While load shedding has long been the clearest evidence that South Africa is in the midst of an energy crisis, there is more to that crisis than just uncertainty of electricity supply, warns financial services company FNB.
The recent significant increases in the oil price, which filtered down to consumers and businesses in the form of fuel price hikes, is another example of the broader energy crisis facing not just South Africa but much of the world.
According to Malusi Mthuli, FNB’s commercial property finance head for KZN, the effects of this energy crisis are also not only being felt by households. Businesses, industries and entire economic sectors in South Africa are coming under increasing pressure as a result of electricity insecurity and stellar increases in fuel costs.
And the country’s property sector is certainly not immune to these pressures.
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“While the link between energy and property may not be immediately apparent to most people, it is actually very significant,” said Mthuli, “and the impact of construction downtime due to power outages, sharp spikes in material costs due to fuel price hikes, and growing demand by buyers and tenants for buildings with enhanced energy security, has been felt across the sectors, most notably by developers, construction firms and landlords.”
He said that the challenges are unlikely to end anytime soon, given that energy initiatives often take a long time to implement and are also very costly.
Eskom began cutting 6,000 megawatts from the national grid over the weekend – to prevent the collapse of the national grid – and its executives warned there was a risk the situation could deteriorate further, Bloomberg reported.
“The situation will almost definitely get worse,” with no immediate signs of substantial new capacity being added to the grid, said Hilton Trollip, an energy research consultant at the University of Cape Town.
The latest power cuts have “come at the worst possible time” as financing conditions are tightening significantly across the globe, economists at Rand Merchant Bank said in a note to clients.
The power cuts contributed to the economy’s 0.7% contraction in the second quarter. BNP Paribas analysts estimate that it would cost the South African economy R5.1 billion a day should the situation worsen to the point where 8,000 megawatts of capacity were removed from the grid.
Ongoing outages could affect water and sanitation services because pump stations may not be able to operate properly, according to the municipality of Cape Town. While permanent generators have been installed at all wastewater treatment plants, there is limited availability for mobile plants, and some sites could overflow if outages last more than a couple of hours, it said.
Joburg Water issued a warning to residents on Tuesday, saying that load shedding left many of its stations “isolated”, which could result in low water pressure in parts of the city. Extended periods of load shedding also resulted in damage to infrastructure, it said.
Eskom said it aims to buy about 1,000 megawatts of electricity from companies with spare generation capacity, privately owned plants and neighbouring countries starting from this week. Additional maintenance will be funded through cost savings and cash from operations, it said in an emailed reply to questions to Bloomberg.
Eskom CEO, Andre de Ruyter said reserve generation capacity levels are “too low for comfort”.
“The system has been under pressure over the past week. This has caused us to run our reserves… very hard. We are at a situation where we need to urgently replenish those reserves in order to maintain an adequate safety buffer, as we are required to do by the grid code.”
De Ruyter said the company’s ability to buy diesel for the OCGTs is “an issue”, with R7.7 billion already used to buy the fuel since April.
Just as the country buckles under the latest round of load shedding, Eskom has also applied to Nersa to hike prices by 32% in 2023, taking the total hike it seeks to 38%, after court-ordered revenue and other backlogs are taken into account.
Public hearings by the National Energy Regulator of SA (Nersa) on Eskom’s tariff application are being heard this week. The tariffs are for the 2023/2024 and 2024/2025 financial years
Nersa approved a 9.6% increase for 2022/2023, far less than Eskom had asked for. Eskom is asking the regulator to approve a 32% hike in 2023 and 9% in 2024.
Civil action group Outa said that the request was outrageous given that the power utility is unable to provide a consistent energy supply. It said that ideally, the increase would be capped at the consumer price index (CPI) for the year.
Nersa’s representatives also baulked at the request, saying that end-users should not have to pay for Eskom’s inefficiencies.
Eskom has long argued that its current tariffs do not reflect the true cost of producing electricity and that energy users have been getting power for cheap for a long time. It recently submitted a proposal to completely overhaul its tariff structure to better reflect these costs.
Read: Why you will probably have to pay 38% more for Eskom power next year