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

Abstract

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 examp le, this immed iate 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 mo re specifically on an energy utility provider's core business, it is important to determine its effect on each of these entities. The develop ment of an analytical Cost of Production Tipping Po int (CoPTP) model, combined with the economy-wide modelling capabilit ies of an Applied General Equilib riu m (A GE) 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 framewo rk 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 regard ing imp lications of potential changes in customer operational environ ments 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.