ENERGY: Solutions for Businesses to Keep the Lights On
Recent Gauteng Business News
Eskom's request for an increased 2015/2016 tariff hike of 25.3% from July is being mulled by regulators, who have to weigh up the prospect of the national power utility falling further into debt if it cannot generate additional revenue.
Berrie de Jager, head of natural resources at Standard Bank, Personal and Business Banking, says that in 2009, when faced with a similar request, the National Energy Regulator of South Africa (Nersa) granted Eskom 31.3%. "Traditionally, electricity wasn't a core issue for business. But ask business owners what is keeping them awake at night and they will often mention the impact of electricity on their bottom lines," says De Jager.
The risk is that further large electricity price hikes will be passed on to consumers, who are already struggling to pay their bills. An annual average price increase of 12.69% for 2015/16 has already been approved. But there are solutions businesses can employ to ensure they keep the lights on and at the same time, do not scare customers away with higher prices.
It is becoming increasingly important to be able to measure electricity utilisation so businesses know exactly what their minimum power thresholds are. They should then consider alternative sources of energy, like solar, to ensure they can meet that minimum threshold. "Many companies are moving to the measurement of electricity utilisation processes on an hourly basis to learn about where their peaks and valleys are in order to understand their utilisation better," says De Jager.
The benefit of this approach is they can use conventional sources of supply when they are available. Yet, when there is no power, they will still be able to ensure they can operate. The idea is to become partly self-sufficient from an electricity supply perspective by reducing the total units of electricity used and also limiting the price paid by investing in appropriate self-generating technology, like photovoltaic panels (PV).
In this way, businesses will be able to partner with customers on the journey of ensuring the country will have enough energy to cope in the future. Just lopping the extra price increases on to consumers will, ultimately, not achieve this key objective for all the country's citizens - corporates and individuals alike.
"Any cost increases above expected nominal growth rates in the economy (of nothing more than 6% according to most experts) are going to put businesses under further pressure. Higher inputs from electricity price hikes only dilute net profitability further. This filters down throughout the system, including the ability to create jobs and invest," says De Jager.
Facing a dilemma
Thanks to this businesses will be faced with a dilemma as they cannot have their net profitability diluted - especially when faced with stiffer competition. There is not always a deliberate re-pricing effect, however, each industry is different. The unit costs of production in manufacturing, for example, will be very different to retail. For sectors like manufacturing, if the same number of units are produced at a higher cost, the pressure is felt almost as the next order comes through. "It has to be passed on quickly, or else they will struggle," says De Jager.
But increased incidences of load shedding are making it critical for all businesses to rethink their operating and funding models. In the conventional model, electricity was accepted as an operating expense but companies now need to incur capital expenses when they invest in self generating power solutions.
In recent months there has been bigger demand by businesses for generators to prevent further losses arising when there is downtime. "Energy security and cost security are extremely important and we are therefore becoming more innovative in finding funding solutions for electricity and back-up electricity," concludes De Jager.
Business News Sector Tags: Energy|