Rising electricity costs and the perfect storm?
As per the South African Reserve Bank releasing figures in October of 2020, the price of electricity increased by 177% in the past 10 years, vs the headline consumer price index which increased by 68%. R 500 electricity in 2010 will now cost R 1 385…now imagine the next 10 years! However, that is not the most concerning factor to consider.
At the Mining Indaba in Feb 2020, the Minister of Minerals stated that the South African Government is now allowing mining operations to start generating their own power, without the need for an energy license. Coupled with this, it was announced in October 2020 that SA’s most populous and economically prosperous cities, namely Cape Town and Johannesburg, will be switching away from Eskom and moving to solar and potentially bio-gas soon. As per a TechCentral article entitled, Cape Town, Jo’burg to switch to solar as Eskom monopoly ends, the article states that Cape Town “could start seeing greater diversification of our energy resources as a city in about three to five years.”
I also recently heard that a major corporation is making the switch to go off the grid, which is awesome for them. However, they represent 75% of the power purchase from the local municipality. Now imagine what happens to the finances of that local municipality when potentially 75% of their power income vanishes overnight. That is right, it has a knock-on effect for Eskom, that too has reduced revenue now coming in. Let us not forget that Eskom has massive debt of close to R500 Billion that needs to be serviced.
So, is there a massive perfect storm on the rise?
With more and more companies, municipalities, mines, agriculture, and your homeowners all moving away from Eskom, either via total PV hybrid systems or grid-tie systems, the overall demand for Eskom will reduce and so too its revenue streams. When demand drops and a competitor pricing model (solar) is established as far cheaper, will Eskom then have to drop their pricing, putting more pressure on their revenue and ultimate ability to service their debt? What happens if Eskom cannot service its debt, they fail as an entity and we have total grid collapse?
What happens is those that moved away from Eskom in time will still be able to survive and ultimately thrive, while the rest, who are grid dependent, will see their livelihoods die.
So, are rising electricity costs the real worry? Or is it the sudden move away from Eskom into renewables and its potentially calamitous knock-on effect on the rest of the economy should Eskom wobble wobble more and more…
Interesting times indeed ahead.