When the lights go out: The Eskom crisis and its effect on South African businesses

The Eskom crisis in South Africa is cause for much concern. They revealed in January of this year that load shedding is set to occur on 70% of days until the end of March. This announcement, as well as the uncertainty around the supply of electricity in future, have widespread implications not only for South African households, but also businesses and consequently for the economy. This article explores some of the implications of load shedding and provides guidance to business owners on mitigating a few of the risks it poses, without resorting to powering their businesses through potato batteries.

There is no clear agreement among economists around the exact implications, but according to Hugo Pienaar, the Bureau for Economic Research (BER) senior economist, load shedding was his main consideration for amending his 2015 GDP growth forecast from 2.9% to 1.9% (Claire Bisseker, 11 February 2015. The Rand Daily Mail). He believes that load shedding could potentially lead to serious difficulties for the country, in the event that the released load shedding schedule proves to be even remotely accurate. When considering the results of the third quarter 2014 Business Partners Limited SME Index (BPLSI) results, small business owners appear to be optimistic that the current economic environment is conducive for business growth, but remain cautious in their sentiments due to the electricity supply crisis experienced in the country. The BPLSI measures the attitudes and confidence levels of South African SMEs and the results of Index in the third quarter of 2014 indicates confidence levels of 55% that the economy will be conducive for business growth in year to come. Confidence levels decreased by 3% when comparing it to the second quarter of the same year. According to Gerrie van Biljon, executive director of Business Partners Limited: “The introduction of national load shedding by Eskom from mid June 2014 has had a significant impact on the SME sector, resulting in decreased productivity and financial losses. The power crisis has been referred to as one of the most critical structural impediments to economic growth in the country, and continues to have far reaching effects on SMEs across all industries.”

According to a statement made by City of Cape Town deputy mayor Alderman Ian Neilson to Fin24 (‘Poor load shedding plans affect businesses’, 28 January2015),load shedding impacts not only on  economic confidence, but also on the ability of businesses to operate successfully. He stated that: “There is a serious impact on those industries that need continuous electricity supply for their production. It is difficult to cost the financial impact of load shedding ahead of time due to uncertainties about how often it will occur…” In order to mitigate potential issues, Neilson discussed that they have identified certain critical risks:

  • Direct stress on infrastructure elements, including substations;

  • The risk imposed on the availability of water, resulting in lowered service to citizens and the necessity of having to spend money on larger water pumps and reservoirs;

  • The risk of sewer overflow into streets and rivers in the event that sewer pumps are unable to operate. This is not only a health concerns, but would further result in clean-up costs, as well as a potential need to insure the availability of standby generators;

  • Traffic disruptions due to out-of-order traffic lights, which has an impact on the economy (delivery of goods and services) and on the additional costs incurred by the need to deliver uninterrupted power supplies at affected intersections;

  • Electricity sales will steadily start to decline as citizens consume more electricity through alternative supplies, leading to decreased funding for the distribution network’s maintenance. “The cost of maintaining the grid does not decrease in proportion with each customer that converts to alternative energy sources. This could make our current system of electricity supply unsustainable economically,” said Neilson.

Although speaking from his point of view as a representative of the City of Cape Town, the abovementioned risks are applicable to the whole of South Africa where load shedding is involved.

According to ContinuitySA, the following elements need to be taken in to consideration from a business perspective, during the affected load shedding periods:

 

ContinuitySA further advise businesses to ensure that appropriate backup power plans in place:

Uninterruptible power supplies (UPSes):

UPSes should be sized according to the function it will fulfil in the business (i.e. consider whether it will be used to power an entire building, or merely the necessities) and should further be functional in the event of extended power outages.

Generators:

Small businesses could benefit greatly from installing generators. It is necessary to install a generator that would be able to cater to the needs of the business, as ContinuitySA explains that a cheap household generator will not be able to handle frequent and prolonged use. Generators further require frequent maintenance and diesel stocks have to be managed, given that diesel cannot be stored ad infinitum.

Alternative power sources:

If your business has the financial capability to afford alternative power sources, it would be wise to invest in the more expensive option of solar power to minimise the impact of load shedding. It will cost you a pretty penny on the outset, but has the potential to save you money in the long run as it does not require any other fuel to function aside from the sun.

It is clear from the high-level examples mentioned above that South Africa is in dire need for Eskom to take accountability and to address the issue at hand, or for alternative and viable solutions to be brought forward.  To stay up to date with the load shedding schedule and remain prepared for future outages, take a look at this link: http://loadshedding.eskom.co.za/   

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