By Fitch Solutions
- We expect to see a significant investment into the market’s coal fired electricity, as Eskom is set to fast track the construction of Kusile Power Station units.
- We maintain our view that rolling power outages or load shedding will remain high in South Africa, although short-term measures will reduce its severity.
- South Africa will continue to maintain strong growth potential for renewables, although we highlight rising material costs for wind turbines might have a negative influence on timely completion of wind projects.
- Over the next decade, we expect to see growth in investment and uptake of energy storage projects in the market, especially battery storage. Battery Energy Storage Systems (BESS) will boost the network during peak hours, reducing network strain.
We expect to see a significant investment into the market’s coal-fired electricity, as Eskom is set to fast track the construction of Kusile power station units. Although the South African government intends to gradually decarbonize the power sector over the next decade, the market will remain heavily reliant on coal-fired power, accounting for an annual average of 80.7% of total power output. We estimate South Africa’s thermal power was at a level of 201.6 TWh in 2022, which we forecast to slightly decrease to 189.3 TWh in 2032. The decline is primarily due to the expected phase out of older units at coal-fired power plants across the country, as well as a reduction in the efficiency of many power plants. We are aware that the utility plans to make investments into bringing a few coal-fired units online in 2023 and 2024. We plan to revise our forecast when there has been progress on the coal units meant to come online. The present and persistent dominance of coal is due to Medupi and Kusile projects. The fast-tracking of construction of Kusile units 1, 2, 3, and 5 by Eskom will bring online significant amount of capacity. The units combined are set to bring online over 2800MW of capacity onto the South African grid. Although we believe that coal units will come online in the medium-to-long term, the utility’s goal to bring online all units within 2023 is ambitious. As it continues to struggle with debt burden of over R400bn, which limits its recovery and investments of new capacity. Other units of Kusile and Medupi are set to come online in 2024, totalling 1520MW. These recovery and additions of new coal capacity are outlined in the National Energy Crisis Committee (NECOM), Energy action plan to end load shedding.
We maintain our view that rolling power outages or load shedding will remain high in South Africa, although short-term measures will reduce its severity. Over the past six months there have been continuous power outages reaching stage six on a number of occasions, each stage of load shedding represents 1,000MW of electricity demand being taken offline highlighting Eskom’s strained capacity. As measure to end power outages in the market, South African government has declared the energy crisis as a National State of disaster as of 9th February 2023. The state of disaster is set to allow the government to take extraordinary measures to stop load-shedding and fully implement the plans to increase power capacity to the grid. 2022 was South Africa’s most intensive load-shedding year to date, Eskom implemented over 3700 hours of load-shedding with stage two and four being the most implemented stages. The breakdown of Kusile coal-fire units in October 2022 contributed the most to load-shedding, making November the worst month with electricity outages with just over 600 hours. Furthermore, Eskom’s average annual energy availability factor (EAF) over the past eight years has been 72%. However, this has been reducing gradually, reaching only 64.2% as of end of March 2021. As of the start of February 2023, the EAF has been estimated to be as low as 58%. We believe that the risk of rolling power outages, will remain high in South Africa over the short-to-medium term due to the unreliability of existing power capacity and limited scope for sufficient maintenance.
South Africa will continue to maintain strong growth potential for renewables, although we highlight rising material costs for wind turbines might have a negative influence on timely completion of wind projects. We forecast that non-hydropower renewables will account for 9.3% of total generation capacity in 2023, and will continue to grow at an annual average of 7.8% in the next decade to account for 18.6% of total generation capacity in 2032.Solar will remain the primary source for renewables generation in the market, accounting for an annual average of 46.6% of total renewables generation between 2023 and 2032. Solar total capacity is currently at 6.9GW and we expect it to significantly grow to just over 13GW in the next 10 years. Our forecast views are supported by South Africa’s Key Projects Data as well as the government’s encouragement for private sector to invest in solar. South Africa has recently lowered local content for solar modules. This is set to have an upside risk and help speed up solar project deployment in the market. Additionally, implementation of bounce-back scheme, as well as tax incentives for households and businesses are set to encourage the uptake of roof top solar panels in the market. These measures will increase South Africa’s renewable capacity and therefore, help curb the enduring electricity crisis in South Africa over the long-term. We only forecast wind capacity growth to be at an annual average of 6.2% between 2023 and 2032, making up only 32.4% of the total capacity of non-hydropower renewables by 2032. We expect wind capacity growth of only 2.6GW over our 10-year forecast period, noting that rising material costs for wind turbines might have a negative influence on timely completion of wind projects. Despite this, we highlight that South Africa still holds a strong investor interest for South Africa’s renewable power auctions under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), underlining the strong growth potential for non-hydropower renewables in the market.
Over the next decade, we expect to see growth in investment and uptake of energy storage projects in the market, especially battery storage. BESS will boost the network during peak hours, reducing network strain. This is a result of the government’s plans to issue a Request For Proposal (RFP) for 513W of battery storage in 2023. The battery storage bid window is set for next year 2024, according to NECOM’s energy action plan. NECOM as outlined in the roadmap to end load shedding, plans to bring online phase 1 of Battery Energy Storage System (BESS) in 2023 with a capacity of 200MW. Construction of the first facility under Eskom started in December 2022, and is expected to take seven to 12 months. The plan is to have it commissioned by June 2023, while phase two is set to come online by December 2024, with a total of 238MW capacity. According to our Key Projects Data, South Africa has a growing energy storage project pipeline. With a total capacity of 820MW, all projects are battery-type storage projects. Although this suggests battery storage will boost the segment, the majority of these projects are still in the planning stages.
This article has been sourced from Fitch Solutions and can be accessed here