South Africa’s solar boom bleeds Eskom

South Africa’s near fourfold increase in rooftop solar power generation capacity over the past year has burnt a large hole in the pockets of Eskom and municipalities that distribute electricity.

Recent data by Eskom suggests that from March 2022 until the first quarter of 2023, the amount of electricity generated by Small-scale Embedded Generation (SSEGs) in the form of solar panels has risen 350%.

This massive effort to escape load shedding in South Africa has cost Eskom and municipalities dearly, with some experts noting the utility will fall into privatisation whether it likes it or not.

In response to a parliamentary Q&A, the public enterprises minister Pravin Gordhan said the surge in the installation of solar panels on houses and business premises, a result of recurrent power outages, has cut Eskom’s sales by 2.3% and cost, for example, the Buffalo City Metropolitan Municipality R350 million in revenue.

By the end of August, solar panels capable of generating 4,481 megawatts had been installed, 2,500 megawatts more than last year, he added, citing a measure that excludes solar panels that form part of commercial plants built by private companies to supply the national grid.

“This increase in reliance on renewable energy is a welcome development for the environment but poses a significant challenge to municipalities, which derive the majority of their income from electricity sales,” said Gordhan.

He noted that the uptake for embedded generators, including small-scale systems like rooftop photo voltaic (PV) systems, has been driven largely by customers seeking alternative energy sources due to load shedding, followed by those wanting to buffer against the upward annual electricity tariff trends, and those that are pursuing greener options aligned with climate change objectives.

This solar boom translates into an erosion of 2.3% (4.5TWh) of Eskom’s sales base and 1% or R3.3 billion in its revenue margins (i.e. retail revenue less wholesale purchases) over the period, Gordhan said.

Renowned economist Dawie Roodt said this is a “back-door kind of privatisation”, with Eskom privatising its distribution network and partially privatising its generation fleet.

However, Roodt added that this is not privatisation as policy but rather the state simply collapsing with the private sector merely taking over state functions.

The privatisation process will continue, but he added that it will take 18 to 24 months before significant changes will be seen.

The data from RMB Morgan Stanley supports Roodt’s argument, showing that the private sector, through renewables, will generate more electricity than Eskom by 2025.

In the long term, electricity generation will be private, with Eskom merely distributing electricity with the utility being relegated to buying electricity from other entities and selling it on.

Read: Eskom’s big money hole