Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
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businesses that are as energy efficient as possible and will not pose an undue long-term
burden on South Africa‟ electricity infrastructure.
Modelled effect of Nersa’s 25% MYPD 2 proposal
A 2011 study by Pan African Investment and Research Services examined the
macroeconomic impact of a 25% average increase in electricity prices over five years
(MYPD 3) followed by a 6% average increase for a further five years, as proposed by
Nersa in its MYPD 2 determination.
The study found that this price path would directly result in a 2.82% increase in inflation in
the long term, which would lead to a decline of 1.8% in output (GDP), 0.22% in
employment and 1.53% in investment. The effect of such price increases would be
greatest on household consumption and exports in the short term, mainly due to the direct
effect of inflation. The effect became less severe if price increases were spread out over a
longer period, giving the economy time to adjust. Steep increases in the short term did not
afford businesses much scope to implement energy-efficiency measures in order to limit
overheads.
The study also found that the 25% indicative increase would result in the following energy-
intensive sectors shedding the most jobs in the long run: mining (-2.78%), transport and
communications (-1.21%), and wholesale and retail trade (-0.9%). Employment in the
electricity, gas and water sector, on the other hand, would increase by 13.85% in the short
term due to increased investment in capacity expansion, largely made possible by the
electricity price increases.
These projections are based on a price increase that well exceeds the 16% average
increase for five years (2013/14 to 2017/18) put forward in this application. The effect of
the requested price hike on these macroeconomic markers is therefore likely to be
considerably less pronounced.