Global growth consulting company Frost & Sullivan supports the acknowledgement from the recent Energy Summit that electricity prices in South Africa must keep increasing if the current power problems are to be addressed. Not only does Eskom need to fund at least 15% of what it needs for its capital expenditure programme through these additional incomes, but more expensive electricity will also alter consumer behaviour.

In a soon to be published white paper, Frost & Sullivan energy industry analyst Jeannot Boussougouth, finds that Eskom needs to raise $7.4 billion through these higher prices. However, he acknowledges that raising tariffs will never be popular or simple, regardless of how it is done.

“Given the social implications of such measure, the National Electricity Regulator of South Africa (Nersa) has been reluctant to increase electricity tariffs to a cost-reflective level,” Boussougouth says. “This view is backed by the Reserve Bank because of the likely inflationary effects. However, if all stakeholders are serious about tackling the electricity crisis, the increase of electricity tariffs must be pursued.”

Boussougouth contends that Eskom and government need to identify key, skilled individuals to fight for the continued increase of tariffs. Such individuals will not be universally popular or obtain instant success, but they must be willing to sacrifice short-term recognition for long-term goals.

“For instance, Margaret Thatcher was heavily criticised during her term as British prime minister for taking economic decisions that were against the generally accepted mindset,” Boussougouth points out. “But today she is lauded as the Iron Lady that revived a sluggish British economy.”

The white paper also makes the point that there is no need for South Africa to try to raise prices to the level of the most expensive electricity suppliers in the world. What is required is a cost-reflective tariff that will allow Eskom, and potentially independent power producers as well, to fund new projects.

Additionally, while the electricity crisis will disrupt consumers’ use of power, this will potentially turn them into more energy conscious individuals. Making end-users pay more will naturally cause them to find ways of reducing their usage.

“The South African electricity crisis could trigger an across-the-board deterioration in confidence for the country if the right measures are not implemented,” Boussougouth notes. “An increase in electricity tariffs must be welcomed.”