Electricity update: electricity production and consumption rose by 1.0% y/y

31 Jan 2018

Annabel Bishop

Chief Economist

and 0.5% y/y respectively in 2017 on a modest rise in GDP growth

Figure 1: Electricity available for consumption vs economic growth (% change y/y)
  • The rate of increase in electricity production moderated to 1.4% y/y in December from 1.7% y/y in November.Based on the measure used to calculate the sector’s contribution to GDP, production rose by 1.6% quarter on quarter seasonally adjusted in Q4.17, compared to the 1.7% decrease in Q3.17.
  • In terms of the performance for 2017 as a whole, the rate of electricity production remained unchanged at 1.0%y/y compared to 2016.
  • Electricity consumption increased by 0.5% y/y in 2017 after falling 1.0% y/y in 2015. This reflects the broader GDP dynamics, with GDP growth projected to have increased modestly to 0.9% y/y in 2017 from 0.3% y/y in2016.
  • There is scope for electricity consumption to increase more meaningfully on a recovery in economic growth towards 2.0 – 3.0% y/y through 2020 to 2023, on a boost in confidence levels that would likely result in increased investment rates. Sustaining higher growth rates would rely on the implementation of reform policies that include a renewed commitment to fiscal consolidation and enhancing governance at state owned enterprises (SOEs).
  • With regard to SOE’s, a new Eskom board was announced in January to address leadership and governance concerns and restore market and lender sentiment.
  • For the time being however, both Moody’s and Fitch downgraded Eskom and cautioned of further possible downgrades (see figure 3). Eskom is now rated below the sovereign. The rating action was underpinned by heightened liquidity risks and limited scope for government support.
  • The deterioration in Eskom’s financial and liquidity position is partially a function of the lower single digit tariff increases awarded by Nersa in 2017 and 2018 (see figure 4) versus the double digit increases requested by Eskom. Moreover, as reported in Eskom’s interim financial statement for the six months ended 30 September2017, revenues were affected by a reduction in electricity demand during this period “mainly as a result of a contraction in the local economy and structural changes in electricity demand including customers turning to own supply.’
  • In view of liquidity constraints and surplus generation capacity, Eskom’s capital expenditure programme will also be reviewed and will likely exclude the commissioning of new nuclear power stations.
  • According to Moody’s the implementation of “a sustainable long term business, financial and funding plan” isone of the ratings criteria to be met in order for further credit rating downgrades to be averted.
Figure 2: Electricity production and consumption (%)
Figure 3: Eskom’s credit ratings
Figure 4: Eskom’s average tariff adjustment