NEVA MAKGETLA: Poor households also need their place in the sun

SA’s electricity system is undergoing a foundational transformation. The rising cost and unreliability of coal-fuelled power has resulted in a move towards renewable electricity both on and off the grid, and to plummeting energy intensity.

That response, driven mostly by private investments, has helped alleviate load-shedding. But it risks leaving working people and small businesses behind.

SA’s electricity grid supply is virtually the same as it was two decades ago, though the population grew by a third and the GDP by two-thirds. It shrank 0.5% a year from 2007 through 2021, reversing decades of gradual growth, then tumbled 4.2% a year through 2023 while load-shedding quadrupled.

Simultaneously, the price of grid electricity soared. In constant rand the average Eskom tariff per kilowatt hour more than doubled from 2007 to 2023. In the past two years alone it leapt  13%. In the mid-2010s SA ranked in the cheapest quintile of countries for electricity prices. Today it is in the middle, with prices above the US and Brics but below Europe.

The result has been an extraordinary fall in electricity intensity. From 2007 to 2023 the grid electricity consumed for every billion rand of GDP fell 30%. It had remained almost unchanged from 1994 to 2007. From 2021 to 2023 alone it fell nearly 10%.

In the 1990s, cheap electricity was a key incentive for vast new investments in metals refineries. But since 2008 those plants  struggled with soaring electricity costs and supply restrictions. In 2013, ArcelorMittal bought 1.7% of Eskom’s output. To cut electricity costs, it mothballed electric furnaces, expanded off-grid generation and improved energy efficiency. By 2023, while its output had shrunk 40% (mostly because of stagnant demand), its electricity purchases had fallen 55%. Its share of Eskom’s sales fell to 0.9%.

The electricity transition was driven by Eskom’s inability to expand or maintain its coal stations. Eskom’s output shrank almost 25% from 2007 to 2023, with a 17% fall in the past two years alone. Private suppliers met some of the gap, doubling their sales to the grid despite enormous delays in government approvals. Eskom’s contribution to grid electricity fell from 96% in 2007 to 86% in 2023.

Meanwhile, off-grid generation has soared, though there are no comprehensive figures available. Larger businesses and complexes have registered over 5GW of off-grid electricity in the past five years, equivalent to a 10th of Eskom’s total capacity. Yet that figure excludes most household solutions. Initially, users turned to diesel generators to overcome grid interruptions despite the higher cost per kilowatt hour. More recently, off-grid solar has ensured lower costs, noise and pollution, though it needs substantial upfront investment.

Relying on private off-grid solutions has been critical for the economy but it risks deepening SA’s extraordinary inequalities. Stats SA surveys found that 210,000 households in the richest decile, or 11%, had solar panels in 2023. That was up from 65,000, or 4%, in 2019. By contrast, for the poorest 60% of households the share with solar panels stayed almost unchanged at 1%, with the number rising only from 85,000 to 115,000.

In 2023, the richest decile owned nearly half of all household solar installations. A quarter had off-grid electricity, and 60% had rechargeable lights. In the poorest 60% of households just 2% had off-grid electricity and a third had rechargeable lights.

It is hard to overstate the implications of the electricity transition for the economy. The current trajectory promises a range of benefits and opportunities through cheaper, cleaner and more reliable energy. But the long-run benefits will be curtailed unless working-class households and small producers are included on a much larger scale. For a just transition we need far bigger programmes to assist in financing off-grid solar in working-class communities, especially for small businesses and service providers.

• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.