The Effectiveness of SA’s Energy Action Plan

The light at the end of the tunnel is getting closer, but it is taking a lot of work to get there. Currently it is difficult to feel optimistic about our country’s situation when we are facing stage 6 loadshedding daily. These negatives are being continually highlighted in the press, the news, on social media, and by our financial markets. There have been more gigawatt hours (GWs) load shed (19 000 GW) in 2023 than the past three years combined.

The main driver has been Eskom’s low energy availability factor (EAF), driven by high levels of unplanned maintenance, which currently runs at approximately 16GWs, versus the planned maintenance at 4GWs. Given the current dire situation, what is being done to resolve loadshedding? The answer is, quite a lot!

We believe the bad news has been priced into the market and that a crisis should never be wasted. The upside when the negative sentiment and markets turn will be significant. The question is when that will be, and whether one is correctly positioned to participate.

Almost a year ago to the day, a five-step Energy Action Plan (EAP) was put in place to bring an end to loadshedding. Without going into the details of the plan, it aims to target the crisis from many angles.

The results have been significant to date, with some of the milestones achieved listed below:

• Tax breaks for commercial and residential solar granted, which has driven large amounts of solar to be installed – estimated at 3.5GW since March 2022.
• Private sector engineering teams deployed to four key problem power stations to help support Eskom in improving these power stations’ EAF.
• The cap on private embedded generation being lifted, allowing over 4.6GW of private embedded electricity generation to be registered with NERSA over the last year – equates to approximately 1.5 stages of loadshedding.
• Increased focus on bringing four units at Kusile power station online again by December 2023 – equates to approximately 3.2GW or three stages of loadshedding.
  

The total current daily electricity supply to the grid is about 28GWs. Our current peak daily demand is around 31GWs, with peak winter demand at around 34GWs behind us. With the large addition of renewables as mentioned above, in conjunction with Eskom bringing online its units at Kusile, we believe there is a high probability that loadshedding could be significantly curtailed by year end.

If we then overlay the low valuation of the South African market (the chart below illustrates the forward domestic price/earnings ratio) on top of an improving energy situation in the country, we believe that there are many attractive opportunities in the local listed market that will reward patient investors handsomely over time.