The economic output of South Africa is putting us in double jeopardy and our only rescue is to increase productivity. The recent Eskom electricity price hike of 9.4% has resulted in a lot of anger and negativity from South Africans but Relight Energy’s Director, Tristão Abro, is in the minority camp calling for punitive increases.
In short, his argument is that the electricity price increases will force us as a country, to find ways to be more energy conscious, and therefore be more efficient and productive both as individuals and as businesses.
He explains that there are numerous comparisons that can be made regarding our electricity pricing in global terms and many reports that sometimes provide conflicting comparisons. What is certain is that RSA is a predominantly coal energy generating country and it would be more relevant to compare ourselves to our peers. Another certainty is that our electricity tariffs are already low when compared globally.
Putting this into figures: life cycle costs developed by the US Energy Information Administration (EIA) in June 2015 indicate that the prevailing underlying cost of coal produced energy is 9.5 US cents/kWh. At current exchange rates and applying the approved 9.4% increase, our tariff will be at 7.5 US cents. What is clear is that we are not even covering costs at this rate! This shortage of generation capacity is negatively affecting our GDP, growth, and productivity.
Furthermore, if we have to compare the tariff last year to the soon to be increased tariff, our tariff will actually have declined in US$ terms. Since most of our costs are US$ based – from commodities to equipment – we can’t avoid the exchange rate impact. The only way to improve our exchange rate is to improve our economy through productivity. This will translate into real growth and GDP.
We also have to consider our efficiency in using energy and here we lag far behind the world. Our energy used to be so cheap that little attention was paid to efficiency in use and design, in industry, buildings and home.
The crux of the matter is that by increasing our energy efficiency, we can improve our productivity across the economy.
Despite our increasing energy costs, we are still slow to change. This slowness can be attributed to the cost of changing. Consider lighting, which is relatively low hanging fruit.
- At worst, businesses choose to avoid maintenance, thereby reducing light levels by simply removing light sources, i.e. globes, in favour of saving on maintenance and electricity consumption. The cost of this however is a loss of visibility and productivity.
- One step up from that are those that replace high wattage lamps, with lower wattage lamps. Again, this results in reduced visibility.
- There are those that upgrade extremely old technologies to fluorescent. This is more efficient and drops consumption, but maintenance continues to increase ownership costs.
- Switching to LED can be daunting. Even cheap LED purchase costs are high compared to fluorescent. And cheap products may result in lower light levels and visibility, and increased maintenance and replacement costs.
- High quality (and expensive) LED results in the best light quality and most productive cost of ownership.
- Daylight delivers even greater benefits all-round, allows for lights to be switched off, and during the day avoids the impact of power outages. Eskom’s CEO, Brian Molefe recently commented that the 9.4% increase will not assist with Eskom’s sustainability and will have “operational consequences”.
How many companies can identify with either of the first two points above?
To conclude, higher electricity prices will force a focus on energy efficiency and secondly, allow Eskom to have funding for future investment in energy generation capacity in the country which will result in increased productivity, growth, and GDP for South Africa.