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

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An firm’s vulnerability to rising electricity prices should also be assessed in terms <strong>of</strong> its ability to pass on the increased cost and the scope for efficiency gains. % <strong>of</strong> Respondents 100% 80% 60% 40% 20% 0% 23% 77% 50% 40% 10% 43% Strongly Agree Agree Disagree 29% 14%14% Mining Manufacturing Metals Strongly Disagree Did not answer A survey <strong>of</strong> large mining and manufacturing firms suggests that there is some scope for efficiency gains but for large manufacturers and mining firms, limited ability to pass on increased costs 20 Scope for electricity efficiency gains • In a survey <strong>of</strong> 31 <strong>of</strong> Eskom’s Key Industrial Customer, all respondents in the mining sector either agreed or strongly agreed that efficiency gains had been realised as compared to 90% <strong>of</strong> respondents in ‘other’ manufacturing and 62% in metal manufacturing. Has your firm has been able to realise gains in electricity efficiency? Source: (Deloitte& Eskom, 2009) % <strong>of</strong> Respondents 100% 80% 60% 40% 20% 0% Ability to pass on the costs 85% 15% 30% 60% 10% Vulnerability <strong>of</strong> sectors to rising electricity prices • In the same survey , when asked about their ability to pass on a 50% price hike, the vast majority <strong>of</strong> respondents felt they would not be able to pass on the cost – none <strong>of</strong> the mining companies, only 14% <strong>of</strong> the metal manufacturers and 30% <strong>of</strong> the ‘other’ manufacturers. Would you be able to pass on the cost <strong>of</strong> increased electricity prices if they rose by 50%? 14% Yes No Possibly Did not answer 57% Mining Manufacturing Metals Source: (Deloitte& Eskom, 2009) 29% ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 2
A comparison <strong>of</strong> the electricity intensity <strong>of</strong> SA industries to their counterparts in the OECD suggests that there is significant scope for efficiency gains 21 Sectors <strong>Electricity</strong> intensity GWh/$million South Africa OECD Difference Difference between OECD & SA Weighted relative to output difference Agriculture and forestry 0.316 0.016 1870.90% 1242.4% Basic metals 1.095 0.111 887.30% 644.2% Chemical and petrochemical 0.203 0.034 494.70% 462.9% Construction 0.002 0.087 -97.90% -155.9% Food and tobacco 0.021 0.023 -11.30% -7.8% Machinery 0.005 0.028 -81.20% -416.9% Mining and quarrying 0.634 0.026 2305.60% 482.1% Non-metallic minerals 0.524 0.02 2517.70% 3169.7% Paper, pulp and printing 0.207 0.021 891.50% 1758.6% Textile and leather 0.067 0.01 548.80% 398.3% Transport equipment 0.003 0.004 -20.10% -21.7% Transport sector 0.089 0.013 563.40% 505.7% Wood and wood products 0.069 0.027 153.60% 162.5% Source: (Inglesi-Lotz & Blignaut, 2011) Scope for electricity efficiency gains Vulnerability <strong>of</strong> sectors to rising electricity prices Scope for efficiency gains • This is particularly true in the non-metallic miners, mining and quarrying, agriculture, paper and basic metals sectors • While a useful starting point, high-level comparisons <strong>of</strong> electricity intensity across sectors may mask fundamental differences in the characteristics <strong>of</strong> the industries across countries – e.g. the construction industry in South Africa is far more labour intensive than the industry in OECD • If South Africa is to remain competitive relative to its OECD counterparts under more stringent trade regimes, including carbon and climate change considerations, improvements in efficiencies will be necessary (Inglesi-Lotz and Blignaut , 2011) • <strong>Electricity</strong> efficient technologies can be costly and can take a long time to implement, especially within capital intensive sectors like mining. • A study by the HSRC (2008) found that the only short term energy saving options available to the mining sector, which did not involve reducing output, were in the hostels or administrative <strong>of</strong>fices ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 2
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The Economic Impact of Electricity Price Increases on ... - Eskom

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