Electricity prices could stunt SA growth

High electricity pricing could stunt South African economic growth and impact on its competitiveness, credit insurance group Coface said on Monday.

Asking whether SA is doing enough to mitigate the impact of the current power shortage, Coface suggested that alternative energy sources needed to be made a priority to meet demand. 

"It is likely that SA'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," Coface senior ratings analysts Luke Marowitz said. 

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. 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," said Marowitz. 

The latest CPI figures released for August 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. 

"A major concern for the local economy is the effect these continued price increases will have on the competitiveness of SA. 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," said Marowitz. 

Comparatively, the price of 1kWh of electricity in the US is US$0.112c whereas the same unit would cost US$0.171c in SA. 

This is further exacerbated by the fact that China sells renewable energy for a price of US$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 SA doing enough to combat the current power shortage," Marowitz asked. 

The lack of infrastructure in Africa is also a concern. 

The entire continent has the same power generation capacity as Germany and lack of investment in this area has resulted in insufficient production and poor maintenance of the current infrastructure. 

Marowitz said improvement to this vital sector of the economy and further development would 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," he said.