Impact of price on electricity consumption

Project name:
A focus on the relationship between electricity price and consumption

Service:
Economic impact assessment

Sector:
Energy

Area of Expertise:
Market analysis
Impact of regulatory decisions

Client:
National Energy Regulator of South Africa (NERSA)

Date:
2019

Country:
South Africa


The electricity sector has experienced a significant shift in pricing and consumption patterns over the past decade. After a sustained period of declining real electricity prices, electricity prices dramatically increased.

This dramatic increase in price has also corresponded with a stagnation, and then decline, in electricity consumption across sectors. These largely unanticipated consumption patterns have material implications for the ability of Eskom to recover required revenue, and point strongly to the need to more fully understand the key drivers of electricity consumption choices.

The National Energy Regulator of South Africa (NERSA) appointed Genesis to assess and understand the economic impact of Eskom’s MYPD4 Application. The purpose of the impact assessment was to understand the responsiveness of electricity consumption to electricity prices across different customer categories.

Genesis undertook a market and impact analysis to evaluate the electricity demand and consumption choices. This included, engaging with key customers from a variety of sectors to understand the impact of price increases on their electricity consumption and econometric modelling to assess the price elasticity of demand for electricity for Eskom’s direct customers and municipalities customers.

The findings of the study were key in understanding the role that price plays in shaping electricity demand and the extent to which the price increase request by Eskom would inadvertently impact on electricity consumption and revenues.

These findings were considered by NERSA and included in it’s Reasons for Decision regarding the MYPD4 tariff decision.

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