According to Bloomberg article published on July 26, 2022, even for a nation hit by rolling blackouts since 2008, the power outages that have plagued South Africa over the past year have been difficult to endure. The problem: Eskom Holdings SOC Ltd., the state-owned utility that supplies more than 90% of the nation’s electricity, can’t produce enough power from its old and poorly maintained plants to meet demand. The latest effort to keep the lights on in Africa’s most industrialized nation dovetails with the global push to reduce reliance on coal, a key driver of climate change and the source of 80% of South Africa’s electricity. Richer nations have pledged billions of dollars to help South Africa replace coal plants with renewable energy.
1. What’s gone wrong for Eskom?
A history of deep financial losses and poor planning, plus allegations of mismanagement and corruption, have plagued the monopoly utility. The company ran into financial trouble in the early 1980s after committing to build plants that weren’t needed. Then, when White minority rule of South Africa ended in 1994, the company wasn’t prepared for the sharp increase in demand as previously neglected areas were connected to the grid. Over the next two decades, Eskom suffered from erratic government decision-making and political interference. A lack of generating capacity led to regular power supply disruptions that started in 2008. The company has had 14 leaders since 2007, much of that turnover coming during the nine-year tenure of South African President Jacob Zuma. A judicial commission found the upheaval at Eskom was an orchestrated attempt by Zuma’s allies to raid its coffers with his tacit consent. Zuma denies the charge. Eskom’s leaders have said the company hasn’t been permitted to charge adequate power prices to meet its costs.
2. What’s been the fallout?
World Bank economists estimated that rationing would cost the economy $24 billion in 2022. South Africa’s central bank predicted gross domestic product growth would slow to 1.1% in 2023 from 1.8% in 2022, with 0.6 percentage point of that slide due to power rationing. The intentional outages imposed by Eskom to reduce demand, often lasting many hours, can affect water service (since pumps can’t run without power), food safety (since refrigerators can’t stay cold) and the ability of hospitals to provide care. These blackouts — the result of a process known as load-shedding, which aims to prevent a total collapse of the grid — sap business confidence in a country whose biggest industries, such as mining, depend on reliable access to cheap electricity.
3. What explains the global interest?
South Africa’s dependence on coal, the dirtiest fossil fuel, for four-fifths of its power has implications beyond its borders. When burned, coal emits almost twice as much carbon dioxide as natural gas. Getting countries such as South Africa to shift away from coal is part of the global effort to limit climate change.
4. What’s the plan?
At the COP26 climate conference in Glasgow in 2021, the US, the UK, the European Union, Germany and France offered South Africa $8.5 billion in funding to assist in its transition from coal to more climate-friendly sources of energy. The South African government under President Cyril Ramaphosa has pledged to absorb as much as two-thirds of Eskom’s 400 billion rand ($23.6 billion) of debt, the latest in a series of bailouts designed to put the company on a more secure footing. The government has also scrapped licensing requirements for companies wanting to build their own power plants, and they will be allowed to sell their surplus output to the grid. One challenge: The governing party, the African National Congress, is wary of disrupting the coal industry, not least because mineworkers comprise a key voting constituency. Ramaphosa is a former head of the largest mineworkers’ union, as is his energy minister, Gwede Mantashe.
5. Why is coal still king in South Africa?
South Africa has abundant coal resources, and 90,000 people are employed at mines that feed Eskom stations via conveyor belts. After its founding in 1923, Eskom rapidly built coal-fired power plants, spurred by the needs of a gold mining industry that was the world’s largest. In the 1970s, it began building a new fleet of plants that operate to this day, along with the only nuclear power plant on the African continent. Even with abundant coal, building more plants to burn it over the last decade has been a fraught process. In 2007, plans were announced to build two giant new coal-fired plants — Medupi and Kusile — that were scheduled to be completed within eight years at a total cost of 163 billion rand. But the construction process has been plagued by labor unrest, mismanagement and equipment defects. The likely final price tag has since ballooned to more than 460 billion rand.
