Eskom’s latest round of price increases

The business case for implementing energy efficiency is becoming stronger year by year as Eskom continues to raise electricity prices and energy efficient technology continues to become more affordable. With current tariffs and incentives, it is very reasonable to expect return on investments in the first year of implementation in excess of 50% (or paybacks below 2 years).

Eskom’s latest multiyear price increase application to NERSA is a 16% year on year increase for the next five years and a further 20% year on year for the five years after that. Recent reports even suggest that Eskom will only start to implement inflation based price increases in as many as 15 years time. A company that is currently paying in the region of 80c per kWh, will be paying over R2.00 a kWh in as little as five years time and almost R4.00 per kWh in ten years time. The chart below shows how energy prices are expected to increase over time.

Whilst many companies might look at this as doom and gloom, the other school of thought is that the multiyear price application brings stability to energy efficiency investments, as accurate financial models can be developed and return on investments are very attractive.

Companies in South Africa are notoriously wasteful of electricity due to historically low electricity prices. This provides an excellent opportunity for companies to negate a large portion of the tariff increases by implementing energy efficiency technology. The best place to start, to achieve the best return on investment and largest saving is to understand how electricity is currently used within your company and to develop an action plan based on detailed energy assessments that identify and quantity opportunities within an organisation.

By developing and implementing an energy management plan, companies should expect to reduce overall energy consumption by between 20% and 50%. This is significant, especially when one looks at the next 15 years and how prices are expected to rise.

On a closing thought, a project with a 2 year payback period now will multiply your money 10 fold over the next fifteen years. This is a financial return of some significance!

By Ed Gluckman

About the author:

Ed Co-founded Terra Firma Academy and serves as its acting Dean and Managing Director. Ed is a leading expert on environmental strategy and advises some of the largest companies from various industries on how to integrate environmental sustainability into the fabric of their business. Ed’s expertise extends to the carbon markets and carbon project development as well as water efficiency and has designed and given numerous courses on these topics. Ed has been involved in environmental education for more than five years and has been pivotal in designing courses aimed at creating a steady stream of green professionals in the carbon, energy, water, residential and carbon projects areas.

Ed co-founded the Carbon Protocol of South Africa (a non-profit collaboration) which sets the standards for the calculation, verification and reporting on greenhouse gases in South Africa. Ed has a law degree (LLB) from Stellenbosch University and uses this knowledge to stay on the cutting edge of policy and legislative development. Ed is married with two children.