Why Eskom price hikes are not high enough
The economic output of South Africa is putting us in double jeopardy and our only rescue is to increase productivity, says Tristão Abro, director at Relight Energy.
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.
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