Differential Electricity Pricing and Energy Efficiency in South Africa

By international standards the economy of South Africa is extremely energy intensive with only a few countries having higher intensities. SA’s primary energy use per unit of GDP is amongst the highest in the world. The high energy and electricity intensity of the economy partly reflects SA’s resource endowments (in particular the abundance of coal) but is also a function of the historical under-pricing of coal and electricity by the authorities. South African mining & industrial electricity efficiency is particularly concerning and considerably lower than the global average. This paper sets out to fill a significant gap in the South African energy literature by highlighting the importance of incorporating electricity demand factors as part of the country’s energy policy and electricity planning horizon. The paper focuses its attention on modeling the electricity consumption of SA’s industrial and mining sectors given these account for the lion’s share of electricity demand. A differential electricity pricing policy which targets electricity intensive industrial and mining activities (as practiced in China since 2004) is viewed by the author to be a superior policy to blanket electricity price increases administered by authorities in an effort to encourage electricity savings and improve energy efficiency in South Africa.