Eskom forces consumers to shop around for alternatives

Eskom may be the dominant provider of power, producing 90% of electricity in South Africa, but steep tariff hikes in recent years mean that its users will increasingly shop around for more affordable solutions.

A study recently released by the National Treasury warns that: “South Africa’s integrated monopoly electricity provider will need to be prepared for a world where electricity consumers increasingly become prosumers”. This means that consumers will consume products based on their needs.

The study, using information from 21 listed companies from sectors in manufacturing and mining, found that the steep rise in electricity prices over recent years coupled with lower economic growth, low commodity prices and low inflation rates, has led to low electricity demand.

Eskom has seen a decline in sales revenue as consumers have switched to alternative energy sources.
The study suggests that should the pattern of high electricity tariffs continue, demand will continue to fall.

In the years before 2008, individual households and firms were insensitive to price increases as prices were low and users did not directly feel costs associated with installation of infrastructure. Now, consumers are finding new ways to manage their electricity usage, sell power back into the grid or become partly or fully independent of traditional grid-based electricity.

The study says that of the 21 companies assessed, two of the firms may have to shut down due to prices increasing. 

This will have an impact on employment and exports as the net value of firms and their future operating profits will fall. This could also negatively affect investors decisions and firms may decide to cut costs by implementing energy efficiency measures such as closing parts of their operations or even moving operations to neighbouring countries, says the report.

Investing in own-generation may become viable and the business sector and the economy can benefit too. This will however impose costs on the economy more broadly and over the long-term, as smaller generation options may be less efficient as they do not have benefit economies of scale, the report says.

Moreover, it could impact on the South African fiscus in terms of Eskom’s demands for government guarantees or recapitalisation and lead to a “death spiral”.

However, the study says this is not unique to South Africa as globally the energy sector is seeing new and cheaper energy generation options as consumers move away from more traditional electricity supply.

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