Forecasting electricity demand in South Africa: A critique of Eskom's projections

Abstract

Within a short period, Eskom has applied to the National Energy Regulator of South Africa (NERSA) for the third time since the 2008 electricity crisis, proposing a multiyear price determination for the periods 2010−2011 and 2012−2013. The new application, submitted at the end of September 2009, motivated for the debate of strategies with which the consequences of the proposed price hikes could be predicted, measured and controlled. In his presentation to Parliament in February 2009, Eskom's then CEO, Mr Jacob Maroga presented the current energy situation in the country, the reasons for the crisis in 2007−2008, as well as the challenges of the future. The purpose of this paper is to contribute some new ideas and perspectives to Eskom's existing arguments regarding the demand for electricity. The most important issue is the fact that Eskom does not sufficiently take into account the impact of the electricity prices in their electricity demand forecast. This study proposed that prices have a high impact on the demand for electricity (price elasticity of -0.5). Employing similar assumptions for the country's economic growth as Eskom, the results of the forecasting exercise indicated a substantial decrease in demand (scenario 1: -31% in 2025 and scenario 2:-18% in 2025). This study's findings contrasted significantly with Eskom's projection, which has extensive implications as far as policy is concerned.