Modelling the Economic Impact of Electricity Tariff Increases on Eskom’s Top Customer Segment

摘要

With the rapid and sharp rise in energy prices in South Africa, the cost of energy is becoming a factor that cannot be ignored in either energy-intensive or -dependent industries. In the energy-intensive industries, for example, this immediate and direct perspective can result in the incurring of costs that are greatly magnified by the large amount of power consumed. Few would therefore deny the importance of electricity as an essential input to production and to economic activity in general. Based on the fact that changes in electricity prices impact on basically each and every individual in South Africa, and more specifically on an energy utility provider’s core business, it is important to determine its effect on each of these entities. The development of an analytical Cost of Production Tipping Point (CoPTP) model, combined with the economy-wide modelling capabilities of an Applied General Equilibrium (AGE) model for South Africa, will help to determine what the potential impact would be, given the market forces at play at any particular instance. The aim of this paper is therefore to help develop an understanding of the impact of increasing electricity prices on an energy utility provider’s main assets – its customers, by determining the broader potential economic impact on the South African economy. The value of this framework is therefore that it will provide strategic context, will allow for a better understanding of the influence of electricity price increases on both energy-intensive and -dependent industries, while also informing key stakeholders regarding implications of potential changes in customer operational environments to an energy utility provider in terms of potential revenue risk implications, as well as to the rest of industry and the broader market in South Africa due to potential second round feedback effects.Due to increasing electricity prices just after a world financial crisis and resulting slowing economic growth, many companies now face challenges such as maintaining and increasing their profit margins. What this translates into for the various energy intensive industries (which make up the bulk of Eskom Group Customer Service – Top Customers’ Key Industrial Customer base) is that in a three year period, electricity prices (or cost) would have almost doubled (and may increase further in the future). The increased tariffs will therefore weigh heavily on these industries. It will be a very difficult time for them and, although it may not lead to a situation of closures (in most cases), industries could struggle to maintain profitability levels required by shareholders.