The Generator and Transformer Industry in South Africa 2022

Introduction

This report focuses on the manufacture and supply of generators and transformers.

Manufacturing sales of electric motors, generators and transformers grew by 1.2% a year to R11bn in 2021, but have been trending down by an average of 4.9% a year between 2016 and 2021, after growing by an average of 18.5% year on year between 2000 and 2016. Imports of transformers and generators, which have outpaced those of exports over the last two decades, fell by 34.7% to R12bn in 2021, largely because of steep decline in wind-powered generators and electric motors and generator parts imports. Exports amounted to R3.3bn in 2021. While demand for diesel generators has generally grown in step with loadshedding, imports of portable generators fell by 23.6% to R876m in 2021, even as loadshedding peaked. It is unclear whether ports delays, pandemic restrictions, or the increase in renewable energy projects coming online are to blame for the decline. The deployment of transformers has been held back by a decline in capital expenditure by Eskom, which sources the majority of transformers in the country. Eskom’s capital expenditure in the year to end-March 2021 of R24bn fell by 60% compared to 2017. However, the industry could expect to ramp up given the country’s plans to add over 30GW of new generation to the grid between 2022 and 2031.

Opportunities

Demand for transformers from independent power producers and in the hybrid grid.

Enforcement of higher local content levels. Eskom’s need to replace ailing infrastructure, in addition to new capital expansion projects. Increasing economic activity in Africa increases demand for backup power, providing opportunities for generators and renewable suppliers. Increasing technology reliance increases the need for essential backup power, while the rollout of data centres presents a growing opportunity for transformer providers. Loadshedding by Eskom could drive organic generator growth. Ongoing opportunities in the rental power market in South Africa. The planned addition of 30GW of new generation between 2022 and 2031 will provide opportunities for transformer manufacturers as the grid will have to be strengthened.

Outlook

Industry commentators believe the outlook for local manufacturing of transformers is positive.

Demand is expected to be driven by the projected installation of 30GW of new generation, as well as embedded generation and data centre projects. Portable generator suppliers are, however, more cautious, as the commissioning of new power projects is likely to reduce the need for generator power, while many energy users are shifting away from relatively expensive and dirty diesel-powered generators to renewable energy options to meet their power generation needs.

Report Coverage

This report focuses on the manufacture and supply of generators and transformers and includes comprehensive information on the state of the sector, the energy mix, imports, localisation and influencing factors including power generation, demand, capacity and input costs.

There are profiles of 41 companies including major players such as ABB, Actom, generator step-up transformer manufacturer SGB-Smith Power Matla, Revive Electrical Transformers, which has supplied various renewable independent power producers and generator providers such as Cummins.

Strengths

A broad range of local transformers which have been designated by government.

Ability to diversify products to adapt to economic conditions, changing customer needs and regulatory requirements. All industries in South Africa need electricity and backup power for their operations. Local products are of high quality and comply with international standards. Multinationals with strong brands and reliable products are present in the South African market.

Threats

A slowing economy could reduce demand for transformers and generators by industry and business.

Alternative electricity-generating products gaining popularity and becoming more affordable. Government policy supports the adoption of renewable energy generation solutions. Continuing significant transformer imports at lower cost. Economic conditions reduce ability of customers to invest in generators and transformers. Embedded generation projects, enabled by new regulation which raised the threshold to 100MW for own-generation projects could result in reduced demand for portable generators in favour of renewable power generation. Emission compliance regulations such as carbon tax could impact on business. Eskom and municipal financial woes. High duties on South African exports in foreign countries. Increasing availability of global brands. Increasing input costs are a threat. For example the rising diesel price could result in energy users moving away from diesel generators. Short to medium-term shortage of qualified and skilled personnel.

Weaknesses

Dependent on the welfare of target markets such as the energy, construction, civil engineering, manufacturing and mining industries. High carbon emissions of diesel and petrol. Low import duty on foreign-manufactured generator sets. Shortage of qualified and skilled personnel. The increasing cost of diesel and petrol make generators increasingly expensive to operate, exceeding the cost of Eskom electricity.