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

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At a macroeconomic level, the key drivers <strong>of</strong> electricity consumption are income and price. Income is the dominant driver <strong>of</strong> electricity consumption in South Africa but as real electricity prices continue to rise they may have more impact • <strong>Economic</strong> growth has proven to be one <strong>of</strong> the main drivers in South Africa and by contrast electricity prices (from 1986 to 2005) had almost no effect (Blignaut & Inglesi-Lotz , 2011). • But <strong>Price</strong> elasticity has not been constant over time. When real electricity prices rose sharply in the early 1980’s, the price elasticity <strong>of</strong> electricity demand in South Africa was significantly negative (meaning that consumers decreased demand significantly in response to price increases). From the mid-1980s to 2007 however, there was a steady decline in real electricity prices and over this period they had increasingly little influence on consumption (Blignaut & Inglesi-Lotz, 2011). • It seems likely therefore 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 8 Relationship between income (GDP) and electricity consumption in SA , 1993 to 2006 Source: (Inglesi-Lotz & Blignaut, 2011 a) Macroeconomic Drivers <strong>of</strong> Consumption <strong>Price</strong> and income elasticities <strong>of</strong> electricity demand, 1986 to 2005 Source: (Blignaut & Inglesi-Lotz, 2011) Vulnerability <strong>of</strong> sectors to rising electricity prices ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 2
At a microeconomic level the two main influences on electricity consumption are the changing structure <strong>of</strong> the economy or ‘structural effect’ and the influence <strong>of</strong> new technologies or the ‘efficiency effect’ 100 80 % <strong>of</strong> total GDP 60 40 20 • Because the electricity-intensity <strong>of</strong> production varies considerably from one sector to the next, changes in the structure on an economy can have a significant impact on the trend in energy consumption. As the South African economy has evolved it has become more diversified, more services-based and less dependent on the primary sector (mining and agriculture). • Despite the increasing contribution <strong>of</strong> less energy-intensive services to the economy, the electricity intensity <strong>of</strong> the South African economy more than doubled in the period from 1990 to 2007 (Inglesi-Lotz & Blignaut, 2011 b). This was probably due to the increase in energy-intensive manufacturing activities in the 1990s, particularly investment in the non-ferrous metals sector. • <strong>The</strong> decline in the electricity intensity <strong>of</strong> the economy since 2007 is probably due in part to the impact <strong>of</strong> the global economic recession in 2008\9 but it could also mark the beginning <strong>of</strong> a new phase in which growth will increasingly be based on the demand for less energy-intensive services. 0 9 21 22 25 23 22 15 15 Changing structure <strong>of</strong> the South African economy (1970 – 2010) 16 19 24 12 5 4 18 1 21 3 13 7 4 21 2 13 3 13 7 3 20 2 11 3 14 9 2 19 2 9 3 13 10 4 17 2 6 3 1970 1980 1990 2000 2010 Source: Deloitte Analysis, StatsSA 2011 Community, social and personal services Financial, insurance, real estate and business services Trade and hospitality services Transport, storage and communication Construction Manufacturing <strong>The</strong> structural effect <strong>Electricity</strong>, gas and water Mining and quarrying Agriculture, forestry and fishing kWh / GDP (2005 prices, Rbn) 1200 1000 800 600 400 200 0 Source: World Bank Data, 2011; SARB GDP data Current Structure <strong>of</strong> SA Economy <strong>Electricity</strong> intensity <strong>of</strong> the South African economy ©2012 Deloitte Touche Tohmatsu Limited. All rights reserved. 1
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