South Africa’s power crunch threatening continental digitalisation drive

After nearly 15 years of rolling blackouts, South Africa’s power crunch saga continues its downward spiral. On 7 December, state-owned utility company Eskom matched a historic high in power cut or “load-shedding” level, escalating to ‘Stage 6,’ before dropping to ‘Stage 5’ days later as the national electricity provider fails to cope with energy demand. Ominously, energy experts have cautioned that the worst is likely yet to come.

These intentional blackouts, aimed at reducing strain on the power grid to avoid complete breakdown, are largely the result of Eskom’s overreliance on aging, failure-prone coal power plants as well as poor planning and investment, costing the South African economy $24 billion in 2022 while ramping up energy prices.

This energy supply and price instability is particularly problematic for South Africa’ data centre operators given their central role in realising the economic potential of Africa’s emerging digital ecosystem, with widely deployed renewable energy and off-grid solutions needed to resolve the deteriorating crisis.

Africa’s emerging digital transition

As African economies recover from the Covid-19 impact, digitalisation will play a key role in boosting productivity and “leapfrogging” development stages, particularly as demand for digital access and infrastructure has shot up since the pandemic.

The digital technology sector has already expanded significantly in recent years, fuelled by an emerging ecosystem of start-ups and incubators, tech hubs and data centres in ‘Big Four’ countries including Nigeria, South Africa, Egypt and Kenya. Furthermore, the continent’s “mini cable boom” led by Meta’s 2Africa and Google’s Equiano subsea cable systems will deliver a historic expansion in Internet access and capacity in Africa, helping to maximise the significant economic potential of its digital transition.

According to the International Finance Corporation (IFC) and Google’s e-Conomy Africa 2020 report, the continent’s digital economy could boost Africa’s GDP by $180 billion by 2025 and over $710 billion by mid-century. Considering Africa’s rapid urbanisation and Internet access expansion, young, growing population and rising digital skills, these experts have highlighted Africa’s Internet economy as “one of the largest overlooked investment opportunities available.” Large-scale investment in next generation digital infrastructure will be particularly vital in tackling a wide digital divide and realising this economic growth potential.

Data centres caught in the crossfire

This advanced ICT infrastructure significantly boosts demand for data centres in Africa. Driven by the need to develop the digital economy, data centre demand is already on the rise, with its market size set to soar from $2 billion to $5 billion by 2026. Moreover, the Africa Data Centres Association (ACDA) has projected that the continent will need 700 data centres with a combined capacity of 1 000 MW to support the expansion of digital services needed to develop African economies. To put this figure into perspective, South African data centres, which account for roughly two-thirds of the continent’s data capacity, currently have a combined capacity of only 150MW, with the rest of the continent lagging far behind.

While the long-term goal is filling this unsustainable North-South digital infrastructure gap, South Africa’s data centres must still do the heavy lifting in the short term to support the continent’s digital transition – an endeavour threatened by South Africa’s ongoing energy saga. According to international law firm White & Case, “data centre operators in South Africa are highly exposed to the power shortages and regular load-shedding that plague the country.” Power supply instability is driving up energy prices for data centres, which have had to pass on the cost burden to ISP and IP address provider clients.

This issue has shot up the agenda for African Internet advocacy organisations such as the Number Resource Society (NRS), whose members include South Africa’s hard-hit telcos and IP management firms. To tackle the current crisis, NRS President Paul Wollner calls on the government to “deliver urgent financial support to these firms crucial to the healthy functioning and expansion of the continent’s Internet, while addressing the long-running root causes of South Africa’s energy woes.”

Sustainable way forward

With its decades-long legacy of underinvestment in renewable energy and infrastructure improvements, South Africa’s national utility provider Eskom has rendered the data centre sector highly dependent on an unreliable supply of fossil fuel-generated electricity.

Wale Ajisebutu, CEO of telco 21^st Century Technologies, has expressed his firm conviction that data centres can and must break away from failing national grids. Ajisebutu calls for data centres to use local microgrids and captive power to ensure stable supply, which entails firms generating their own energy—ideally from renewable sources— to slash both power costs and carbon footprint.

While hailing off-grid solutions like local solar energy production for their energy cost reduction effect, economist Nishal Robb has warned that smaller businesses will require government support to successfully transition away national grid electricity. Beyond boosting renewable energy usage, energy efficiency measures in data centres will also be key in cost control and operational continuity.

In addition to supporting microgrid developments, which can also provide excess energy to state utility companies, governments will need to ramp up renewable energy production to bolster national energy grid capacity and sustainably curb load-shedding. South Africa’s government is actively investing in renewable energy, capitalising on strong solar and wind energy potential that will also fuel green hydrogen production. It will need to accelerate this domestic investment while creating a conducive climate for FDI in this sector through regulatory and open market reforms. But considering the medium-term nature of delivering renewable energy projects, immediate fiscal relief measures will also be needed to tide over data centres and its clients.

As Africa enters a decisive moment for its digital transformation, the critical infrastructure needed to realise its economic potential must be able to keep pace. Massive investment is needed to roll out next generation infrastructure across the continent, but the soaring energy costs plaguing the crucial South African data centres supporting the lion’s share of this digital expansion is putting progress at risk. With load-shedding reaching crisis proportions, its government must act now.

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