SA electricity likely to remain under pressure until mid-2020s - Moody's

South Africa's electricity system is currently under extreme pressure and the reserve margin is likely to remain tight until at least the mid-2020s, Moody's Investors Service said in a research report published on Tuesday.

Moody's expects SA will remain dependent on Eskom - which it rates as B2 negative - for the foreseeable future, although its importance could gradually diminish.

"Further growth in renewables, embedded generation and new capacity in gas from the mid-2020s, could ease system pressure," Moody's said in a statement.

Longer-term improvements will depend on the evolution of energy demand as well as the pace of further growth in renewables, embedded generation and new gas capacity, according to Helen Francis, a Moody's vice president - senior credit officer and co-author of the report.

Eskom's generation assets - 88% of installed capacity - will be essential to meeting SA's power needs in the medium-term, even in the event of a sector restructuring, she added.

In the view of Francis, this provides a strong incentive for the SA government to help improve Eskom's very weak financial position.

The report points out that, historically, SA has operated with a tight reserve margin and current low plant availability and coal shortages at Eskom are leading to intermittent interruptions to supply.

"Eskom is addressing these challenges, but given the historic lack of investment, the situation is likely to improve only gradually," states the report.

"Generally, the evolution of electricity demand, which lags gross domestic product (GDP) growth, will play a key role. The requirement for new capacity will maintain pressure on costs for consumers, who already struggle to absorb tariff increases."

The report points out that electricity demand has fallen modestly in recent years. According to Eskom's statistics, distributed electricity has declined by 4% over the decade to March 2018, to 235.4 TWh.

"Muted demand reflects overall economic conditions, but growth may also have been constrained by demand side management and load shedding measures instigated by Eskom in recent years," according to the report.

"These measures stimulated large industrial users, in particular, to seek ways to become more energy efficient and these efforts are likely to continue. There has also been an increase in liquefied petroleum gas for heating and cooking."

electricity

(Source: Moody's)

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