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

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Any measure that keeps energy prices for consumers below market levels can be deemed an energy subsidy so as long as electricity tariffs in South Africa remain below cost-reflective levels, consumers <strong>of</strong> electricity are effectively receiving a subsidy from the government or taxpayer… • Many Governments, while aware <strong>of</strong> the enormous costs <strong>of</strong> maintaining inefficient electricity prices have been reluctant to increase them and continue to provide implicit or explicit electricity subsidies. • This implicit subsidy not only distorts the efficiency <strong>of</strong> the electricity market but promotes a transfer <strong>of</strong> wealth from South African taxpayers to the large consumers <strong>of</strong> electricity (which include large industrial consumers with substantial foreign shareholding). Providing targeted support to vulnerable industries Accelerated EEDSM 42 Subsidies Policy Options Promoting competition in the electricity supply industry Gradual price adjustments Transition credits Subsidies Exploring the policy options available ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 4
Funding subsidies through budget provisions is always more efficient than cross subsidies, because it better preserve proper economic price signals (and therefore investment and consumption decision) and avoid the negative impact on other customers that are not subsidised • Subsidies no matter how justified socially severely distort demand patterns for energy and associated with significant economic, financial and environmental costs… • But cross subsidies are particularly insidious because they imply that not only that some customers benefit from tariffs that are below cost-reflective levels but that some consumers must possibly bear tariffs that are higher than cost-reflective levels to fund them. • While all subsidies are associated with significant drawbacks, the provision <strong>of</strong> a subsidy can be justified if it enhances access to sustainable modern energy or has a positive impact on the environment, while sustaining incentives for efficient delivery and consumption • A good subsidy should be targeted, efficient, based on a rigorous analysis <strong>of</strong> the costs and benefits, practical, transparent and should only be provided for a limited amount <strong>of</strong> time. As such, we found that temporary and well-targeted subsidies could potentially be provided to vulnerable industries to give them time to adjust to higher electricity prices Providing targeted support to vulnerable industries Accelerated EEDSM 43 Subsidies Policy Options Promoting competition in the electricity supply industry Gradual price adjustments Transition credits Subsidies Exploring the policy options available ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 4
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Page 7 and 8: Growth in electricity consumption f
Page 9 and 10: At a microeconomic level the two ma
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Page 13 and 14: In 2006 South Africa had the lowest
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Page 17 and 18: % Share of electri
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Page 45 and 46: A sudden adjustment to ‘cost-refl
Page 47 and 48: Improved incentives for energy-effi

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

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