Sectoral electricity elasticities in South Africa: Before and after the supply crisis of 2008

Abstract

In this paper, we estimate the price elasticity of electricity for various industrial sectors of the South African economy from 2002 to 2011. The data used include sectoral electricity consumption data and electricity tariff data, both courtesy of Eskom as well as output data based on national statistics. The most important contribution this paper makes is that it includes the period after the sharp rises in electricity tariffs in 2007/2008 following a period of load-shedding and insecurity in electricity supply. Previous studies have included data only until 2007 and, for the most part, have found statistically insignificant, positive elasticities. However, for the period post-2007, we found statistically significant and negative elasticities for 9 of the 11 sectors considered. Our results show that the majority of industrial sectors have become much more sensitive to changes in the price of electricity following 2007/2008, indicating to policymakers that tariff restructuring might influence consumer behaviour significantly.