Moody’s has cast doubt on Eskom’s measures to improve its energy availability factor (EAF), citing coal supply issues, mismanagement, a lack of skills, and sabotage, theft and vandalism among the challenges that will hinder progress.
In a research report, the US-based credit ratings agency said SA’s electricity system will remain under pressure this year despite Eskom’s efforts to improve energy availability.
The power utility aims for an EAF on 65% by March 2024 and 70% by 2025. It is now running on an EAF of about 57%.
“Eskom is implementing measures to improve energy availability, but challenges are large and many,” said Joanna Fic, Moody’s vice-president for Europe, Middle East and Africa infrastructure finance. “These targets are ambitious given the difficulties that the company faces and its track record.”
Moody’s comments are important as they could influence its assessment of how risky SA’s sovereign debt is for investors. It rates SA debt at Ba2 with a stable outlook, as having substantial credit risk and being subject to speculative factors.
Fic said Eskom’s power stations often malfunction and require unplanned maintenance. While age is a factor, inadequate maintenance, high historical load utilisation and a lack of significant refurbishment, have also contributed to the power utility’s woes, she said.
“In addition, the power stations’ performance has been affected by coal supply issues, mismanagement, lack of skills, corruption, acts of theft and vandalism as well as sabotage,” Fic said. “For example, coal destined for some of Eskom’s power plants was stolen or swapped for rocky, poor quality coal.”
She said SA’s electricity system will remain constrained until there is a material acceleration in the new build-out. She warned that this will take time and require investment in network infrastructure.
Inadequate energy supply is SA’s most critical constraint on growth as it limits economic activity and increases costs.
In its latest monetary policy committee statement, the Reserve Bank estimates that load-shedding alone will deduct two percentage points from growth this year. Load-shedding may also have broader price effects on the cost of doing business and the cost of living, in particular as diesel consumption increases, it said.
Eskom’s poor operational performance is reflected in the deteriorating EAF, a core measure of performance.
SA experienced a material increase in load-shedding in 2022, when blackouts occurred on 207 days of the year. Load- shedding reached stage 6 on some days, which means at any time at least 6GW of capacity was not available in the system.
Moody’s said 11.8TWh of power were shed in 2022, more than 5% of electricity demand. The situation deteriorated even further this year, with rolling power cuts implemented daily since January 1.
Escalation
In the financial year to March 2022, the EAF stood at 62% but dropped to 57% in the year ended March 2023. Since the beginning of the year, Eskom has been implementing mostly stage 4 or higher load-shedding. On some days, power interruptions exceeded 10 hours.
With increasing unplanned outages and the resulting higher stages of load-shedding, the average EAF declined further to 53% in the first two months of the current financial year.
Moody’s said the extent of the challenge to the system is reflected in an escalation of the stages of load-shedding due to a high number of breakdowns across Eskom’s generation fleet.
According to the Bank, SA will experience 280 days of load-shedding this year, 150 days in 2024 and 100 in 2025.
Moody’s said that while new capacity would ease system pressure, the construction of new power plants has been subject to delays, and growth in renewables and embedded generation has been slow. It expects more capacity to be added in the next few years after a change to the licensing regime and other initiatives to enable and accelerate private investment in generation capacity.
“Assuming that the planned growth in new capacity and Eskom’s efforts to improve operations materialise, the levels and intensity of load-shedding should start to reduce next year,” Fic said. “Still, there are risks to execution.”
Over the longer term, new investment will support the energy system but should be seen in the context of capacity closures. Eskom plans to close 16GW-18GW of coal-fired capacity over the next decade.
Fic added that new capacity will also require significant investment to increase grid capacity and grid stability. However, Eskom’s ability to complete this task will be difficult given supply-chain limitations in SA.
“This poses a material challenge to the speed at which any improvements can be achieved.”
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