South Africans spent around R1.2 billion on private power generation to escape Eskom and load shedding in 2022, with the bank expecting an even bigger spend in 2023.

Reporting its annual results for the full year ending December 2022, Nedbank outlined the impacts of load shedding on its clients and operations while sharing its exposure to private power production and renewables for 2023.

Despite the challenging environment due to low growth, load shedding and consumers and businesses under duress, the group reported strong growth in headline earnings, which increased by 20% for the year to R14 billion.

Growth in earnings was driven by strong double-digit revenue growth, a slightly higher credit loss ratio and a well-managed expense base, it said.

Return on equity (ROE) increased to 14%, above the prior period of 12.5%, assisted by the group’s improved return on assets which increased from 0.98% to 1.14%.

On the back of strong earnings, growth and capital and liquidity positions, the group declared a final dividend of 866 cents per share, up by 14% (December 2021: 758 cents per share), bringing the total dividend for 2022 to 1 649 cents per share, up 38%, both at record levels for the group.

Renewables drive

Despite the strong performance for the bank, Nedbank said that the prevailing power crisis in South Africa was devastatingly impacting its clients.

A South African Reserve Bank (SARB) analysis on the impact of load-shedding suggests that the economy has partially adapted to stages 1 and 2 load-shedding, which costs about R1 million per working day in lost gross value added (GVA).

However, South Africa has long since left stages 1 and 2 behind and has faced stage 4 and upwards since September 2022. The costs to the economy in lost production escalate exponentially to about R408 million per day at stage 4 and up to R899 million per day at stage 6, the SARB noted.

Because of these losses and the dire impact blackouts have on businesses and households, South Africans have been looking for any escape.

As a result, load-shedding has become a catalyst for renewable- and embedded-energy investments to support South Africa’s Just Energy Transition and for individuals and companies, Nedbank said.

This is s creating a concrete runway for bank advances growth in the sector, it said.

As part of its results presentation, Nedbank noted that it partnered with Hohm Energy to finance and install solar power solutions for homeowners, making solar-energy funding available to all, including non-Nedbank clients.

The bank said that after lifting the licensing floor limit for energy projects in the private sector (embedded generation), Nedbank had financed R1.2 billion of private power generation for businesses, small businesses and private residences in 2022.

Additionally, the bank arranged several projects as part of the Independent Power Producer Procurement Programme (IPPPP) and has supported dozens more, totalling 3.8 GW.

These projects include:

• The lead arranger on four projects in the emergency round Risk Mitigation IPPPP, which is expected to close H1 2023;
• Preferred-bidder status in round 5 for another four projects, which is also expected to close in H1 2023;
• Awarded preferred bidder status in round 6 for 300 MW.

Nedbank also noted that it had arranged 42 transactions in the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to the value of R26 billion.

The impact of load shedding on its clients and operations

The bank said that the higher levels of electricity outages in the second half of 2022 had a material adverse effect on many of its clients.

“We (Nedbank) are becoming concerned as risks take time to emerge, and the impacts on business intensify the longer load shedding persists,” said Nedbank.

According to the bank, the most exposed industries include agriculture, manufacturing, restaurants, food services, retail (supply chain) and tourism.

“Some have and may incur operational losses – such as the impact of products perishing – while at the same time absorbing increasing levels of operational costs – such as the use of generators,” said Nedbank.

This is the main driving factor behind the massive capital injection into alternative power generation, it said.

Regarding its own operations, the bank noted that generator run-time, including at its offices and branches, increased by over 200%, and diesel-related expenses were up just over 100% to R59 million in 2022.

Economic outlook 2023

The bank said that economic conditions in South Africa are expected to deteriorate as load shedding is likely to continue at elevated levels throughout 2023.

Slower global demand and softer commodity prices will also negatively impact domestic production and exports, resulting in a wider current account deficit this year, added Nedbank.

Additionally, the rise in inflation and higher interest rates will continue to weigh on household incomes and contain consumer spending.

While renewable-energy projects will support fixed investment, the upside will be limited by regular power outages and weaker domestic and global growth prospects, along with easing commodity prices, slow progress with structural reforms and persistent policy uncertainties that will continue to hurt investor sentiment, said the bank.

The Nedbank Group Economic Unit expects real GDP growth to slow to around 0,7% in 2023 before gaining moderate upward traction to 1,5%, 1,6% and 1,8% in 2024, 2025 and 2026, respectively.