Economic Opportunities

Eskom’s proposed tariff increase, coupled with load shedding, will result in multi-billion rand losses to the economy.

 

Deutsche Bank analysts have suggested that the proposed 25% tariff increase would cost the national economy around R10bn-R16bn, cutting growth by 0,2% –0,4% over the medium term. 

Energy expert, Chris Yelland, estimates the cost to the economy during stage 1 load shedding to be R20 billion per month, rising to R40 billion per month for Stage 2, and R80 billion for Stage 3 load shedding.

The energy crisis is negatively impacting productivity across the economy, but particularly in some of our key sectors.

In the agricultural sector, a two-hour forced power outage easily leads to four hours down time.  Expensive machinery often has to be shut down well in advance. Both shutting down and starting up processes are complicated and time consuming. 

In certain cases, irrigation may not be able to take place optimally due to load shedding, resulting in additional losses. It is also not financially viable to install generators for all agricultural enterprises

 

(ii) residential affordability

 

In many cases, increasing electricity costs can lead to higher costs of goods and services as manufacturers and retailers are forced to hike their prices. This, in addition to the escalation of home electricity bills, will have a direct impact on residents.

 

A more detailed analysis would have to be conducted to assess how Eskom and the municipalities plan to pass the increased tariff onto the consumer. An important factor to consider in this analysis is that different consumers fall into different categories.

 

(iii) commerce and industry

 

As mentioned above, electricity tariff increases have a ripple effect, which leads to price hikes in goods and services. This does not create the right environment for industry to remain competitive and combined with the unreliable energy supply, it does not encourage investment into our region.

 

It must further be noted that unserved electricity (i.e commerce, manufacturing etc. that is interrupted through load shedding) has a huge economic cost. Some of the energy researchers have estimated this at R75kwh (this is the number officially used by the DoE in the IRP). Many believe that this number may indeed be higher.

 

 

 

 

 

 

 

 

 

 

 

(b) businesses with regard to

 

(i) productivity

 

In agriculture, research shows that production falls significantly in response to the rising cost of inputs, the most influential of these being electricity, followed by fertilizers and pesticides, and petroleum products.

 

A number of years ago the Western Cape Department of Agriculture analysed the impact of this productivity decrease. It was found that a productivity loss of one percent would lead to a 3 percent decrease in the GDP of the South African economy.  At the same time the consumer prices of primary agricultural products would increase between 0,21% (horticulture) to 0,33% (animals).  The prices of agri-processed products would increase between 0,35% (grain mill products) and 0,97% (meat products).  The volume of agricultural production will decline by 1,54%, agricultural and food product exports will decline by 3,12%, household and labour income will decline by respectively 2,81% and 2,70% and more than 129 000 jobs will be lost in the South African economy.

 

(ii) services incompatibility?

 

(iii) sustainability and job creation

 

The proposed power tariff increase may encourage companies and households to look at alternative sources of power..

 

If electricity prices continue to increase at the proposed rate, the price of solar PV will soon be lower than the price of Eskom power. This means that while this technology currently is more expensive than Eskom power, an investment into alternative energy now will mean significant savings over the medium to long term.

 

Companies are already installing solar PV arrays on large rooftop areas, both as a means of providing supply security and to reduce the impact of ever-increasing electricity costs.

 

This is likely to grow significantly over the next three to five years. The City of Cape Town has already set the legal framework within which to do such installations, and other municipalities in the province are also moving toward the large-scale implementation of embedded power generation.

 

The impact of large-scale embedded generation on municipal finance is currently being studied by various institutions, and specific attention is being paid to reducing the revenue loss for municipalities who depend on electricity sales to subsidise basic services.

 

Embedded generation does hold important potential for local manufacturing of solar PV panels. It is anticipated that upwards of 2000 jobs could be created in the local manufacturing and installation of solar PV componentry over the next three to five years.

 

It must also be noted that the City and Province have since 2008 seen a significant decoupling of its GDP growth and its electricity consumption.

 

The consumption of electricity has been relatively flat over that 7-year period despite the region growing faster than the national average. This effectively means that, year on year, the Western Cape economy is producing more GDP value per unit electricity. Part of this has been driven by the price increases and households and businesses being a lot more sensible with how they consume power.

 

iv) foreign investment

 

South Africa’s unstable energy supply has resulted in the country ranking poorly in several global investment and trade reports.

 

In the 2015 “Ease of Doing Business Report”, the importance of electricity for both business operations and start-ups was highlighted.

 

In terms of getting electricity, South Africa scored only 56 out of 100, leading to a ranking of 158 out of 189 economies.

 

The poor performance in this area was also evident in the World Economic Forum’s “Global Competitiveness Report” where the quality of South Africa’s electricity infrastructure received only 3.6 out of 7, ranking the country 99 out of 144 countries.

 

In a survey asking firms what they considered to be the most problematic factor for doing business in South Africa, approximately 10% claimed an “inadequate supply of infrastructure”.

 

These rankings are based on large polls and surveys, and play a role in key international investment decisions.

 

We are also crafting a strategy to respond to energy supply issues in our region. The Western Cape Government and City of Cape Town (COCT), as well as businesses in the region, have agreed to work together to come up with innovative solutions to minimise the economic impact of the current energy crisis. This follows our two governments’ selection of Achieving Energy Security as a game changer over the next five years.

 

The Western Cape Government and the City of Cape Town have worked on a number of potential solutions with businesses, and we are currently holding further discussions.  These solutions include proposals on loadshedding management, Rooftop PV, energy efficiency, Independent Power Producers and Power Purchasing Agreements.