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Kevin Lings, Chief Economist at Stanlib, has added a number of Eskom-related information to the weekly pack of graphs he distributes to the corporate’s shoppers – and on this interview, unpacks the important thing data, slicing by way of the complexity and technical jargon that always makes it inaccessible for a lot of. Lings presents the data digestibly, permitting for a clearer understanding of the power sector’s general scenario. His conclusions level to there being hope – due to the profitable renewables programme and the large and rising position now being performed by the non-public sector, which was solely just lately allowed to enter the sector. – Alec Hogg
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Related timestamps from the interview
00:00 – Introductions
01:10 – Kevin Lings on Eskom and the influence of the electrical energy disaster on SA’s financial system
04:44 – Lings on the current frequency of load-shedding and the influence of Stage 4 and above on the financial system
08:11 – On de Ruyter’s e-book ‘Reality to Energy‘
10:52 – On the significance of shifting in the direction of renewable power
16:08 – On the position of the non-public sector in renewable power era and distribution
18:38 – The place enhancements and developments are required in renewable power era
20:55 – On the Vitality Availability index and the potential timeline of Eskom’s energy era
29:27 – Concludes
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Edited transcript of the interview
Alec Hogg: I’m a giant fan of the visible content material you present in your weekly updates. The graphs and pictures actually assist to convey complicated data in a digestible method. In your newest replace, I observed you included a big variety of graphs associated to Eskom. May you share why you determined to deal with Eskom and supply such detailed data this time?
Kevin Lings: Definitely, there’s an incredible quantity of consideration on Eskom, and I imagine that the extra data we’ve, the higher choices we are able to make, particularly in relation to investments and enterprise choices. The information surrounding Eskom is sort of in depth, nevertheless it usually will get sophisticated and is accompanied by technical jargon. This could make it difficult for folks to entry and perceive what’s actually taking place at Eskom. My intention is to offer this data in a extra accessible method by way of the graphs and hold updating it on a weekly foundation. It permits us to trace the tendencies and hopefully acquire a clearer understanding of the general scenario within the power sector.
Alec Hogg: Completely. We’ve come to understand simply how essential electrical energy is for an financial system. It was a big issue in the course of the second industrial revolution, and now we’re within the midst of the fourth industrial revolution. Dropping a dependable electrical energy provide will surely set us again considerably.
Kevin Lings: No doubt. In a contemporary society, common and dependable power provide is significant for functioning. The Reserve Financial institution has highlighted that Eskom’s challenges alone are costing us 2% of GDP, however I imagine the influence goes past that when it comes to missed alternatives. Take into consideration the variety of choices which can be placed on maintain or not made in any respect. Contemplate the potential international investments which can be redirected to different international locations. The prices incurred by South Africa because of this power disaster are substantial. When discussing financial updates or assembly with buyers and international people, the subject of electrical energy dominates the dialog. I just lately met with folks from Washington, and their preliminary focus was on understanding the electrical energy scenario. It left little time for different essential discussions, and I sensed their uncertainty concerning the path ahead. Even when explaining load shedding to worldwide audiences, it’s a difficult dialog. We can not transfer ahead successfully with out resolving the electrical energy subject.
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Alec Hogg: It’s really unimaginable for many individuals that we’ve particular instances of the day when there’s no electrical energy and we’ve to make our personal preparations. The non-public sector appears to be stepping as much as tackle this subject, as we’ll focus on shortly. Kevin, I’d like to start by sharing a number of the photographs you’ve offered. Let’s begin with load shedding, the numerous story right here. You talked about that stage 4 or larger load shedding has solely been a actuality for the previous 5 years. Why did you select to deal with Stage 4 because the cutoff level in your information?
Kevin Lings: The rationale we deal with stage 4 is that it’s at that time the place the influence on the financial system turns into substantial. At decrease levels, resembling stage one or stage two, we discovered that there wasn’t a transparent and measurable change in folks’s behaviour or enterprise actions. Folks had been capable of regulate and accommodate the decrease ranges of load shedding. Whereas there was some damaging influence, it wasn’t simply identifiable within the financial information, and it didn’t have an effect on all sectors equally. It was one thing that would have been managed for an extended time frame. Nonetheless, as soon as we reached stage 4, the dynamics modified. Various plans needed to be made, resembling closing companies throughout load shedding hours or investing in further energy sources like diesel or renewable power. Companies needed to restructure their operations to accommodate the scenario, and buyer behaviour additionally modified as folks made choices to keep away from visitors or alter their purchasing habits. Stage 4 load shedding marked a big shift in how the financial system interacted with the ability cuts. There’s little question that the depth of stage 4 load shedding has elevated over time, as seen by the abundance of orange dots on the graph from round September. This has had a devastating influence, significantly since October of final yr. We are able to observe the frequency of stage 4 or larger load shedding, and it’s clear that sustaining this stage of energy cuts for a protracted interval would have extreme penalties for companies and general financial exercise.
Alec Hogg: Certainly, in line with your information, we’ve had solely at some point in 2023 with out stage 4 load shedding, and that was in March. Your graph clearly illustrates this pattern, and it’s outstanding to see how prevalent stage 4 load shedding has been for the reason that second week of September. There have been solely three days in complete with out stage 4 load shedding. The visible illustration really emphasises the severity of the scenario. Now, André de Ruyter’s e-book, “Reality to Energy,” has garnered each assist and criticism. Have you ever had the chance to learn it, and what are your ideas on it?
Kevin Lings: In my opinion, “Reality to Energy” offered a clearer perception into the dynamics inside Eskom and the political administration surrounding it. Even when one doesn’t totally belief all the data offered, it make clear the complexity of the scenario, the challenges of managing corruption, and the severity of the corruption itself. It was an eye-opener that made it evident that the idea in Eskom’s enchancment over time was misguided. It shattered the notion that somebody would come to the rescue. This realisation turned a catalyst for the surge in renewable power funding, as companies and people recognised the necessity to take management of their very own future as an alternative of counting on miraculous fixes.
Alec Hogg: The incidents at Kusile, the place 4 out of the deliberate six models had been offline because of points like a collapsed chimney, spotlight the deeper considerations inside Eskom. De Ruyter emphasised the significance of transitioning to renewables in his e-book. For individuals who might not perceive, why is it essential for South Africa, significantly Eskom, to handle carbon emissions? Particularly, how does it relate to attracting capital to fulfill the long-term wants of the financial system?
Kevin Lings: There are a number of causes to think about. First, a good portion of the worldwide finance we search comes with rules and necessities relating to carbon emissions. To safe future finance, we have to meet these targets. Second, South Africa has a accountability to contribute to environmental safety. Working very outdated energy stations and not using a plan to cut back emissions just isn’t sustainable. In addition to worldwide financing, there may be an inherent obligation to mothball these outdated stations and be extra environmentally aware. Third, diversification of our energy sources is essential in as we speak’s world. Over-reliance on a single energy supply just isn’t a sound technique, as we’ve skilled. Diversifying into numerous choices, together with renewables and nuclear, is smart. Whereas it’s not possible to utterly shut down coal at this stage, we intention to mothball older coal-fired energy stations, cut back common emissions, and diversify our power combine. Renewable power has turn into extra inexpensive and viable, and we must always proceed to leverage it. In the end, a hybrid of various energy sources would be the fascinating consequence for South Africa.
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Alec Hogg: Certainly, the success of renewables can’t be denied. Fortunately, renewable power has been built-in into the system. As you talked about, greater than 4 and a half thousand megawatts of recent energy era initiatives have been registered since 2018. It’s fascinating to notice that almost all of those initiatives are concentrated in a much less prosperous province within the north.
Kevin Lings: Sure, photo voltaic power has been the first focus, surpassing wind power, which is comprehensible given South Africa’s local weather. The momentum on this house is continuous to develop. I just lately up to date the info for the tip of June, and there was one other vital improve within the variety of registered initiatives and the invested megawatts. The non-public sector has wholeheartedly embraced this initiative, and this excludes the family sector, for which we lack correct estimates. Over a interval of 24 to 36 months, I imagine the influence on South Africa’s power combine can be substantial, and that’s one thing we must always welcome. The overarching message right here is that whenever you decontrol and permit the non-public sector to take part, they reply emphatically. This response will proceed, and the non-public sector will seize alternatives in different sectors if given the possibility.
Alec Hogg: Enable me to share a private expertise. When my household just lately moved and bought a brand new residence, our first precedence was guaranteeing uninterrupted energy provide because of my work. I interviewed the CEO of GoSolr, a non-public sector firm specialising in residential installations. I used to be extremely impressed with their effectivity, and inside a couple of weeks, we had a photo voltaic set up with 14 panels on our roof. I requested the CEO about their projections, and he estimated that their firm alone would set up round 500 megawatts throughout the subsequent couple of years. That’s equal to half the extent of load shedding. So your level concerning the non-public sector’s involvement is certainly related and vital.
Kevin Lings: Completely, and there are further advantages as effectively. The trade is creating enterprise alternatives and increasing the talents base. Many corporations that had been beforehand struggling in several sectors have shifted their focus to photo voltaic installations and at the moment are thriving. Small companies on this subject have skilled a revival, with a few of them enterprise substantial initiatives. This trade is not only a passing fad; it has a long-term foundation. Technological developments are inevitable, and because the sector evolves, it would encourage additional funding. General, this can be a optimistic trade for South Africa. Ideally, we must always intention to fabricate extra of the gear ourselves, as at present we import a good portion. Whereas there are a couple of operational photo voltaic crops in South Africa that manufacture photo voltaic panels, there’s an unlimited alternative for growth and potential for an export market. This success story showcases how shortly the trade responded as soon as deregulation occurred. It has been really phenomenal.
Alec Hogg: It as soon as once more highlights the power of our non-public sector. Typically, authorities merely must step apart and let it flourish. Solar energy has been the primary focus in South Africa, and there’s actually potential in wind power as effectively, as current climate experiences have proven. However what about batteries, Kevin? Isn’t that the important thing answer for when the wind isn’t blowing and the solar isn’t shining?
Kevin Lings: Completely, Alec. Initially, batteries weren’t the first focus. The emphasis was on producing energy and putting in these crops to make a distinction. Photo voltaic and wind investments within the nation have been largely profitable over time. Nonetheless, the problem of intermittency turned obvious. We are able to’t rely solely on sunshine or wind on a regular basis. That’s the place battery storage comes into play. Now, the main target has shifted to storage options. The excellent news is that the price of storage has considerably decreased, and technological developments have made it a viable possibility for South Africa. I anticipate extra initiatives on this space, as storage could make a considerable distinction by stopping wastage of generated energy. Over the following few years, I count on to see elevated efforts in implementing storage to have an actual influence on the bottom load.
Alec Hogg: In your current graphs shared with shoppers, you talked about the power availability issue, which is at present effectively under the specified stage and continues to say no. Is there any hope for enchancment on this entrance? Throughout my interview with Jan Oberholzer, the previous Chief Working Officer, he talked about some advantages from the upkeep work achieved over the previous three years since Dlodlo and Oberholzer took cost at Eskom.
Kevin Lings: Certainly, assessing Eskom turns into fairly easy whenever you have a look at the share of their put in capability that’s operational. Ideally, we don’t need this to fall under 70%. Most locations set their goal round 75%, and even the Minister and Eskom’s board set their targets at 75% and 70%, respectively. However in the long run, the precise goal might not matter as a lot as the truth that the power availability issue has considerably declined. Earlier this yr, we reached a low of fifty%, which is alarming. When you think about that Eskom has a supposed put in capability of 47,000 megawatts, working at solely 50% is a significant setback.
Learn extra: Ex-Eskom COO Oberholzer’s inside story on loadshedding, transformation, CR’s plan
Alec Hogg: Kevin, might you clarify what meaning precisely? After we say it’s 50% of the nameplate manufacturing, what does that suggest? If Eskom has an put in capability of 47,000 megawatts, they’re solely producing half of that.
Kevin Lings: Precisely, Alec. The power availability issue is a measure of what share of the put in capability Eskom is definitely producing. It represents the output that ought to be achieved below excellent circumstances. When this share decreases, whatever the season, load shedding turns into a big subject. Even throughout winter or summer season, if the power availability issue drops to 50%, vital load shedding is unavoidable. South Africa skilled a drastic decline within the power availability issue in the direction of the tip of final yr and the start of this yr, the place it fell by 10%. Though it could seem to be a small share, in South African phrases, it had an enormous influence, inflicting financial misery. Reaching the 50% stage poses vital challenges. Fortuitously, there was some current enchancment, and we’re at present coping with an power availability issue of round 58%, which is a slight enchancment, although nonetheless removed from fascinating. As soon as the issue exceeds 60%, ideally 65%, intermittent load shedding turns into a risk. On many days, load shedding won’t happen in any respect. This serves as a benchmark to measure the progress made by Eskom. The current enchancment may be attributed to a key issue: fewer breakdowns. Upkeep efforts, carried out at an elevated stage for an prolonged interval, appear to be yielding higher outcomes. It’s potential that the discount in deliberate sabotage has contributed to this enchancment, though we lack enough perception to verify this. Over the previous six weeks, we’ve noticed a optimistic pattern, leading to fewer load shedding incidents at stage 3 or decrease, even some stage 1. It feels sustainable in the meanwhile. Nonetheless, two potential challenges lie forward. First, if one thing breaks, load shedding might shortly improve once more. Second, deliberate upkeep at Eskom just isn’t significantly excessive in the meanwhile, which is typical throughout winter. If Eskom will increase upkeep ranges within the coming months, deliberately taking models offline, the power availability issue will decline. Due to this fact, we shouldn’t assume that we’re fully out of the woods. There are dangers related to this quantity. Nonetheless, Alec, let’s stay cautiously optimistic. If we are able to keep the power availability issue at round 58% and keep away from vital breakdowns, coupled with the profitable restoration of Kusile models by the tip of this yr and Medupi unit 4 by the center of subsequent yr, we might surpass the 60% threshold. Though intermittent load shedding would nonetheless happen, it will imply that these yellow dots representing load shedding incidents wouldn’t seem every single day.
Alec Hogg: Mm-hmm.
Kevin Lings: Certainly, intermittent load shedding is a step in the fitting course, and even the cases of load shedding could be diminished. That’s the outlook and hope for subsequent yr. Nonetheless, for a load shedding-free atmosphere, we would want to attend till 2025, assuming our financial system grows at a modest fee of 1 to 2 p.c. But when we intention for larger financial development, resembling 3 p.c, 4 p.c, or 5 p.c, our present electrical energy capability falls considerably quick. This leads us to the following part of funding, the place we should tackle how you can enhance general capability. At the moment, our focus is on mitigating load shedding by way of upkeep and renewable power initiatives to maintain 1 to 2 p.c financial development. That’s the extent of our present efforts. The following stage entails considering how we are able to obtain the required development fee of 4 p.c and the corresponding electrical energy demand that accompanies it. This could necessitate substantial investments in transmission functionality and energy era. Whereas I’m barely extra optimistic about intermittent load shedding subsequent yr, I haven’t seen any concrete plans that instil confidence in utterly eliminating energy outages to facilitate sooner financial development of three to 4 p.c. That’s but to materialise. With out reaching this stage of development, our financial system will nonetheless really feel stagnant. So there’s an extended journey forward. There’s no fast repair to this, however hopefully, we are able to restore the Kusile and Medupi models and obtain intermittent load shedding.
Alec Hogg: Kevin Lings, Chief Economist at Stanlib. Simply to supply a little bit of a actuality examine, Jan Oberholtzer means that one vital purpose for the improved load shedding scenario of late is the utilisation of diesel energy. Throughout his tenure as COO, the funds allotted for diesel was round R6bn a yr. Within the final three months alone Eskom has spent R9bn on diesel. This places issues into perspective.
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