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South Africa’s crippling electricity problem

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Simon Trace discusses the causes of unreliable electricity, and the consequences for South Africa's economic growth.

South African president, Cyril Ramaphosa, recently stated that his government will facilitate the generation of power by private firms, and even households, to relieve pressure on the national grid during ongoing and periodic electricity shutdowns and blackouts. This announcement further highlights the crippling effect that poor electricity reliability is having on South Africa’s economic growth. With the Energy and Economic Growth (EEG) programme’s Reliability and Utility Operations Conference approaching, programme director Simon Trace explains more about the causes of unreliable electricity, and the consequences.

While electricity access in developing countries might be on the rise, the homes and businesses that are connected to the grid often receive a low-quality, unreliable service. Worldwide, over 200 million households use an unreliable grid connection, and, according to the latest Afrobarometer survey (December 2019), fewer than half (43%) of Africans have a reliable supply of electricity.

Households and businesses are plagued by unplanned, unpredictable power outages that can last for hours, sometimes days. They must also endure scheduled and controlled electricity shutdowns, known as load shedding, where power is deliberately rationed to relieve pressure on the system and prevent complete collapse. Electricity will be available for a few hours each day – the details of which may be communicated in advance.

Reliability issues are typically related to the capacity and quality of electricity systems. They can be a result of insufficient generation or a generating mix that’s incapable of scaling up and down to meet fluctuations in demand; maintenance requirements; breakdowns on transmission and distribution (T&D) lines, and in transformers and other equipment; or T&D networks having inadequate capacity or flexibility to deliver generated power to end users.

Load shedding in South Africa

While load shedding is very much a reality for many Sub-Saharan African countries, the rolling blackouts being experienced in South Africa – and the economic costs – have been widely publicised.

South Africa’s state-owned utility Eskom (which supplies more than 90% of the country’s electricity) has implemented rotational load shedding for years, but during December 2019 and the beginning of January 2020, it became a daily occurrence. According to the Council for Scientific and Industrial Research (CSIR), South Africa had the worst year of load shedding on record in 2019, with blackouts persisting for a total of 530 hours, and Stage 6 load shedding being implemented for the first time (where over a third of Eskom’s total capacity was offline). The CSIR expects the load shedding to continue for two to three years, depending on government decisions and actions.

The situation is reportedly a result of insufficient generating capacity (South Africa produces around 47,000 MW against an installed generation capacity of 52,000 MW), operational failures, maintenance issues and breakdowns at ageing, poorly-maintained power stations. Many of these issues are a consequence of underinvestment – and Eskom’s struggle with high debts. In fact, Eskom is currently demanding higher tariffs than those awarded last year, which the utility says threatened it with financial disaster. In January 2020, President Ramaphosa even stated that the country will allow firms and households to generate their own power to relieve pressure on Eskom.

Understandably, the persistent load shedding is causing much frustration among South Africa’s citizens, businesses and industry. Frequent or long-lasting power outages are thought to constrain the economic wellbeing of households and businesses by reducing the output from existing electrical appliances and discouraging investments in new welfare-improving and income-generating ones.

For businesses, unreliable electricity results in increased running costs and reduced productivity and profitability. The power outages in South Africa will have caused many businesses in all kinds of sectors – from retail and service, to manufacturing and industry – to lose sales. It’s estimated that the loss to South Africa’s businesses and industries that battle with scheduled power cuts is about R1 billion per stage, per day. For some firms, spending money on backup generators (an expensive alternative to grid electricity) becomes a necessity, reducing the amount they can spend on more profitable investments.

In terms of macroeconomics, the costs may be significant. The economic losses due to power interruptions are estimated to cost between one and five% of the GDP of countries across Sub-Saharan Africa. South Africa’s GDP was forecast to grow less than one per cent last year, with the problems at Eskom being one of the main contributing factors.

According to new research from CSIR, the total economic impact of load shedding in South Africa over the past 10 years could be as high as R338 billion. In 2019 alone, there were significant impacts on the economy – the estimated cost being between R60 billion and R120 billion. To make matters worse, South Africa’s economy is already fragile; it’s experiencing high and rising debt, low growth, record-high unemployment and diminished investor confidence.

Equitable load shedding

Load shedding will affect either all or part of a grid – and there has been some debate about whether electricity is rationed on an equitable basis, with evidence to suggest that load shedding is unevenly allocated.

One study, for instance, found that in Karnataka, India, rural and non-urban feeders experience more load shedding than urban feeders serving cities like Bangalore, the state capital. And even within the same city, different groups may be rationed different amounts of power for political, ethical or commercial reasons. For example, utilities may provide higher service levels to feeders serving embassies, hospitals and districts with a high number of commercial and industrial establishments. There may also be areas that receive better service due to political connections or bribes.

A team from the University of California, Berkeley, is studying different feeder lines with differing levels of priority in Accra, Ghana, as part of the Energy and Economic Growth funded GridWatch project. The team has identified priority feeders designated as ‘Exempted Essential Feeders’ that have experienced significantly less load shedding than other feeders. For example, in 2015, some customers experienced an average of 120 hours of load shedding per month, while others experienced an average of only 19 hours per month, depending on the feeder they were connected to.

As part of the project, a suite of remote sensing devices, collectively called GridWatch, have been developed, deployed and operated to detect the presence and absence of grid power. Unlike existing technologies, GridWatch automatically measures and centrally collects data on grid reliability and power outages, publicly and independently of utility reports.

Using GridWatch and utility data, the team has been able to identify areas with quasi-random variation in power quality, and is comparing households and businesses whose socioeconomic characteristics are identical in expectation, and that differ only in terms of the quality and reliability of the power they receive.

The team will therefore be able to learn more about the socioeconomic benefits of improved reliability, and estimate the causal effect on outcomes such as wellbeing, productivity and health. They will also be able to confirm whether customers that are connected to priority feeders do indeed experience fewer power outages than those who aren’t.

The GridWatch study is being presented at our forthcoming Grid Reliability and Utility Operations conference in Accra, Ghana, being held on 4 and 5 February 2020 in collaboration with the World Bank’s Energy Sector Management Assistance Program (ESMAP) and the Millennium Challenge Corporation (MCC).

The scope of the problems caused through unreliable electricity are not well understood, with few studies analysing the causes and consequences of outages, or the ways in which policy makers can address them. The conference aims to provide a forum for international academics and policy makers to highlight and discuss the latest research relating to grid reliability.

While electricity access remains a fundamental issue for developing countries, and many investment programmes aim to deliver new connections, for many people – such as those living in South Africa – the primary issue is poor electricity reliability. More attention needs to be paid to reliability of supply and the operations of the utilities tasked with the day-to-day delivery of on-grid electricity – and research will help policy makers to understand more about the issues, challenges and potential solutions.

You can find out more about the Grid Reliability and Utility Operations Conference here.