Responses to the electricity oversupply

  • Year: 2017
  • Publication Author(s): Neva Makgetla, TIPS Senior Economist
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Since 2011, Eskom has experienced a sharp decline in demand, while the electricity-intensity of the South African economy has fallen by a quarter from 2005 to 2017. This briefing note analyses the factors behind the fall in demand and, on that basis, a range of strategic responses. It concludes that it would be unsustainable in economic, environ-mental and social terms to fall back on the historic solution of boosting demand by subsi-dising new investment in metal and coal refineries.

Instead, Eskom has to develop a new business model that takes into account current reali-ties – in particular the decline in metals refining due to higher electricity costs and the end of the commodity boom, as well as efforts to reduce greenhouse gas emissions. These realities mean Eskom will have to adapt to more or less stagnant electricity demand for the foreseeable future. To that end it should adopt smaller-scale and more flexible genera-tion technologies.

To promote future growth also requires that electricity supply be far more closely aligned with industrial policy. That would entail substantial modifications in current processes for determining tariffs and the allocation of electricity. The aim would be to prioritise projects that support industrial deepening and inclusive growth, which in turn would sustain Eskom over the longer run.

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