Electricity update: electricity production increases in Q2.17 with the sector likely to make a positive contribution to Q2.17 GDP

04 Aug 2017

Annabel Bishop

Chief Economic

Electricity production increased by 1.6% y/y in June after rising 4.6% y/y in May. Electricity consumption also rose at a rate of 1.6% y/y in June versus a prior increase of 3.4% y/y.  

Electricity Update Figure
In the first six months of the year, electricity generation rose 1.2% y/y outstripping the 0.6% y/y rise in consumption.

Based on the measure used to calculate the sector’s contribution to GDP, production rose by 2.3% quarter on quarter seasonally adjusted in Q2.17, compared to the 0.7% drop in Q1.17, suggesting a positive contribution to Q2.17 GDP. In Q1.17, the utilities sector detracted from GDP on reduced electricity production as well as reduced water distribution on water restrictions in drought stricken parts of the country.

According to Eskom, the demand for electricity has declined by 0.5% a year since 2006, primarily on a 1.7% per year decline in consumption by large power users. This has coincided with the declining growth trend in GDP, commodity price volatility, rising electricity costs and unstable electricity supply.

Consumption is expected to remain suppressed this year, with GDP growth forecast to only lift slightly to around 0.5% from 0.3% in 2016.

Weaker consumption and improved generation capacity has yielded surplus capacity, which Eskom expects to grow steadily over the coming three years.

Generation capacity has been improving on increased supply to Eskom from the Independent Power Producers (IPPs), Eskom’s improved plant maintenance, a reduction in unplanned breakdowns and new capacity has come online as units of the new build programmes are synchronised to the national grid. Specifically, plant availability, measured by the energy availability factor, rose in 2016/17 to 77.30% from 71.07% in 2015/16 (see figure 3).

In its 2017 integrated report, Eskom outlined its funding requirement will total R337.7bn over the next five years (2017/18 – 2021/22) (see figure 4). The government guarantee framework was extended from 31 March 2017 to 31 March 2023 which coincides with the anticipated end of Eskom’s capital expenditure programme (see figure 5). According to the integrated report, by March 2017 Eskom utilised R254bn of the guarantees with a further R84bn awaiting approval.

Government guarantee exposure to state owned enterprises (SOEs) has been flagged as a key sovereign credit rating weakness by the rating agencies owing to the weak performance of the SOES. The IMF has estimated that rising contingent liabilities in SOEs could push government debt levels from 51% of GDP presently to above the high-risk benchmark of 70% of GDP (see figure 6).
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Electricity Update Figure