This week Eskom presented its case for a further 10% increase in the electricity price, on top of an already-approved 12% increase. While that is a lot of money for almost every one to fork out over the next two years, believe it or not South Africa isn’t the country with the most expensive electricity in the world.
That honour goes to Italy, according to statistics and research company Statista, which reckons that Italians pay $0.21 (R2.56) per kilowatt hour. Before Eskom’s price hike, South Africans at the end of 2014 paid $0.08 (about R1) per kilowatt hour on average.
Of the selected countries however, South Africa did have the biggest increase in the price of electricity for the period, according to NUS Consulting.
But how does South Africa stack up against its neighbours? According to Frost & Sullivan’s African Electricity Pricing Analysis, SA ranks rather low on the list when it cost to being the most expensive on the continent.
As Eskom applies more pressure on the public to help fund its upkeep of Open Cycle Gas Turbines, NUS Consulting Group’s forecast for South Africa thinks things won’t get better soon.
“Electricity prices will continue to rise despite a slowing economy, as supply challenges persist. The short and long term outlook for electricity is for prices to increase as Eskom continues to deal with generation and infrastructure costs. NERSA (National Energy Regulator of South Africa) has applied a cap on gas prices (cost of gas per unit) to protect consumers, but approved allowable revenue of R1 billion for July 2014 to June 2015.”
While it isn’t specifically implied, there could be a correlation between the cost of electricity and its availability in Sub-Saharan markets.
“Countries in Sub-Saharan Africa have varyingly low levels of electrification. Approximately 42% of the population of Sub-Saharan Africa has access to electricity, compared with approximately 65% in South Asia and more than 90% in East Asia. The main reasons for low rural electrification levels is the low in-country generation capacities coupled with weak, damaged or underdeveloped electricity transmission and distribution infrastructure,” said KPMG in its Sub-Saharan Africa Power Outlook 2014 report.
With Eskom’s proposed increase in the electricity price, you might be wondering how that correlates with South Africa’s Consumer Price Index (CPI) or inflation rate. Electricity use and billing management company PowerOptimal created a graph to show just that.
The company notes that Eskom’s tariff increases were relatively in line of below inflation from 1987 until 2008, after which the price of electricity increased sharply.
“From the 2008 electricity crisis onwards, there is a clear and sharp inflection point for electricity tariffs in South Africa. From 2007 to 2015, electricity tariffs increased by 300%, whilst inflation over this period was 45%. Thus electricity tariffs tripled in 8 years,” it notes.
It further explained that if the additional increase for 2015 (another 9.58% on top of the 12.69% already approved by Nersa) is approved, this will mean that the total increase in electricity tariffs from 2007 to 2015 would be 335%.
The same will be for the tariff increases applied for 2016/17. “This will mean that the total increase in electricity tariffs from 2007 to 2017 would be 495%, compared to 74% for inflation over the same period. Thus electricity tariffs would have increased 5-fold in 10 years.”
According to PowerOptimal, besides having to pay the hiked prices once they are approved, is to simply reduce our dependence and use of Eskom’s energy supply.
“It is safe to say that we can expect to see over the next several years: (a) a continuation of the current electricity supply shortages (read: load shedding); and (b) higher-than-inflation electricity price increases. We will all need to start thinking about how we can contribute to reducing demand and minimising the impact of the supply constraints.”
The important thing, though, is that even if our electricity looks cheap by international standards, everything is relative. South Africa’s annual Gross Domestic Product (GDP) per capita is $12 700, while Italy’s (relating to the first chart) is $28 376. Which essentially means Italians can afford to pay for their supply. Theoretically – it should be remembered the country is still recovering from a devastating depression post-2008 which has depressed wages and sent prices through the roof.
The biggest problem is that South Africa’s electricity prices looks set to keep on climbing.[Image: CC by 2.0/Tony Hammond] Sources: Statista, Frost & Sullivan, NUS Consulting Group, KPMG, PowerOptimal]