Power Insights: An Update

I. INTRODUCTION

Last July, Energy Group published a blog titled “Power Insights: Loadshedding, Renewable Energy Adoption and Implications for Large-Scale Energy Users”. It explored Eskom’s latest supply and demand data as well as SARS’ national trade update.

This blog aims to build on that analysis and, in doing so, offer insights regarding updated trends in loadshedding and renewable energy adoption while also considering the potential implications for large-scale energy users.

II. LOADSHEDDING

Eskom has reported that loadshedding will remain suspended due to on-going structural improvements in the reliability of the generation fleet, marking the longest period without loadshedding since the 3-month suspension between December 2021 and February 2022. While many speculated that “electioneering” was behind the lack of loadshedding, there is ample evidence to dispel these suspicions.

So, where has loadshedding gone? Is Eskom burning more diesel to keep the lights on?

In short: no. There are two primary drivers behind loadshedding improvements – and they have nothing to do with burning more diesel.

• Eskom’s enhanced Energy Availability Factor is the result of better maintenance, with outages decreasing from 22.8 GW in January 2024 to 17 GW in May 2024.
  
  

• A large build-out of behind-the-meter solar PV has led to a reduction in demand – particularly at midday, when the sun shines. The increased uptake of behind-the-meter solar PV may look like diminishing demand however, once the sun sets and batteries deplete, observed demand mirrors that of trends in 2023 (see iii. “Rate of renewable energy adoption”)
  
  

Some of the impacts of these two drivers has been:

• The increased use of pumped hydro storage at peak times and reduced usage during the midday period.
  
  

• Less diesel burnt: Even in periods with no loadshedding, Eskom is burning less diesel. Therefore, the view that the sudden end of loadshedding is only due to high gas turbine plant use is not true.
  
  

Other factors worth considering when assessing whether loadshedding will return include:

• Lower nuclear and hydro generation: Koeberg 2 is forecasted to come online later in 2024 / early 2025 and it has been a particularly dry year for hydro generators.
  
  

• Increased coal-fired capacity: In addition, Kusile Unit 5 has started operations with Unit 6 planned for later this year. These should add 1600MW of capacity to our available generation fleet.

III. RATE OF RENEWABLE ENERGY ADOPTION

In 2023, the uptake of rooftop solar PV in South Africa skyrocketed with a 349% increase in capacity. Much of this new capacity was installed ‘behind-the-meter’. So, what is renewable energy installation in 2024 looking like?

[Sidenote: We consider two groups of solar PV, ‘behind-the-meter’ and wheeled. Behind-the-meter is installed at the point of consumption while wheeled generation pushes energy onto the Eskom network to be used elsewhere. The amount of wheeled capacity is easier to track as this capacity must be registered with the System Operator, while behind-the-meter is more difficult to track]

• Of the solar PV capacity that was installed last year, almost all was behind-the-meter. Eskom’s view is that the behind-the-meter installation has slowed down in 2024 with 587 MW installed in the first half of 2024 compared to 1837 MW in the same period the previous year.

• Wheeled renewable energy generation capacity remains relatively flat with installed capacity constant at ~3.5GW.
  
  

• Despite soaring behind-the-meter solar PV installations in 2023, the momentum driving solar PV build-out has not been sustained to the same degree in 2024. This is not to say new capacity is not being installed. To date, 2024 has seen an estimated 880MW (or R2.2bn) of PV modules being imported into the country.
  
  

• The 2023 solar PV boom was paralleled by a lithium-ion (Li-ion) battery boom. The primary motivation behind the adoption of behind-the-meter solar PV was to protect against loadshedding. Therefore, solar and battery installations are commonly paired.
• Historically, solar PV and battery installations matched the levels of loadshedding; high loadshedding = high new solar PV + battery installations. We are now seeing sustained solar PV and battery installations without loadshedding. This suggests that cost reduction is increasingly driving new solar PV rather than the desire to avoid loadshedding.
  
  

• Wind generation equipment imports are showing steady improvement in spite of the lack of wind projects in REIPPP Round 6 and REIPPP Round 7. Wind generation capacity build-out is therefore expected to remain steady as more wind projects reach Financial Close and as private off-takers start to become a more significant part of the market.
  
  

• Although 2023 saw a solar PV boom, there is a large amount of new energy capacity coming online in the form of battery and wind too. This started in 2023 and is continuing through Q2 2024. What is important is that the generation profile of these new renewable assets is starting to impact the overall energy market by changing the residual demand profile.

IV. IMPLICATIONS

In light of the trends outlined above, corporate buyers of renewable energy should be considering the following:

• The three Cs: Curtailment | Carbon emissions | Cost
  • What is the relative importance of these considerations in renewable energy procurement decision-making? Are you looking to maximise savings? Or penetration rate? Or energy security?
  • And to what extent are current trends in each likely to be sustained, accelerated or reversed?

• Technology and mix:
  • What is the optimal technology mix (solar PV, BESS, wind, other) given your business’s electrical demand profile and desired renewable energy penetration rate?
  • Given pricing trends as well as relative installation rates, what is the right balance to strike between long and short-term contracting models? And between contracting on a bilateral vs. on a portfolio/aggregator basis?
• Avoided cost scenarios and sensitivity analysis:
  • What are robust assumptions to make in terms of future Eskom price increases in absolute terms and relative to inflation?
  • What can be expected in the future in terms of changes to tariff structure and how quickly? And in terms of fixed vs. variable cost components, adjustments to time-of-use bands as well as net-billing and wheeling tariffs changes?
  • How sensitive is the business case for individual projects or potential procurement decisions to changes in the above? And under what set of assumptions would projects that look attractive today be out-of-the-money in the future?

V. FINAL THOUGHTS

In conclusion, our interpretation of the latest publicly-available data is that reductions in loadshedding can be attributed to advances in maintenance as well as the rapid uptake of behind-the-meter solar PV installations. While the uptake of solar PV has slowed, new renewable generation remains high, with private sector offtake (rooftop and wheeled) compensating for the challenges of recent REIPPP rounds. The implications of these shifts (and the extent to which they will be sustained) should be important inputs to the development and investment decision-making process for energy managers.

At Energy Group, we are a specialist advisor and investor in industrial clean energy projects in Southern Africa. We have experience across energy strategy formulation, project feasibility, development, construction, funding and asset management, with over 1 200 MW of projects currently under development. If you would like to discuss the perspectives outlined above, please get in touch.