South Africa’s power grid almost collapsed over 10 years ago. After years of neglect and underinvestment, Eskom, the state-owned power company, didn’t have enough juice to supply all its customers. It had to cutback and start spending some serious money.
Its first step was to go to large industrial users, like ferroalloy producers, i.e., ferrochrome smelters, and bribe them to reduce their power intake in return for some very generous payments. This worked for a while, but then as the money ran it Eskom stopped paying and the cutbacks become involuntary.
Eskom also embarked on a massive spending program to boost power production based on expected consumption. This expansion program was paid for by substantially raising power tariffs.
However, something unexpected happened. The economy collapsed and mineral exports fell sharply.
The take away is that South Africa is going through de-industrialization. And, the country isn’t alone finding this out. Heavy industry has abandoned the country for greener pastures. The higher power prices, coupled with falling demand for exports, and political uncertainty all have negative effects.
South Africa finds itself with surplus power from lack of demand, new wind and solar projects and some of its new coal-fired units area now onstream.
However, what won’t go away is the cost. After several years of double digit increases, Eskom only raised tariffs an average of 9.4%.
The power intensive industries aren’t going to come back. In the mineral sector, it means it is much more profitable to produce ore than alloy. For example there won’t be any South African production of silicomanganese in the near future.