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Send  Share  RSS  Twitter  14 Nov 2011

ENERGY: High Electricity Pricing Could Stunt SA Economic Growth

 





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With the high electricity pricing at the moment, it has unfortunately been predicted that the recent CPI figures have all but put a hold on an expected rate cut at the end of the year. A large component of the CPI is housing and utilities.

This figure comprises five sub-sectors: actual rentals for housing; owners' equivalent rent; maintenance and repair; water and other services; and electricity and other fuels. One of the major reasons for this particular sector contributing so much to the final 5,3% August year-on-year CPI figure for is the increase in electricity prices.

High Electricity Pricing a Major Concern


A major concern for the local economy is the effect these continued price increases will have on the competitiveness of South Africa. Considering the already stringent labour legislation South African companies face and the uncertainty in the exchange rate, the increase in electricity could not come at a worse time.

Comparatively, the price of 1kWh of electricity in the United States is $0,112c whereas the same unit would cost $0,171c in South Africa. This is further exacerbated by the fact that China sells renewable energy for a price of $0,16c per kWh. Not only is it cheaper, its greener too. Considering the fact that renewable energy is considered more expensive to produce, is South Africa doing enough to combat the current power shortage‘

The lack of infrastructure in Africa is also a concern. The entire continent has the same power generation capacity as Germany. The lack of investment in this area has resulted in insufficient production and poor maintenance of the current infrastructure. Improvement to this vital sector of the economy and further development will have far reaching consequences for the growth of the continent. Recent investments in mining across Africa will count for nothing if the power required to run these numerous operations is not available.

Whilst the overall picture appears bleak, there has been movement on the investment front. Apart from the power stations planned for South Africa, namely Kusile, Medupi and the Ingula Pumped Storage Scheme, there are approximately seven projects listed by the UN underway in Africa. While this is positive, it is unlikely to make a significant impact on a continent where only 5% of the urban population has access to electricity.

High Electricity Pricing Set to Continue


Going forward, it is likely that South Africa’s electricity woes will continue in the short to medium term. The two new power plants are expected to be completed in 2013/2014. This follows a general rule of thumb that it takes approximately eight years to build a coal fired power plant. Alternative energy sources will need to be made a priority to meet demand going forward.

Current trials are underway on solar power, and there are talks of nuclear power becoming a viable option again, though the lead time to construct a nuclear power plant is much the same as coal. Economic growth is likely to be stunted until such time as the energy crisis is resolved. Even though there is a concern over the high electricity pricing, there is an opportunity for government to work with privately run energy producers to assist in the alleviation of energy demand, thereby supporting economic growth.

 
 
 
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