 2022, and the government is turning to private power producers to help resolve the crisis. 

1. What caused the blackouts? 

South Africa was producing more electricity than it needed when White-minority rule ended in 1994, but the government didn’t foresee how sharply demand would surge as the economy expanded and previously neglected areas were connected to the grid. Eskom invested in several multibillion-dollar plants after the authorities awoke to the severity of the problem in the mid-2000s, but the projects came too late and took too long to build. The Medupi and Kusile coal-fired plants, two of the world’s biggest, were supposed to come on line in 2015, but ran way behind schedule and over budget. Eskom’s other plants are on average more than four decades old. The shortages are a huge risk to smelters, mines and other energy-intensive businesses.

2. Why can’t Eskom fix the problem?

Eskom, which supplies more than 90% of the nation’s electricity, posted five straight years of losses, and doesn’t expect to become profitable until 2026 at the earliest. A shortage of funds forced it to cut back on maintenance and repairs, and it lacks key technical skills needed to do the work. Plant breakdowns are commonplace. Power stations that generate roughly a fifth of the utility’s output are due to be retired over the next decade and it can’t afford to replace them. With independent energy producers bringing more projects online, Eskom is facing more competition. The utility is the biggest producer of South Africa’s greenhouse gases and is also facing pressure to reduce its emissions.

3. What role will private producers play?

To ease supply shortages, the government said in July 2022 that it will scrap licensing requirements for companies wanting to build their own power plants and allow them to sell their surplus output to the grid. It’s also stepping up purchases of electricity from independent producers including mines, factories and shopping malls, cutting red tape that has stalled new projects and increasing imports of surplus power from neighboring countries. Most of the the additional energy will come from renewable sources. 

4. How did Eskom end up in such a mess?

The utility went through repeated changes in its leadership and board of directors during the almost nine years that Jacob Zuma was South Africa’s president. A judicial commission that probed graft during his tenure found the upheaval was an orchestrated attempt by his allies to raid its coffers with his tacit consent. Zuma and his allies deny wrongdoing. Several of Eskom’s former executives and ex-board members were also implicated in the plunder.

5. Who is trying to turn it around?

Eskom’s board and management were replaced in January 2018, the month after Cyril Ramaphosa succeeded Zuma as head of the ruling party, the African National Congress. Incumbent Chief Executive Officer Andre de Ruyter has made a concerted effort to stamp out graft and recoup misappropriated funds, and several tainted executives have left. The government is splitting Eskom into separate generation, distribution and transmission businesses under a state holding company, a reorganization it says will enable each unit to manage costs more effectively and make it easier for them to raise capital. A proposal to reorganize the utility’s unsustainable debt load of about 396 billion rand ($24 billion) is expected before the end of 2022.  

More stories like this are available on bloomberg.com



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *