South Africa has been facing an energy crisis for several years. The country's electricity grid has been under strain, with regular power cuts, rolling blackouts, and load shedding becoming the norm. The energy crisis has had a significant impact on various sectors of the economy, and the fuel retail sector is no exception. In this blog, we will examine the impact of the energy crisis on fuel retail in South Africa and how can service stations optimise their electricity usage.
Electricity Supply Challenges and Impacts
The fuel retail industry is a hyper- competitive product-market with razor-thin margins. It is fair to say success in South Africa’s fuel retail industry depends on integrated supply chain and logistics systems that are underpinned by a common denominator: reliable electricity supply. It is equally fair to say that the sustainability of Retailers and their ability to provide products is potentially placed at risk by the problems at Eskom. According to the CSIR report on the energy crisis, from January to September 2022, a total of 1,949 hours were affected by loadshedding, reaching a peak of 5,761 GWh in contrast to the actual energy reduction of 4,315 GWh. This period saw an unprecedented level of intensive loadshedding, with the majority falling under Stage 4 categorisation, marking the first instance of Stage 4 loadshedding as opposed to the usual Stage 2. Throughout this timeframe, loadshedding was in effect for approximately 27% of the total hours. In 2023 we have far surpassed the statistics as the country has experienced even stage 6 load-shedding numerous times this year.
Demand for Diesel vs Shortages of Petrol
The energy crisis has led to shortages of fuel in some parts of the country. The power cuts and load-shedding have affected the refineries' ability to produce fuel, leading to a decrease in supply. The fuel shortages have led to long queues at petrol stations, and some stations have run out of fuel altogether.
In an article Sapia executive director Avhapfani Tshifularo said “if load-shedding continues at present levels or gets worse, one could expect increased diesel demand … [but] we cannot estimate this without other information which is likely to be too dispersed to get hold off – for example, types of generators sold, as well as to which parties and through which supply chains”.
Retailers are grappling with significant expenditures on diesel to sustain operations amidst the sometimes daily 2 to 4-hour load-shedding periods. Some areas get load reduction, coupled with load-shedding means that some service stations can get up to 10 hours of downtime.
The PicknPay Group incurred R522 million in diesel costs to operate generators (net of R430 million in electricity savings). This cascading impact has a ripple effect on the fuel retail sector, as increased expenses in food retail stores directly influence consumers' budgets, consequently influencing their spending potential at the forecourts. Service stations themselves are having to run generators to prevent disruptions in their operations.
Electricity supply poses many uncertainties. It's evident that South Africa isn't alone in facing this challenge, as other countries also grapple with shortages. While the timing of a solution remains unclear, one certainty is that Retailers must invest in power supply. The government has introduced tax rebates for businesses adopting solar panels, and oil companies are joining forces to help retailers implement solar solutions, although the specifics of this support are yet to be defined. We’ve seen the likes of Total, Engen and other signal commitment to introduce solar for their forecourts. The impact of these investments on new entrants' viability remains to be observed.
In a recent Fuel Franchise Breakfast Seminar hosted by PetroCONNECT and Nedbank, Lindo Ngema of Prominent Solutions presented some insights on how Retailers can optimise their electricity consumption and supply. He mentions two ways in which Retailers can reduce their electricity bill; tariff optimisation and solar installation.