The supply of electricity by Eskom: The impact of load shedding and higher prices on the South African economy

Abstract

This study investigates alternative ways to manage the electricity supply by the South African energy provider, Eskom, with specific focus on the choice between higher tariffs and load shedding. Both choices will harm the country’s economy, and optimal managerial choices are, therefore, essential. The empirical research applies Computable General Equilibrium models (CGE). Scenarios on both price increases in electricity and supply reductions in supply were planned to determine what their effect would be on the country's economy as a whole, on specific industrial sectors and the effect on households. Estimates suggest that the supply of electricity in the country should increase by at least 10% to sustain the grid and thus avoid power cuts. The price increase approved by the national regulator,however, will be too little to increase supply and neither will it compel consumers to use less.This price increase will reduce electrical consumption by only 3.3%. On the other hand, if a 10% decrease in the output of electricity is permitted through load shedding, for example, the negative effects could be even more severe. This would be especially true of sectors that are electricity intensive, such as mining and manufacturing. When comparing these two scenarios,increases in the consumer price of electricity would be more preferable than electricity reduction through power cuts.