The Economic Impact of Electricity Price Increases on ... - Eskom

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Improving energy efficiency is one <strong>of</strong> the most economical ways <strong>of</strong> reducing energy consumption and there is evidence <strong>of</strong> significant scope for energy-efficiency gains in South Africa • A study comparing the electricity intensity <strong>of</strong> various sectors <strong>of</strong> the South African economy to the same industries in the OECD, found that there was significant scope for energy-efficiency gains in South Africa and noted that the importance <strong>of</strong> encouraging energy-efficiency and demand-side management could not be overstated. (Inglesi-Lotz & Blignaut (2011 b) ) • A decomposition analysis <strong>of</strong> electricity consumption in South Africa suggests that main drivers <strong>of</strong> electricity consumption from 1993 to 2006, were output (economic growth) followed by efficiency improvements (technology/substitute) and lastly structural effects. • However the overall increase in efficiency is misleading since the greatest gains in efficiency were in the transport sector and were in fact due to the collapse <strong>of</strong> the rail freight sector and switch in transport modes from rail (which consumes electricity) to road freight (which consumes petroleum products). Source: (Inglesi-Lotz & Blignaut, 2011 a) 10 Drivers <strong>of</strong> electricity consumption (1993 to 2006) <strong>The</strong> efficiency effect Current Structure <strong>of</strong> SA Economy “Energy efficiency improvements refer to a reduction in the energy used for a given service or level <strong>of</strong> activity. <strong>The</strong> reduction in the energy consumption is usually associated with technological changes, but not always since it can also result from better organisation and management or improved economic conditions in the sector (non-technical factors).” World Energy Council Policy makers should focus on sector-specific measures to achieve such improvements given large inter-sectoral differences ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 1
<strong>Economic</strong> growth is likely to remain the primary driver <strong>of</strong> electricity demand over the next decade since it is unlikely that rising prices or increased uptake <strong>of</strong> energy efficiency measures will be sufficient to <strong>of</strong>fset the positive impact <strong>of</strong> rising income… 11 toe per US$m 2005 GDP 600 580 560 540 520 500 480 460 440 420 400 Outlook for electricity consumption • GDP is forecast to expand at an annual average rate <strong>of</strong> 4% from 2012 to 2015. Given that the income elasticity <strong>of</strong> electricity demand is estimated to be around 1.2 (approximately unit elastic), in the absence <strong>of</strong> other influences, the demand for electricity would rise at a similar rate to GDP. • Forecasts <strong>of</strong> electricity intensity by the CSIR (in Frost and Sullivan 2010), suggest that the electricity intensity <strong>of</strong> the South African economy is likely to continue to decline over the next two decades. While declining energy-intensity would assist in moderating the increase in the demand for electricity, forecasts by the Economist Intelligence Unit (EIU) suggest that the energy intensity <strong>of</strong> growth in South Africa will continue to rise until 2020. • It seems likely that as real electricity prices rise (as they have done since 2008), consumers will again become more sensitive to price and prices will again play an important role in determining electricity consumption in South Africa. However it is too early to identify the impacts <strong>of</strong> recent prices increases so one can only speculate about the magnitude <strong>of</strong> the impact. Economist Intelligence Unit forecast <strong>of</strong> the energy intensity <strong>of</strong> the SA economy (2010 to 2020) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 f2010 f2011 f2012 f2013 f2014 f2015 f2016 f2017 f2018 f2019 f2020 Current Structure <strong>of</strong> SA Economy …It is also Source: not EIU Data, clear 2011 what impact structural effects will have on demand given the considerable differences <strong>of</strong> opinion around the future trend in the electricity intensity <strong>of</strong> the South African economy … or according to the CSIR? ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 1
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The Economic Impact of Electricity Price Increases on ... - Eskom

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